RYSTAD ENERGY TRANSITION REPORT FEBRUARY 2021 FREE EDITION HYDROGEN SOCIETY RYSTAD ENERGY TRANSITION REPORT, HYDROGEN EDITION The Rystad Energy Transition Report
The Rystad Energy Transition Report series leverages the full breadth of our data expertise to explore what a future decarbonized energy system may look like through three conceptual societies. Each society serves as a model primarily dependent upon one of the technologies currently competing to become dominant on the pathway to net-zero – carbon capture and storage (CCS), hydrogen and batteries.
Our hydrogen society illuminates the tremendous decarbonizing potential of H2 across four key demand segments: transportation, industry, power & buildings, and energy. In the following free edition, we discuss some key developments and highlights. In the full report, we dive deeply into the topic, covering key end-use applications for hydrogen, the demand forecast up to 2050 in addition to hydrogen supply and its competitiveness.
To gain access to the complete report, we encourage you to contact us at your earliest convenience. We look forward to sharing our Battery Report with you in the next month.
ENERGY TRANSITION REPORT 2 HYDROGEN SOCIETY FEBRUARY 2021 EXECUTIVE SUMMARY Hydrogen – set to quintuple by 2050
Our energy transition story continues this times as much as H2 production today. month as we explore the decarbonizing Such a massive demand increase would potential of hydrogen in our Hydrogen require a ramp up of supply from both blue Society. Hydrogen has received much and green hydrogen. Green H2 has the attention in recent years as a potentially deepest decarbonizing potential, but blue carbon-free commodity with many of the H2 can utilize existing production pathways same advantages of traditional fossil fuel; it and can achieve near-zero hydrogen when offers good energy density and can be paired with supplementary carbon capture applied to a variety of sectors. Yet a true and storage (CCS) mechanisms. hydrogen economy has yet to take off, hindered by economic constraints and the Given current infrastructure and production immaturity of many end-use hydrogen pathways, this means that blue H2 is more technologies. cost competitive in all regions and could be less costly to scale quickly than green H2. In this edition of the Rystad Energy However, the cost of green H2 is primarily Transition Report these obstacles are driven by the price of the electricity deconstructed, revealing that 51% of global consumed in the electrolysis process, and CO2 emissions are fully or partially renewable energy prices are falling addressable with hydrogen. This amounts precipitously as renewable generation to carbon savings of over 20 gigatons (Gt). soars. In the past five years alone, We begin to understand this potential by operational costs related to wind and solar examining hydrogen’s applicability to four have fallen by 58% and 19% respectively, key demand sectors comprised of 10 end- while capacity from wind and solar has used segments. In our Transportation risen 100% in the same timeframe. chapter, hydrogen-powered Fuel Cell Assuming the price of renewable electricity Electric Vehicles are hindered by fierce continues to fall, the only remaining competition from Battery Electric Vehicles, economic hurdle for green H2 will be the while aviation and shipping benefit from capital expenditure required for hydrogen products such as ammonia and development, a cost that will also decline synthetic jet fuel. In our Industry chapter, as learning curves continue to play out and ammonia and methanol derived from green infrastructure becomes increasingly H2 take center stage as powerful tools in standardized. As the costs of green H2 fall, the fertilizer and plastic markets, while H2 it will become increasingly attractive has direct applications in steel making. relative to its blue H2 counterpart. Hydrogen could have a role to play in grid balancing, as discussed in the Power and The nuances of this price discussion are Buildings chapter, while the need for explored further in the Competitiveness of hydrogen in the Refineries chapter is Future Supply chapter. Regardless of robust but faces long-term decline, falling in whether blue or green will color the future tandem with decreasing demand for oil of hydrogen, one thing is clear: hydrogen products. will be a key solution driving the energy transition forward. Together, these end-use segments would consume 340 Mt of hydrogen in 2050, five
Source: Rystad Energy research and analysis
ENERGY TRANSITION REPORT 3 HYDROGEN SOCIETY FEBRUARY 2021 Contents
Executive summary 2 Introduction to hydrogen 4 Key end-use applications for hydrogen 9 Hydrogen demand to 2050 30 Hydrogen supply and competitiveness 32
*This free edition report includes 16 of 32 pages that are available in the full report
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ENERGY TRANSITION REPORT 4 HYDROGEN SOCIETY FEBRUARY 2021 INTRODUCTION TO HYDROGEN The Hydrogen Society
In our inaugural Rystad Energy Transition elements of all three, but with varying Report from December 2020, we degrees of technological penetration. introduced the three Rystad Energy Through the first quarter of 2021, we will Societies: CCS, Hydrogen and Battery. continue to elaborate on the status quo of These societies are conceptual futures each technology, the direction each is wherein each of the three key technologies heading, and the pace of development. becomes the dominant supplement to Regardless of where we end up as a global renewable power towards a decarbonized society, each technology is already vying to energy system. Each society will contain achieve winning market share.
