Unleashing the power of hydrogen for the clean energy transition

Hydrogen energy storage gas tank for clean electricity Hydrogen energy storage gas tank for clean electricity

The power of hydrogen to accelerate the energy transition is unprecedented.   Clean hydrogen—produced using renewable energy or processes with low gas emissions—has been hailed as a potential game changer.   It enables the clean production of industrial commodities and can be used to decarbonize transportation modes such as shipping and aviation. Hydrogen can be used as an alternative to fossil fuels, like coal or natural gas, or to make ammonia—a key component of synthetic fertilizers. 

While many benefits are ascribed to hydrogen, what will it take to unleash them, particularly in developing countries? We have identified three main challenges that need to be overcome through concerted action.  

Hydrogen needs to get cleaner

Currently, about 98 percent of all hydrogen is produced using natural gas and coal– resulting in carbon emissions comparable to Japan’s or about 3 percent of the world’s total CO2 emissions. To meet the Paris Agreement targets, hydrogen production needs to be decarbonized, and hydrogen produced from renewables is the most promising option, to be supplemented with low-carbon hydrogen.

Moreover, total hydrogen demand needs to increase fivefold between now and 2050. To be on this pathway, the installed production capacity for green hydrogen needs to increase 75-fold between now and 2030.

Hydrogen ChartHydrogen needs to become cheaper  

Green hydrogen is currently considerably more expensive to produce than grey hydrogen—produced with fossil fuels. Typically, green hydrogen costs today about 4-5 USD/kg at good locations, two to three times what grey or blue hydrogen—produced from natural gas and supported by carbon capture and storage—production.

The good news is that green hydrogen costs are projected to fall rapidly to 2-3 USD/kg by 2030 due to learning effects that enhance technology performance and production processes as well as economies of scale. 

One way to make clean hydrogen more affordable is to impose greenhouse gas (GHG) emission pricing for grey hydrogen, thereby closing the competitiveness gap between green and grey hydrogen. Government subsidies will help but they come with a caveat. OECD countries and China have already announced an estimated $100 billion in subsidies to support clean hydrogen, potentially drawing investors away from developing countries.  

Green hydrogen production is capital-intensive and requires a large amount of renewable power. The annual production of a million tonnes of green hydrogen requires 10 gigawatts of electrolyzers, 20 gigawatts of renewable power generation, and $30 billion in investment (also known as the “1-10-20-30 rule”). Replacing all grey hydrogen that is used today with green hydrogen would require all solar and wind power generation capacity currently in operation.

Reaching the Finish Line

A third challenge is that too few green hydrogen projects are reaching the finish line.

Despite several announcements, only a few projects have been realized or are under construction - in Chile, Egypt, Oman, Saudi Arabia, and UAE. Many large-size projects are in the pipeline. Seventeen projects of more than one megaton (Mt) of hydrogen per year are in planning; six of these are in Africa, South America, and Central Asia. Roughly half of these are in the concept stage, and the other half are in the feasibility stage. Put together, there are more than 500 hydrogen projects that aim for commissioning by 2030.

The number one risk in green hydrogen projects is offtake. What guarantees are in place for investors to ensure that green hydrogen will find buyers and how much are they willing to pay? The production cost of green ammonia, for example, is significantly higher than for ammonia produced using fossil fuels. There is currently not enough demand for such green products. Nor is it easy to recognize green or clean from grey with a current lack of standard and certification systems for green hydrogen and its products.  

It's About Action

While these challenges may seem insurmountable, the falling cost of renewables, the increasing demand for energy, and the climate change emergency have created unprecedented momentum for clean hydrogen. 

With the global demand for clean hydrogen set to expand rapidly, developing countries can prepare now and design enabling frameworks and risk mitigation instruments. 

The World Bank Group stands ready to support governments and the private sector with investments and regulatory solutions and developing quality project pipelines. The Bank is currently providing upstream project preparation support in Brazil, Chile, India, Mauritania, and Namibia, amongst others, with financing from the ESMAP Green Hydrogen Support Program. Client country interest is strong, and the portfolio is expanding.

The World Bank is also helping client countries with mechanisms that have proven to work, such as competitive auctions, feed-in tariffs (FiT) which provide guaranteed prices for producers, and contracts for difference (CfD) that pay the difference between production cost and market price

Next week, we will organize the first partner meeting of the Hydrogen for Development (H4D) initiative in New Delhi. The partnership will help catalyze significant financing for hydrogen investments in the next few years, both from public and private sources. The partnership will foster capacity-building and regulatory solutions, business models, and technologies toward the rollout of low-carbon hydrogen in developing countries.   Through H4D, developing countries will gain further access to concessional financing and technical assistance and advice to scale up hydrogen projects.

This will be another step toward unleashing hydrogen for the clean energy transition.  

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Dolf Gielen

Senior Energy Economist, ESMAP

Priyank Lathwal

Young Professional, ESMAP

Silvia Carolina Lopez Rocha

Analyst, Development Economics and Chief Economist

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