Carlos Bernuy-Lopez
27 September 2023
How we get to 100 million tonnes of green hydrogen
Almost all hydrogen used today comes from fossil fuels, leading to annual CO2e emissions roughly equal to those of Japan. So what will it take for the world to make the switch from grey to green hydrogen?
100 million tonnes of green hydrogen. 1,000 gigawatts of electrolysis capacity. And at least 1,000 factories pumping out electrolysers.
That, in a nutshell, is Carlos Bernuy-Lopez’ dream. An engineer by trade, he has studied electrolysers since 2005 and lately he has turned his attention to advocating for a step change in the production of green hydrogen. From around 0.3 million tonnes today to 100 million tonnes “as fast as possible”.
“Today we use around 90 million tonnes of fossil hydrogen a year, and some estimate that we will use up to 500 million tonnes in 2050. We talk a lot about who will use hydrogen in the future, but to me the likeliest offtakers at least in the short term are those that use hydrogen now. So, I focus on the current demand for hydrogen and ask the question: What needs to happen to produce enough green hydrogen to replace the grey hydrogen that is currently produced from fossil fuels,” he says.
In Carlos’ telling, three critical enablers must align for that to happen: A massive scale-up of factory capacity, abundant and cheap renewable energy and the willingness of investors to seize the opportunity.
Without electrolysers there can be no green hydrogen, Carlos explains.
“We need roughly 1,000 factories producing electrolysers, with a capacity of 1GW each. Right now, global yearly electrolyser manufacturing capacity is around 2-5 GW,” he says.
Though this at first glance seems like a critical blocker, Carlos is not daunted.
“The same lack of capacity used to be true for battery factories, but because of the demand from electric vehicles, we have seen a huge increase in investments,” he says. “10 years ago, we didn't have any big factory of batteries in Europe and in 10 years we have most likely 10 to 15. So if hydrogen is ten years behind where batteries are today, that is perhaps not so bad.”
Assuming an average investment to build 1 GW factory of roughly EUR 2.8 billion, scaling electrolyser capacity would total EUR 2,800 billion, Carlos adds.
But these figures dwarf in comparison with the scale-up of renewable electricity needed to turn electrons into hydrogen. 2,000-3,000 GW renewable energy is needed to produce 100 million tonnes of green hydrogen – an astronomical figure considering that global renewable capacity today stands at 3,372 GW according to IRENA.
“Cheap renewable electricity is the biggest enabler of green hydrogen, because electricity accounts for 70-80% of the cost of producing hydrogen. Those who currently use grey hydrogen are unlikely to make the switch to green hydrogen unless it is price-competitive. But likewise, if it is cheap enough, they have no reason not to make the switch.”
If hydrogen developers are so dependent on cheap electricity, does that mean it is outside their control if their investment actually pays off in the long run?
“Yes and no. There is no reason why hydrogen developers cannot also simultaneously invest in the renewable energy needed to power their facilities. For instance, by developing solar or wind. Locating hydrogen production near existing consumers of grey hydrogen who pay more than the global average could also be an option to become price-competitive faster,” Carlos says.
According to the IEA, in 2021 the levelised cost of hydrogen were between USD 4-9 per kilo, double the cost or more of grey hydrogen. But the IEA also estimates hydrogen costs could fall to as little as USD 1.5 per kilo by 2030 in regions with good solar and wind conditions.
The last piece of the puzzle may be the most difficult to predict: the willingness of investors to pour vast sums of money into green hydrogen.
“In addition to putting in place the right regulation and policies, we need to convince the investors that there is a huge opportunity in investing in hydrogen,” Carlos says.
“One argument I sometimes hear is that investors are reluctant to invest in hydrogen because of the risks. But to that I say, ‘does that mean you have never invested in risky assets’?”
“So maybe we need to be better at learning from investors who have successfully invested in new technologies in the past. And perhaps we need to develop models where the risks are more evenly spread out among the market actors,” he says.
To date, no one has tallied what it would it cost to expand global hydrogen production to 100 million tonnes, but Carlos says it would probably run in the trillions.
“Fundamentally, if we need trillions of dollars in investments for hydrogen to reach scale, we need to ask where those trillions could come from and how we can best induce investments.”
If we assume green hydrogen will also to some extent compete with other renewable technologies for investments, is investing in green hydrogen where we get most bang for our buck climate-wise?
“Maybe not in all cases. But that is why it is important to look for the hydrogen projects with the highest return on investment. Either because they are close to an off-taker with high demand, or where the price of natural gas prices is higher, narrowing the cost-gap with hydrogen.”
“So maybe it will be difficult initially to be price-competitive with natural gas, but you could instead offer security of supply. A fixed price over a 20-year horizon will be attractive to some who are then not at risk from fluctuating prices of natural gas prices.”
“Like with every other technology, there are challenges we need to overcome. But we also see technologies improving and driving down costs just for the fact of being developed,” Carlos says.
“But I am optimistic, because we don’t need any large technological breakthroughs.”
“At the end of the day I think it is important to set goals that are ambitious but still so realistic that we can see it happening. And reaching 100 million tonnes of green hydrogen is definitely doable,” Carlos ends.
Which electrolysers technologies will win out?
Alkaline electrolysers today hold 70% of the market share. Will other technologies overtake it?
“I think alkaline will continue to be the leader, but the market share will likely become more balanced, with alkaline accounting for roughly half and PEM and SOEC accounting for around 25% each. Which electrolyser technology is used will vary from project to project depending on the use-case and other factors like material costs,” Carlos says
Will the US hydrogen sector catch up?
The US Inflation Reduction Act passed in 2022 contains economic incentives to produce green hydrogen. What impact will it have on the US hydrogen sector?
“It will definitely help spur growth and investments, but capacity won’t suddenly explode overnight. Their electrolyser industry is still quite small compared to the EU and China and it takes time to build up that industrial base,” Carlos says.
What trends should we watch for?
“In 2025-26 there are a couple of large projects that will come online such as Neom in Saudi Arabia and H2 Green Steel in Sweden. If they succeed in producing hydrogen in large amounts, it could provide the incentive for other projects to make the final investment decision.”
Want to know more?
Carlos Bernuy-Lopez
Senior Consultant
46 (0)73-851 06 83