Key dynamics of the Hydrogen Society: • Continued reductions in renewable energy cost and subsequent continued ramp up in renewable Hydrogen Society generation improves the economics of green In a Hydrogen Society, the hydrogen projects. overcapacity in renewable • A policy-led increase in green hydrogen generation and cost reduction in production creates abundant, low carbon electrolyzers would result in hydrogen to be utilized in decarbonizing hard- competitive green hydrogen. The to-abate sectors. establishment of a widespread hydrogen economy would • Large scale consumption of hydrogen increase demand for blue accelerates learning curves across the hydrogen in addition to hydrogen economy and improves green. This demand increase, hydrogen’s efficiency in end-use coupled with the mainstreaming of applications. ? hydrogen pipeline grids, would • If combined with higher carbon support everything from pricing, we would likely see We are here transportation to power and sufficient scale in CCS heating. implementation to reduce ? ? the cost of CCS Focus of this report technologies and improve the competitiveness of blue hydrogen, in addition to green.
Battery Society CCS Society Within a Battery Society, battery costs continue A CCS society is predicated on the introduction to plummet, allowing for cheap grid storage that of global carbon taxes and improved can deal with intraday intermittency, as well as cost/economies of scale for CCS technologies. supplying electricity for days. In this scenario In this scenario, CCS is deployed on a massive there are no substantial supply-side bottlenecks. scale in everything from industry and blue Cheap batteries also support the rapid hydrogen to the power sector and direct air electrification of transportation and would (in capture. The quick adoption of carbon taxes combination with cheap solar, wind, and a ensures a relatively quick adoption rate for CCS strengthened power grid) become a lethal blow technologies, alleviating carbon budgets, and to the fossil industry. CCS and hydrogen would supporting prolonged business as usual for the become niche technologies within industry and fossil industry. Batteries would be largely certain parts of transportation. constrained to the lighter segments of the transportation sector, and blue hydrogen would play a pivotal role in decarbonizing industry and hard-to-abate transport.
Source: Rystad Energy research and analysis
ENERGY TRANSITION REPORT 5 HYDROGEN SOCIETY FEBRUARY 2021 INTRODUCTION TO HYDROGEN Hydrogen decarbonization strategies rely on both blue and green hydrogen
Type Description Pros Cons
Grey Today, almost all • Well suited to large- hydrogen production scale production due hydrogen • High CO2 emissions is grey, meaning it is to abundant access of in production produced from fossil natural gas • Exposed to fuels. Grey H is • Cost competitive 2 increasing CO used in the chemical • Production technology 2 taxes industry, fertilizer already exists, and it production, and in is well established in petroleum refineries. the industry
Similarly, blue Blue • Carbon emissions • Dependent on the hydrogen originates hydrogen from grey hydrogen further development from fossil fuels, but production could be of CCS technology, production of blue reduced substantially as well as H involves carbon 2 if carbon capture and transportation and capture and storage. storage is applied storage. Current Blue hydrogen could • Currently, blue H is technology is not become an 2 cheaper and “greener” 100% carbon-free important pathway than electrolysis towards • There is investment • Blue H has the decarbonizing the 2 risk as green potential to scale energy system by hydrogen becomes quickly as existing suppling sectors that cheaper and might production capacity is have few sources of eventually retrofitted with CCS outcompete blue H2 H2 supply.
