Hydrogen has long been talked about as a source of energy of the future. However, while scientists have expected hydrogen technology to become an important tool in the provision of “clean energy”, technology did not exist to make that happen at an affordable cost and on a wide scale. This is changing fast and governments are moving to support hydrogen-based power with substantial public investment and business incentives, presenting a multitude of opportunities for investors.
On the one hand, the demand for hydrogen will be driven by technological advances that will enable it to be used to reduce the carbon footprint of energy-intensive industries such as steel cement production. On the other, the use of hydrogen in energy production is expected to grow by four to 16 times from the current level. According to IRENA and the Hydrogen Council, this increase will equal about 19-80 exajoules (EJ) by 2050, corresponding to a capacity of 4TW-16TW for solar and wind energy.
Hydrogen can also be used for storage of energy, an important function in the course of carbon-neutral energy production. Indeed, production levels of renewables change based on weather, resulting in generating too little or too much power required at any one time. For example in winter, according to McKinsey & Co, solar energy generation produces 60% less electricity, while consumption is about 40% higher because of heating, as well as extra lighting needed while days are shorter.
When renewable energy production exceeds demand, excess power can be fed through an electrolyser for the production of green hydrogen, which in turn can be stored and then reconverted to electricity when renewable electricity production is low. This process makes hydrogen a key solution to the problem of season-dependent intermittency of renewable sources energy as well as a source of production flexibility.
This flexibility is important because without it renewable energy will not achieve the sustainability it requires to become a dominant source of energy. High proportion of renewables in the overall energy provision will create a requirement for long-term and seasonal storage, which can be used to produce electricity during the periods when there is not enough wind or sun.
Renewable power production and hydrogen are synergetic technologies, with the success of one facilitating the outcome from the other. An increase in the share of renewable energy in the overall supply of electricity will drive the cost of electricity down. This, in turn, will make hydrogen a more competitive option for the storage of electricity, leading to higher potential for renewables development and integration. This creates a strong opportunity for accelerating energy transition in the power sector.
However, hydrogen is not yet a serious competitive option for the energy sector. There are also additional hurdles on the regulatory side, infrastructure development and technological advancement. However, we consider hydrogen as a potential catalyst for value creation in the energy sector over the long term. We believe that strong political action towards decarbonisation should speed up the process of hydrogen becoming powerful and economically viable alternative source for energy.