Green hydrogen is getting lots of buzz. But costs are a sticking point

The buzz around hydrogen has gotten increasingly loud in the past few years — many see it as an important tool in reducing the environmental footprint of heavy industry and helping economies hit net-zero goals.

The green hydrogen sector, which is centered on producing it using renewable sources of energy like wind and solar, has drawn particular interest and boasts some high-profile backers.

They include German Chancellor Olaf Scholz, who in 2022 called it “one of the most important technologies for a climate-neutral world” and “the key to decarbonizing our economies.”

In the world of business, multinationals from Iberdrola to Siemens Energy are also looking to make plays in green hydrogen.  

But while there’s a huge amount of excitement about the potential of hydrogen — the International Energy Agency describes it as a “versatile energy carrier” — there are also undoubted challenges.

For a start, the vast majority of hydrogen production is still based on fossil fuels, not renewables — a fact clearly at odds with net-zero goals.

And when it comes to green hydrogen specifically, production costs are a significant issue, and will need to be reduced in the years ahead.

Transporting hydrogen from production sites to users is another equally important factor to consider.

“Hydrogen is pretty expensive to move,” Murray Douglas, head of hydrogen research at Wood Mackenzie, told CNBC during an interview.

“It’s more difficult to move than natural gas … technically, engineering wise … it’s just harder,” he added.

Douglas is not alone in highlighting some of the hurdles in delivering hydrogen.

The U.S. Department of Energy, for instance, notes key challenges “include reducing cost, increasing energy efficiency, maintaining hydrogen purity, and minimizing hydrogen leakage.”

The DOE adds that more research is required to “analyze the trade-offs between the hydrogen production options and the hydrogen delivery options when considered together as a system.”

In relation to the logistics surrounding green hydrogen in particular, one area that will need attention is the location of production facilities.  

Often, these are earmarked for areas where sources of renewable energy are abundant — such as Australia, North Africa and the Middle East — but many miles away from where the hydrogen will actually be used.

Wood Mackenzie’s Douglas referenced transportation options when reflecting on the investment horizon for the next 10 years.

“You can obviously pipe it, but you probably need a dedicated pipeline,” he said, noting that this would likely need to be a new build and close to end-users.

The only other realistic option in this investment horizon, he said, relates to exporting the hydrogen as ammonia.

“You produce the hydrogen, the green hydrogen, and then you would synthesize it into ammonia with nitrogen,” he said.

The shipping of ammonia was, Douglas noted, “a pretty established technology and industry — there’s already a bunch of receiving ports in place.”

This ammonia could then be sold directly to end users, such as fertilizer producers.

An alternative option would be to “crack the ammonia back into hydrogen,” although this would not be without its own issues.

“As soon as you start ‘cracking’ back into hydrogen use, you start to incur some … quite big energy losses,” Douglas said.   

In a statement sent to CNBC, Jorgo Chatzimarkakis, the CEO of industry association Hydrogen Europe, was bullish about the prospects for green hydrogen.

He said it would “become a global commodity,” before stressing the importance of having “an efficient delivery system.”

Chatzimarkakis also highlighted the need for a certification program, because “green hydrogen needs to prove that it is sourced from renewable energy.”

Despite some clearly big obstacles, partnerships and programs related to the supply and distribution of green hydrogen are starting to take shape.

Earlier this year, for example, Greenergy and Octopus Hydrogen — the latter is part of the Octopus Energy Group — announced they had started a “green hydrogen delivery partnership.”

Elsewhere, German firm Enertrag says it’s been “operating a tanker and transport trailer to deliver large quantities of green hydrogen to customers” since 2021.

And back in 2022, Madrid-headquartered energy firm Cepsa said it would work with the Port of Rotterdam to develop “the first green hydrogen corridor between southern and northern Europe.”

Though the technology and knowledge for hydrogen production and delivery are there, one sticking point remains.

“The industry knows how to transport hydrogen,” Wood Mackenzie’s Douglas said, adding that the energy and chemicals sectors have been transporting it for “a long time — it’s not new, it’s just expensive.”

Expanding on his point, Douglas said getting production costs down is key. The lower those are, the more manageable transportation costs would become.

“I’m not sure if there’s any sort of magical … cost reduction technology that’s going to come into the transportation side of the equation,” he added.

“We’re not suddenly going to find … a better material to ship hydrogen through,” he said.

“If you’re liquefying it, you have to get it very cold, and that’s just expensive,” he went on to add. “If you’re turning it into ammonia, there’s a cost in there, and then there’s a bunch of challenges around toxicity.”

“They know how to do all of these things,” he went on to conclude. “It still just comes down to cost.”