QUINTIN HOBBS: Hydrogen is best hope of winning race to net zero

We’ve been talking for decades about using earth’s most abundant chemical element as a clean energy source. Now, hydrogen isn’t just getting some attention: it’s become our best hope of driving the world’s decarbonisation imperative and reaching net zero by 2050 — and increasingly, reducing our dependence on imports of fossil fuels from volatile regions.

But why hydrogen, and why now? The biggest driver of the hydrogen agenda is low-carbon hydrogen’s huge potential to help advance decarbonisation, especially in so-called “hard-to-abate” sectors like transportation, mining and heavy industry. The current spike in oil prices has only strengthened the case for an accelerated transition to hydrogen.

It’s important to note that there are many ways of producing hydrogen, and they’re not all equal. So-called grey and blue hydrogen are produced using fossil fuels. In fact, almost all the hydrogen produced today is grey hydrogen, which is mostly used to produce ammonia and fertiliser, and to refine oil. Green hydrogen, on the other hand, is produced from renewable energy sources — and that’s where the opportunity lies. 

The challenge is to find a replacement for fossil fuels as an energy-dense store of energy. Our global energy system is currently largely focused on the extraction, processing, storage, transportation and use of fossil fuels. There’s no doubt that this needs to change, and that renewables will ultimately be the next main source of energy. 

How this energy is stored for later use is the subject of much debate. There are currently two schools of thought: either lithium-ion batteries, or green hydrogen or ammonia.  Our view is that both of these will coexist as complementary technologies in a post-fossil fuel world. We see large utility scale (>1,000MW) integrated wind and solar farms feeding electricity into electrolyser “giga factories” that turn seawater into hydrogen and oxygen, This will feed a pipeline and export system, and some of this hydrogen will be converted into ammonia, which is easier to transport.

Countries like SA and Namibia have fantastic natural endowments — large open tracts of land, high wind and solar potential, and ready access to sea — which makes them ideally placed to play a leading role in the global hydrogen economy. To take advantage of this, it’s important that governments put in place more incentives to allow the private sector to invest.

Although the hydrogen transition will require significant investment in new and repurposed infrastructure, the scale of green hydrogen production is set to ramp up dramatically this decade. Green hydrogen production projects are booming worldwide, with hydrogen demand expected to increase significantly by 2030, to then boom in the ’30s and ’40s, driven by new demand centres.

The biggest challenge with green hydrogen is that it’s significantly more expensive to produce at the moment than its grey and blue cousins. But that’s changing too. There are three main factors driving lower production costs and the viability of green hydrogen: decreasing renewable costs, with solar and wind power costs expected to drop by between 15%-40% in the next three years; the same significant drop in costs for the electrolyser capex; and the increasing cost of CO₂ taxes making the alternatives more expensive. 

Our modelling and scenario analysis of green hydrogen costs suggests that green hydrogen will reach cost parity within the next 6-8 years, and rapidly become cheaper thereafter. So what do ordinary businesses do? Hydrogen is already in broad use in industrial applications, either as-is or through conversion into ammonia; there’s already a value chain in place. Ahead though, we see five major uses for hydrogen across a range of industries:

• Power generation: As a long-lasting and reliable source of energy, hydrogen offers a new solution to our need to store power, as an alternative to lithium-Ion batteries. It also offers a way to stabilise shifts in energy production, which is one of the big challenges of current renewable energy generation methods. The dispatchable nature of this power source (that is, the power output supplied to the grid can be adjusted on demand) is a holy grail in power grids of the future.

• Transportation fuel: Hydrogen can be used as energy storage to power cars and other vehicles. We’re already seeing a major mining company using hydrogen to power its enormous tipper trucks, and leading automotive manufacturers already have hydrogen powered fuel cell vehicles on sale today. Although aimed at early adopters, both have proved the viability of hydrogen in real-world transport applications.

• Feedstock for industrial processes: hydrogen is used in several industries as a feedstock. Refining and steel production are among the best-known sectors that are already using it in their process flow.

• Energy source for industries: hydrogen can be burnt to produce heat as a substitute to natural gas. Used for this purpose, hydrogen has the potential to significantly reduce greenhouse gas emissions.

• Energy source for heating buildings: Gas hydrogen can be used to heat buildings, including residential houses, schools, hospitals and commercial buildings in regions where central heating is required.

Despite the higher cost and the steep levels of investment needed, our modelling indicates that demand for green hydrogen will grow to more than 500-million tonnes per year by 2050. As a result, a rising number of businesses are considering their hydrogen options. By being pioneers, they see real opportunities to seize a competitive advantage. 

Ultimately, decarbonisation is a sector disrupter and as such needs to be treated like any other strategic risk. It must be addressed at board and executive level, and managed as part of the overarching business strategy, and not left to a separate climate strategy team. 

• Hobbs is EY Africa strategy & transactions leader.