Green Hydrogen Goes from Hyped to Low on Eye-catching Costs

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(Bloomberg) — A raft of projects to produce green hydrogen, a fuel billed as critical to reaching net zero, have been abandoned this year as expectations for tumbling costs failed to materialize.

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Governments and major energy companies have touted the gas as a way to clean up a swath of industries. But the uneconomic cost of production has forced multiple developers to scrap plans, leaving the nascent sector struggling to attract the billions of dollars it needs to meaningfully cut carbon emissions.

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“There has been a realistic assessment of the costs associated with hydrogen projects,” said Gniewomir Flis, an independent hydrogen analyst. “The industry has been over-promised and under-delivered. It is only natural that there is a backsliding and a natural cooling of some of the extremes that were promised.”

Green hydrogen, made by using renewable electricity to split water molecules, has been promoted as a potential solution to cutting emissions from almost anything that currently relies on coal or natural gas, such as steel production, shipping and even home heating.

“Hydrogen is a Swiss army knife,” said Eric Toone, chief technology officer at the investment committee of Breakthrough Energy Ventures, this month on Bloomberg’s Zero podcast. “If you have enough hydrogen and it’s cheap enough, you can do anything.”

Low carbon versions of the fuel can also be produced using equipment to capture low carbon emissions, or possibly by extracting them directly from the ground.

But the development remains more expensive than many expected. Analysts at BloombergNEF have increased their cost estimates for green-hydrogen projects in the US and the European Union by 55% this year, compared to 2022 forecasts. That depends on design and engineering processes that have turned out to be more complex than originally thought. In Europe, rising energy prices have also increased installation costs.

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As a result, hydrogen produced using clean energy is four times more expensive than that produced from natural gas, according to BNEF. It is not surprising then that most of the projects do not have a single customer who goes up to buy fuel. And without willing buyers, there will be no output.

“The commercial development of the liquid fuel market has proceeded much more slowly than expected,” Orsted A/S CEO Mads Nipper said earlier this year when he unveiled plans for a $175 million Swedish plant to produce hydrogen fuel for ships. “We couldn’t make long-term contracts to go out at constant prices.”

Other projects that have gone ahead include a hydrogen-ammonia export facility in Tasmania and more than a dozen developments planned by UK oil major BP Plc.

Shrinking Market

Last year, industry hype caused a wave of new hires. Ross Thomson, managing consultant at Ably Resources Ltd. in Glasgow, he saw a huge demand for management and engineering roles, and said his company was looking to fill more than 30 hydrogen-related jobs at a time. Now, it’s less than a dozen.

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“There was a lot of hiring pressure, but in the last few months there has been a decline,” Thomson said in an interview. “I firmly believe that hydrogen will take off, but not in the next few years.”

It would certainly help if government support was better organized and accelerated. Although governments have widely publicized hydrogen energy, wrangling over funding details has slowed progress. In the EU, it took years for officials to define what qualifies as green hydrogen. The US, whose Deflation Act allows more relief, went through a similar process.

There are signs of slow growth in this sector. Production of clean hydrogen is set to triple this year compared to 2023. But that is only enough to meet 1% demand. Most hydrogen is currently made from natural gas or coal, producing carbon emissions in the process.

“We’ve seen what hasn’t worked so far so we can focus on what you do,” said Sami Alisawi, a hydrogen analyst at BNEF. “The hype is gone. Now you can say the real work begins.”

—Courtesy of Gina Turner.

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