Nov-2023

Hydrogen economy Part 2: Converting strategy into reality

An in-depth look at the supporting elements of the hydrogen supply chain: economics and regulations and how to operate within the infrastructure.

Robert Ohmes, Nathan Barkley, Mike Annon, Greg Zoll and Jessica Hofmann
Becht

Article Summary

The pursuit of the hydrogen economy continues to evolve as energy providers, energy consumers, and logistics firms examine the economic and technical viability of hydrogen as a pathway to meet decarbonisation goals. As highlighted in Part One of this series, many challenges and opportunities exist within the production, distribution, and consumption sections of the hydrogen supply chain. Though not insurmountable, these items require close examination and analysis to drive the hydrogen economy. Within Part Two, we will take a deeper look at the supporting elements of the hydrogen economy: economics and regulations. As is often the case, the regulatory framework will provide the context, rules, and optionality to operate within the hydrogen economy, and the economic incentives, both positive and negative, will provide the cash flow and returns to fund investments in hydrogen infrastructure.

Economic and regulatory drivers
As highlighted in Part One, for the hydrogen supply chain to function and grow, consumers need to see value in using low-carbon hydrogen, while hydrogen producers and midstream operators need positive economics to justify their investments (see Figure 1). Currently, only about 10% of announced hydrogen projects have reached Final Investment Decision (FID). Besides some of the technical concerns discussed in Part One, the main reasons for the lack of further progress are clear financial incentives and regulatory signals.

One mechanism governments and regions are using to help bring together producers and consumers is the development of industrial clusters or hubs. The driver behind this approach is that by closely locating and integrating producers and consumers, economies of scale can be realised, distribution infrastructure can be optimised, and investors can have increased confidence in the long-term economic viability of the investments and operability of the assets. The following are some examples of these concepts:
• HyVelocity Hub: This hub plans to leverage existing infrastructure within the US Gulf Coast, as this region of the US has more than 1,000 miles of hydrogen pipelines and around 50 production plants. The group is a collection of two non-profit entities (GTI Energy and Center for Houston’s Future), along with major industrial players, such as Air Liquide, ExxonMobil, Mitsubishi Power, Shell, Chevron, Sempra Infrastructure, Energy Transfer, Ørsted, and the University of Texas.
• Teeside Industrial Cluster: Within the UK, a consortium has been created to put together a fully integrated power generation and CO₂ capture and storage (CCS) system to help create a decarbonised industrial cluster. As part of this initiative, several entities are looking to construct hydrogen generation and transportation assets to make Teeside one of the largest low-carbon hydrogen hubs.
• Rotterdam Hydrogen Hub: Given Rotterdam’s existing industrial infrastructure and port facilities, this location was selected as one of Europe’s largest hydrogen hubs. Entities such as Shell, Eneco, BP, and HyCC are developing green hydrogen projects, and the Port Authority is working with multiple entities to develop several pipelines to supply the Netherlands and connect to other parts of Europe. In the long term, the Port Authority is exploring the supply chain requirements to export hydrogen globally.
• HALO Hydrogen Hub: This particular hub is intriguing, as it leverages production, distribution, and consumer assets across Louisiana, Oklahoma, and Arkansas to bring forward low- carbon hydrogen. These regions have significant pipeline and industrial infrastructure to use as part of the initiative, and existing as well as new consumers within industrial, commercial, and manufacturing segments and optionality for clean energy sources.

In reviewing the global standards for the definition of ‘low-carbon’ hydrogen, as well as the certification of hydrogen as decarbonised and the criteria for government-driven incentives, no single standard, certification, or economic incentive exists on a global basis. Each of these areas is being defined, refined, and issued on a country or regional basis and is behind the time progression of feasibility analysis, capital project activities, and investment decisions.

Here are a few terms for clarification of this discussion:
• Standard: A universally developed and agreed methodology for measuring quality
• Regulation/Normative: Rule or directive made and maintained by an authority to set limits based on standards
• Certification: Action or process of providing an official document confirming the status or level of achievement by an independent certification body based on standards and regulations.

Figure 2 provides a summary of progress by governments or international agencies to bring structure and specificity to the issue of a global hydrogen definition and demonstrates the complexity, variability, and status of these standards, regulations, and certifications.

A few interesting points about these regulatory elements are:
υ Though a single definition of low carbon or decarbonised hydrogen has not been set, the leading definition involves a carbon intensity of 15-35 gCO₂eq/MJLHV or 2-4 kgCO₂eq/kgH₂, is 99.9% pure hydrogen, and the hydrogen is delivered at 3 MPa pressure.
ϖ Green hydrogen requires a consistent supply of renewable power, but only a few countries globally have a fully renewable electricity mix. Definitions vary of which forms of biomass or biogas can be considered ‘green’.
ω Nuclear power is not universally accepted as a green energy source, which impacts its use for the electrolysis of water to hydrogen.
ξ Many European regulations focus on four criteria to ensure low-carbon intensity hydrogen meets long-term emission reduction goals: additionality, temporal correlation, geographic correlation, and GHG savings.
• Additionality: The simple principle behind additionality is that the power for electrolysis of water to hydrogen should come from new renewable sources rather than taking existing renewable power away from existing electricity users. Hence, the hydrogen will have to be generated by direct physical connection with the power source or through confirmed purchased power agreements, as well as being generated from new renewable facilities and sources.
• Temporal correlation: A specification of the time between power generation and use by the electrolysers to generate hydrogen. Most of these time frames involve calendar hours and do allow for power storage for use by the asset. However, the time frame is purposely condensed to ensure the use of renewable power directly for low-carbon hydrogen.
• Geographic correlation: The electricity generation assets and electrolysis system must be within the same geographical region, often defined by bid zones within a given country or groups of countries.
• GHG savings: the GHG savings must be accounted for and included to demonstrate that the amount of decarbonisation of the hydrogen has been achieved. To be considered renewable or low-carbon hydrogen, a 70% or higher emission reduction must be achieved compared to fossil fuel-based hydrogen.