updated on 14 November 2023
QuestionDoes green hydrogen have the green light?
Being one of the most abundant chemical elements, hydrogen has the potential to play a vital role in the race to net zero and could be the key to unlocking the barrier to some of the harder to decarbonise industrial sectors of the economy.
However, as with other renewable energy sources that are now well established, there are a number of challenges that the market will need to grapple with as green hydrogen in particular navigates its way through its infancy stages.
Hydrogen is generally not found in free form meaning that it has to somehow be produced. It’s capable of being produced from a diverse range of resources; however, the most common production method in present day is through the use of methane which creates a waste product of carbon dioxide. Therefore, decarbonising the future production of this element is key.
Green hydrogen is the production of hydrogen through electrolysis, where water is split into hydrogen and oxygen using renewable-powered electricity. The benefits of green hydrogen are (among others) that it:
The government published its UK Hydrogen Strategy in 2021, which mapped out its plans for hydrogen to help support the deep decarbonisation of the UK economy and to achieve its ambition of 5GW of low-carbon hydrogen production capacity by 2030. This target was doubled to 10GW less than a year later. However, in its paper, the government recognised that a significant scale up would be required to achieve these targets.
There are a number of strategic challenges to overcome in order for green hydrogen to be produced at its desired scale:
The lack of familiarity with green hydrogen projects among key decision makers in the consenting process may impede the rate at which these projects can be rolled out, particularly with additional safety and contamination concerns needing to be considered. These concerns also add a further dimension to the process, increasing the amount of consent required and providing more opportunity for the projects to be targeted by local objectors. Furthermore, given we’re still in the early stages of deployment, there’s no specific regime overseeing these first-of-a-kind projects so they’ll have to try and fit into existing regimes that may prove cumbersome for overall development and design.
Production of green hydrogen via electrolysis is currently costly, which is why grey hydrogen (ie, hydrogen made using fossil fuel gas with no emissions captured) or blue hydrogen (ie, hydrogen made using natural gas via a process called steam reforming, with the carbon being captured and stored) are the more common forms of hydrogen currently seen today.
In addition to production of green hydrogen, the transportation of it is another key cost consideration. Despite there being a number of different ways to deliver hydrogen to its user (ie, through gas pipelines or vehicles), the current gas pipeline distribution system isn’t adequately set up for this. This means that developers may need to explore co-locating green hydrogen facilities with its user or make use of private wire arrangements. It’ll be important for developers to consider who pays for the cost and maintenance of this infrastructure, together with the implications on the wider supply chain contracts.
Scaling up and implementation will highlight the need for quickly addressing the risk and cost that early entrants will likely take on during the infancy stages of deployment. Government-backed revenue support schemes will be crucial to encouraging entry into the market, and it’ll be important for the market to see an appetite from robust financial institutions to instil confidence in its viability.
As we move closer to 2050 and the need to decarbonise our environment becomes ever greater, it’s expected that green hydrogen will gain much more prominence which proves to be an exciting opportunity.
The rollout of green hydrogen technology developments is expected to grow rapidly, which means that key stakeholders within the sector will need to quickly navigate the market to ensure these projects are viable and are able to deliver the contribution that it’s hoped that they’ll make.
Ellie-Nicole Davis is an associate in the future energy real estate team at TLT LLP.