By Mario Azar, president of Black & Veatch’s global power business
To reach net zero the quickest, the power industry needs to supply equitable access to low-cost, low-carbon energy solutions. This will require a pathway that matches carbon intensity with cost-effectiveness and flexibility – and hydrogen will be a key player in this effort.
In an ideal future state, green hydrogen will comprise 100-percent of the supply in our energy mix. But how can the industry get to this promised future state from where it is now? This article covers a few important recommendations around carbon intensity and sector coupling; addressing the role of renewables in achieving zero-carbon emissions, particularly in hard-to-decarbonize industries; and the role of batteries and hydrogen, with attention paid to day and seasonal shifting.
As these factors align, hydrogen will be an integral solution when it comes to filling the gap for 2050 zero-carbon emission goals.
Don’t Let Great Become the Enemy of Good
When it comes to hydrogen production, the industry cannot let great become the enemy of the good.
Long-term, it’s expected that low-cost green hydrogen (i.e., hydrogen produced through electrolysis powered by renewable, geothermal, hydroelectric or nuclear energy) will become the global go-to method of production, with the U.S. expected to be a primary producer. But that’s not where the industry is today. When it comes to deciding how the power industry should approach this transition, the answer is a bit chicken-and-egg: The industry needs an adequate supply of hydrogen to feed certain applications, but there’s no reason to ramp up supply if there aren’t enough applications that can use hydrogen profitably.
It must be acknowledged that the cost of hydrogen is also a huge consideration. Today, it generally costs two to three times more to produce green hydrogen than blue hydrogen (i.e., hydrogen produced from natural gas with carbon capture). To address this, the industry needs large-scale global projects that will scale and help bring down the cost of electrolysis.
Black & Veatch is supporting several large-scale green hydrogen projects that will eventually scale, including Enegix Energy’s Base One facility, a $5 billion investment in Ceará, Brazil. Once operational, the highly ambitious new-build electrolysis facility will be powered entirely by renewable energy, allowing it to produce more than 600 million kilograms of green hydrogen annually. The engineering leader is also supporting Intermountain Power Agency’s Intermountain Power Project Renewal Project in Utah, which will be one of the earliest installations of combustion turbine technology designed to use a high percentage of green hydrogen. The company is also involved in other similar projects.
But even before green hydrogen scales to bring down cost, the industry can still jumpstart applications by relying on low-cost blue hydrogen, which will result in a low-carbon intensity at a more affordable price point. The industry can transition to green hydrogen over time as technology and process innovations achieve cost parity for green hydrogen with other traditional fuels. This approach is familiar, given that the power industry followed a similarly iterative process when it built out gas turbines to reduce reliance on coal before expanding the use of renewable energy for power generation.
Sector coupling, which is bringing together hydrogen applications beyond power generation, can also help drive innovation and achieve economies of scale.
End-use applications such as transportation and hard-to-abate industries such as cement, steel and ammonia production can economically justify higher hydrogen prices. Coupling these sectors in any combination can achieve economies of scale, offer higher utilization and volume, and expand opportunities to realize offsets and incentives to lower costs.
Expanding the ecosystem from a single method of production to a single application can greatly improve the economics of hydrogen.
Making the Most of Every Electron
Reliability is one of the greatest challenges with renewable energy – e.g., wind and solar. Sometimes generation will peak when there isn’t enough demand to consume the extra energy. To address this, owners and developers should look for ways to build out complementary off-takers, such as with producers of green hydrogen, which would help maximize the value of every electron.
The power industry has seen this before. When the Marcellus natural gas basin was producing an overabundance of natural gas, production was curtailed and natural gas promptly lost value. Rather than take the economic hit of selling super cheap natural gas, many developers partnered with power producers to sell megawatts into the grid – i.e., “molecules to megawatts.”
As renewable power generation increases, supply will eventually become curtailed; in some cases, providers will have to pay to remove energy. Ideally, providers would develop and sell energy as a high-value asset, helping to diversify revenue for renewable power producers. No longer would they be stuck selling electrons into the grid, beholden to market value and overbuilding, i.e., “megawatts to molecules.” This diversity would help grow renewable markets.
Substantially advancing renewables and electrification is imperative to reach net zero, but these alone are not enough. The heavy industries, e.g., chemical production, mining, oil refining, steel and manufacturing, require more than just electrification to decarbonize. Even the power industry requires long duration and long-term energy storage and backup power generation. Hydrogen can play a commanding role in these hard-to-decarbonize applications beyond electrification.
Batteries and Hydrogen – Competitors or Complements?
Many view batteries and hydrogen as fierce competitors, believing only one can win.
The transportation industry offers a great example of where batteries and hydrogen are complementary technologies. Electric batteries work great for light-duty vehicles but when it comes to many medium and heavy-duty applications (e.g., certain bus and truck applications) today’s batteries don’t have the appropriate strength-to-weight ratio. Plus hydrogen can offer higher vehicle utilization through much quicker refueling. By offering different characteristics, hydrogen and batteries are complementary solutions that can fit individual applications.
Just as batteries and hydrogen fuel cell electric vehicles complement one another in the transportation space, they also complement one another in energy storage. California’s energy providers see a clear duck curve when their customers wake up in the morning and turn on their HVAC systems and appliances, driving load usage up. Then they leave their homes and load usage goes down, before returning in the evening and sending load usage back up.
Looking at this through the lens of renewable energy, the middle of the day sees an excess of solar energy compared to load. Batteries charge during the day when there is excess solar, then discharge in the evening when everybody returns home and load increases. This is known as “day shifting.”
Other locations bear much higher seasonal loads. For example, during the high demand of the summer or winter, load may consistently exceed renewable energy generation all day. During the spring and fall shoulder seasons, renewable energy generation may consistently exceed load. Batteries are not currently considered a viable technology to shift this excess shoulder season generation to the summer or winter when it is required.
This leaves utilities with two choices: 1) build out all renewable resources to achieve peak load, which can result in excess energy and capital costs; or 2) find a compromise. Rather than overbuild renewable energy facilities, hydrogen can provide a more pragmatic solution for “seasonal shifting” of energy.
Hydrogen can also solve the issue of long-duration storage. The extreme freeze that hit Texas earlier this year resulted in a dead electrical grid. Today’s batteries offer up to eight-hour storage, but it remains cost-prohibitive to develop battery technology to serve durations measured in days. Hydrogen can more cost-effectively serve these long-duration storage needs.
Pairing batteries and hydrogen together in the energy storage mix allows utilities to better align supply and demand curves by pairing short and long-duration energy storage solutions with renewable energy generation to mitigate intermittency issues that are inherent with these renewable assets.
The cost of renewable energy continues to come down due to improved technology, increased scale and improved best practices. For example, the cost of solar projects has come down significantly over the last decade. In the U.S., estimated utility-scale solar CAPEX is 39 percent lower in 2021 than it was in 2016, and 53 percent lower than it was in 2015. Hydrogen is projected to follow the same path with growth incentivized.
Incentives on hydrogen production will help increase scale, similar to how incentives drove oil production a century ago, and how they are driving renewable production today. The key to unlocking the full potential of hydrogen requires a three-pronged approach: 1) incentivize renewable power generation and adoption; 2) incentivize hydrogen production to bring costs down and make it easier for end-users to adopt, and 3) incentivize the end-users so they can start outlaying the capital to achieve their own economies of scale.
Looking at the full value chain, renewables have already been incentivized; incentivize the remaining two prongs and hydrogen could really soar, especially when considering its versatility and application across such a diverse variety of markets and end-users.