With green energy at the top of the global agenda, renewably generated green hydrogen has emerged as a rare vector that could enable this on a world scale.
Currently, around 80 million tonnes of hydrogen is consumed each year, primarily produced from fossil fuels and used in industrial applications such as the production of ammonia and steel.
While green hydrogen could ultimately replace the hydrogen in these applications, independent demand for green hydrogen as a fuel is projected to grow to 530 million tonnes by 2050, creating a $10tn global industry.
With ready access to cheap renewable energy and capital, GCC states have a strong starting point to shape their position in the global hydrogen landscape.
The Hydrogen Council has set $2/kg (delivered) as the target price point for mass adoption of green hydrogen across major industries. The International Energy Agency (IEA) reports that the levelised cost of green hydrogen production in 2018 ranged between $3-7.5/kg.
However, these cost levels reflect pilot and small-scale single, or sub-MW plants. Assuming reasonable transport costs, access to affordable renewable energy and the anticipated evolution of electrolyser technology pricing, Cranmore research suggests this level could already be within reach today in locations benefiting from very low levelised cost of electricity (LCOE) and reasonable proximity to demand.
The LCOE is expected to further decrease under the influence of economies of scale, particularly as upscaled electrolyser assemblies lead to the emergence of gigawatt-scale green hydrogen production. A 2020 report by PwC projected green hydrogen costs to fall to between $0.7-1.3/kg by 2050 – overtaking grey and blue hydrogen, which could still cost between $1.5-2.7/kg.
In the GCC, recent renewable initiatives, such as the Sweihan and Al-Dhafra solar projects in Abu Dhabi, the Mohammed bin Rashid Solar Park in Dubai and the three rounds of Redpo renewable energy procurement in Saudi Arabia, have delivered world-beating low LCOE for solar and wind. In addition, the GCC already has good captive market potential for green hydrogen given its heavy industrial base, particularly with respect to ammonia, steel and refining.
The green hydrogen ecosystem is also fertile ground for partnerships, and regional energy players, including an alliance of Mubadala, Adnoc and ADQ, are already developing the roadmap to build the sector as the UAE works towards a 50 per cent renewable energy mix by 2050.
Economies of scale
Globally, there are various initiatives to unlock the potential of green hydrogen by bringing down production costs, improving transportation, handling and storage, and achieving economies of scale.
One initiative is the UN Green Hydrogen Catapult project, in which seven of the largest global energy companies, including Saudi Arabia’s Acwa Power, have allied to halve the per kg cost of green hydrogen to below $2 by 2026 while increasing the scale of production 50-fold.
Another initiative, HyDeal Ambition, advised by Cranmore, aims to deliver 95GW of solar and 67GW of electrolysis capacity by 2030 to produce 3.6 million tonnes of green hydrogen a year at a price point of €1.5/kg ($1.76) in Europe. It is backed by about 40 leading European energy players and its first step involves the setup of large-scale solar-driven electrolysis capacity in the Iberian Peninsula.
In the GCC, hydrogen is an effective way for countries such as Saudi Arabia and the UAE to break away from dependence on oil and gas and move towards a green economy in line with their Vision 2030 plans.
However, transport infrastructure and cost is a key parameter, and will likely be a determinant factor in the region’s relevance in the sector globally. Hydrogen’s transport in liquefied form is more expensive and challenging than natural gas given its smaller molecule size and lower liquefaction temperature.
A potential solution is to convert hydrogen into ammonia, which can be transported in liquefied form in ships and, where needed, cracked upon arrival to convert it back to hydrogen. This is the strategy adopted by Neom, Acwa Power and Air Products in Saudi Arabia.
Nevertheless, even though the region’s geographic position between Asia and Europe is strong, it remains to be seen whether green ammonia-based hydrogen will be able to compete on a global stage with green hydrogen produced in low LCOE areas such as North Africa or Southern Europe and transported to and within Europe through gas pipelines. Another consideration for the region will be the higher cost of water.
To capture the opportunity to power a carbon-free world, the GCC will have to set up a supportive regulatory environment, set emission targets, invest in the long term in cross-border transport infrastructure, and push for public-private partnerships to foster production and export infrastructure.
It is also vital to support mass usage of green hydrogen and its fuel derivatives across major industries locally to anchor local production and provide a launchpad for global expansion.
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