“Looking at this large, growing market; the projects that we see emerging so fastly; the transport and the pipeline tasks in front of us—the infrastructure; and the industry use sectors just starting to be developed, it looks like we are all climbing the Himalaya and we have just left the base camp, but we are very motivated to go further,” Dr. Hans Dieter Hermes, vice president Clean Hydrogen with Worley, said as a guest on The POWER Podcast.
Hermes is “very excited” about the hydrogen market. Worley, an engineering company headquartered in Australia with a worldwide team of about 48,000 consultants, engineers, construction workers, and data scientists, is currently implementing more than 120 hydrogen projects worldwide, he said. While that number may seem large from a historical perspective, the growth in hydrogen projects required to decarbonize even a few of the sectors mentioned above is mind-boggling.
For example, Hermes, who is based in Berlin, said if Germany’s heavy-truck fleet were to be powered from hydrogen instead of fossil fuels, the country would need to ramp up today’s production of hydrogen by a factor of 100. “And I’m not talking about buses, not talking about trains, not even talking about fertilizer industry, chemical industry, or steel, or heating the houses, just only the heavy-truck fleet,” he said. As another example, Hermes pointed to household heating. To supply all German households with hydrogen heating fuel, existing production would need to be increased by a factor of 830. “This gives us an idea of the size of the task that is in front of us,” he said.
While many companies are investing in green hydrogen technology, high production costs currently pose a barrier to widespread adoption. Today, most hydrogen is produced from natural gas, which is typically considered grey hydrogen, or blue hydrogen when carbon capture technology is utilized. For green hydrogen production costs to come down, facilities will need an accessible and abundant renewable energy supply, and, perhaps even more importantly, further advancement and scale-up of electrolyzer technology.
Still, Hermes expects that to happen fairly quickly based on cost curves observed in other developing power sectors. Specifically, he pointed to the offshore wind industry as an example. He said 10 or 20 years ago, every offshore foundation was a pilot project and costs were very high. Nowadays, the industry is very mature and costs have come down dramatically. “I expect that the same will happen with the hydrogen sector. We already see a very steep cost reduction,” he said. Cost reductions to date have come by integrating lessons learned from earlier projects and also through new developments that have been triggered by a growing market demand.
Today, it generally takes more than 50 kWh to produce 1 kilogram of hydrogen using an electrolyzer. Hermes said that in the last few years costs have come down from a starting point of about €10/kilogram of hydrogen in certain situations in northern European countries to some projects today producing hydrogen for €2/kilogram. “This is promising and it’s not the end of the curve,” he said.
“In a few years, we might see electrolyzers that use 20% less energy to produce the same amount of hydrogen. This is the same that has happened and has been experienced in other sectors and it will happen here,” said Hermes. “This has a huge effect on the whole energy demand that you need to produce hydrogen, and this again has a huge effect on the cost basis, and the cost will come down by that.”
Looking ahead to 2050, Hermes sees several “boosts and barriers” along the way. “On the positive side, I could already mention technology development, the market development, and cooperation,” he said. “On the barrier side, the regulatory frameworks, and the infrastructure, and how to get finance into that sector.”
Hermes suggested hydrogen technology development is being accelerated due to higher demand. He indicated that some startup companies are collaborating and building off of each other with research being done on new types of electrolyzers. Significant improvements in performance and energy efficiency have been witnessed in advanced plants. “We see innovation along the entire value chain, and I see this definitely as a boost for the whole market and the sector,” he said.
Concerning markets for hydrogen, Hermes said there’s a high demand by off-takers from all sectors. “This is a nice example of good cooperation between government and industry,” he said, suggesting government strategies to promote hydrogen usage has triggered large corporations in the steel and chemical industries to increase demand. “This also causes then a massive clean hydrogen supply from emerging markets, because we know that Europe is blessed with industry and infrastructure, but not with sun and wind,” said Hermes. “That means that there [are] new players coming into these markets that have these conditions that are needed to produce hydrogen. So, green hydrogen production in the future will be based on offshore wind, for example, in Northern Europe and Northern America—that makes very much sense to do that—and based on solar and onshore wind, for example, in the Mediterranean, Middle East, North Africa, and Africa region, and Australia,” he said.
The third element that Hermes finds promising is the cooperation taking place between industries to advance new technology. He mentioned a consortium called Liquid Wind that includes Worley, Alfa Laval, Carbon Clean, Haldor Topsoe, and Siemens Energy. Worley is providing basic engineering services for Liquid Wind’s first project in northern Sweden, which will be one of the world’s first commercial-scale eMethanol facilities. Worley and its consortium partners intend to design a standardized and modular facility concept that can be efficiently replicated and assembled for subsequent projects. Liquid Wind plans to establish 500 eMethanol facilities by 2050. “That is a cooperation between different technology partners,” Hermes said, noting that the aviation industry is also involved, as it intends to utilize the green fuel produced.
“On our homework list, there is the regulatory framework,” Hermes said. “We will need to see activities to enhance market pricing for carbon and also to have more emission limits. And for those countries where the electricity is mainly connected to a large electricity grid, which is the U.S., Europe, and Asia, we need to remove levies and taxes on green electricity to not make the electricity that goes into the electrolyzer too expensive, because that will cause an expensive final price for hydrogen products.”
Hermes said implementing “more trade facilitation instruments” is also important. He noted that many large companies are financing projects today using their own money. However, rolling out the number of facilities needed to decarbonize the world will require banks and other institutions to finance projects.
At present, medium-sized developers can’t get the money necessary to begin projects “because they cannot predict a hydrogen price.” Therefore, Hermes said it will be important to have trading platforms in which governments can guarantee off-take prices for a certain amount of time so that developers can make the necessary calculations and get the loans or funding credits they need to move forward.
The government support would not be permanent because “the financing is there,” Hermes said. “We all know this. Everyone is going towards ESG financing, which is environmental, social, governance, and every private person willing to invest money is asking their bank if this is also ‘a green investment or could I have something more sustainable?’ And the whole finance sector is turning towards that, which means the financing amount is there. It’s just the regulatory frameworks and the infrastructure for that needs to be designed in a way that project financing can happen.”