Are Green Hydrogen Investments The Best Bet In The Future Of Energy?

Are Green Hydrogen Investments The Best Bet In The Future Of Energy? - Carbon Herald
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Major developments in the green hydrogen sector have happened in 2022 that is raising the question of whether investments in the fuel might actually be the investments in the future of energy. 

Analysts and researchers have seen the rapid growth in the production of green hydrogen as essential for leading economies to achieve zero carbon emissions by 2050. 

Relevant: 10 Best Green Energy Stocks To Invest In Now

Interest in green hydrogen has been steadily rising over the last couple of years with many leading economies announcing hydrogen strategies to decarbonize – Australia, China, Germany, the EU, Japan and South Korea, many of which include green hydrogen production targets.

Hydrogen can also have a multi-industry impact as the fuel can power cars, public transport, planes, pretty much everything, and has proven to be more efficient than fossil fuels. That is the reason why the oil and gas energy sectors have all expressed interest in hydrogen as an energy vector.

Some constraints, however, have been pulling back the large-scale development of green hydrogen. Some of them are high hydrogen production prices, high electrolyzer prices, high renewable energy costs in some places, cheaper fossil fuel energy in most places in the world, and a lack of fully developed transportation and charging infrastructure. 

Green Hydrogen Now Cheaper Than Natural Gas, Spurring Investments

While those arguments seem valid at first, the latest developments with Russia Ukraine war might turn into a catalyst of change for the green hydrogen economy. As Russia reduced its natural gas supplies to Europe amidst its invasion of Ukraine, the price of natural gas has soared over the past year. Meanwhile, the cost of renewable energy and electrolyzers used to produce green hydrogen continues to fall.

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According to an analysis from BloombergNEF that came out in July 2022, the levelized cost of green hydrogen produced with alkaline electrolyzers, not including any subsidies, is now cheaper than natural gas in eight European countries – Germany, Italy, France, the UK, Poland, Spain, Sweden, and Turkey.

The BloombergNEF’s report also found that Sweden and Italy are capable of producing the cheapest hydrogen in Europe, while Germany and Poland have slightly higher prices for green hydrogen production, reflecting their renewable energy costs.

The cheapest source of electricity across Europe is onshore wind, while solar is the cheapest in Turkey and the United Arab Emirates. Green hydrogen is not currently cheaper than natural gas in China, the US, or the UAE where natural gas prices are lower.

According to another report by Rethink Energy published earlier this year, the cost of green hydrogen will fall from about $3.70/kg today to just over $1/kg in 2035 and $0.75/kg by 2050. According to Wood Mackenzie, green hydrogen will be produced for $1/kg in some countries by 2030.

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Green hydrogen also has some preliminary advantages over natural gas that make it seem like the better investment choice for the medium and long run. Green hydrogen’s production costs are predictable and steady and also rely on the costs of renewable energy like solar and wind that has been falling over the last decade. Technological progress and widespread deployment are also driving down the price of electrolyzers.

That is in contrast with natural gas as a highly volatile commodity. Its price is manipulated by a few large players, such as Russia, that control global supplies. Any changes in dynamics of relations between countries could sharply change the price of natural gas in either direction which causes volatility, instability, global tension among consumers, and unpredictability. 

Green hydrogen’s current price advantage over natural gas and longer-term outlook that support deepening the gap of the price difference between the two commodities in favor of green hydrogen, makes short-term investment decisions easier. That is particularly when green hydrogen is replacing natural gas in industrial processes, heating, and energy production.

Relevant: Is Hydrogen The Solution For A Net Zero World?

In also another BloombergNEF report, it is shown that financing in renewable energy rose 11% year-on-year in the first half of 2022, to reach a total of $226 billion. Bank of America announced back in 2020 that hydrogen is at a tipping point right now and is expected to become an $11 trillion addressable market by 2050, meeting around 25% of global energy needs. 

Data brings us thinking – are green hydrogen investments the best bet in the future of energy? Is the green hydrogen economy only in the future or is it happening right now?

The evidence is the technology is currently taking off for a variety of reasons including viability, superiority over traditional energy sources, falling capital costs and risks compared to years ago. Investments in green hydrogen are also rising and they are projected to continue to do so exponentially over the next thirty years. If those trends continue, green hydrogen might as well become the holy grain of the future of energy.

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