Green Green hydrogen is • Still costly, but costs hydrogen produced through • Requires only access are expected to fall the electrolysis of to water and • Competitiveness is water, with electricity. highly dependent on renewable • Is less dependent on low electricity prices electricity. Currently, infrastructure than and equipment load only 4% of Europe’s blue or grey hydrogen factor hydrogen production • Potentially carbon-free • Competes with is from electrolysis, • Can be flexibly electricity and the electricity is deployed near large consumption from not necessarily demand centers other sectors for renewable. green electricity
Sources: Rystad Energy research and analysis
ENERGY TRANSITION REPORT 6 HYDROGEN SOCIETY FEBRUARY 2021 KEY END-USE APPLICATIONS FOR HYDROGEN
51% of global CO2 emissions are at least partly addressable by hydrogen
Our hydrogen society illuminates the H2 supply streams primarily produce grey tremendous decarbonizing potential of H2 hydrogen derived from natural gas. To across four key demand segments: unlock the full decarbonizing potential of transportation, industry, power & buildings, H2, the production of blue H2 (hydrogen and energy. When applied to these from natural gas with CCS) and green H2 segments, where technologically feasible, from electrolysis must be scaled. The we estimate hydrogen can completely or economic viability of this ramp up will be partially address 51% of the 40 gigatons contingent upon cheap electricity, the result (Gt) of CO2 emitted annually, a feat which of a huge increase in renewable would be achievable with a huge ramp up generation. of hydrogen supply. As mentioned, existing
Global greenhouse gas emissions by gas, 2018 F-gases 3.1% Carbon dioxide (CO2) Methane (CH4) 74.0% 17.8% 55 GtCO2e
Nitrous oxide (N2O) 5.2% Hydrogen’s ability to address CO2 emissions CO emissions by sector 2 Oil&gas production Fully addressable 1%
Partly addressable Coal production 1% Metals Refining 1% 4% Other Chemicals 1% 2% Energy Cement LULUCF 6% 7% 6% Industry process Power 9% generation Coal 27%
40 Gt CO2 Industry 34% combustion 51% of which 15% at least partly addressable with hydrogen
Buildings 8% Oil 1% Transportation 20% Gas 5% Bio 1% Maritime 2% Aviation 2% Road transport 15%
Source: Rystad Energy research and analysis, IPCC
ENERGY TRANSITION REPORT 7 HYDROGEN SOCIETY FEBRUARY 2021 KEY END-USE APPLICATIONS FOR HYDROGEN Key end-use applications for hydrogen
Main Sector Application Long term competitive assessment competition
Recent developments point to battery electric vehicles winning Passenger this segment. However, there may be niche applications or • Battery vehicles geographical pockets where FCEVs can get a foothold.
Battery electric technology is gaining a foothold in road freight Road as well, but hydrogen might still have a role to play in the • Battery freight heavier segments. Transport Decarbonization pathways for aviation are still immature and • Synfuels unproven. Hydrogen-based synthetic jet fuel shows promise, Aviation • Biojet along with biojet, but battery electric has the potential to • Battery capture a large share of the short haul market.
Zero-carbon fuels, such as ammonia and biofuel, seem the • Synfuels Shipping likely pathway for most shipping applications. Batteries show • Biofuel potential in short-sea voyages. • Battery
Decarbonizing technologies for steel production are still in the pilot phase, with promising technologies being developed as • Iron ore Steel both H and purely electric solutions. CCS will likely be a electrolysis production 2 transition solution, but the segment will never achieve net-zero • CCS with CCS alone.
Although recycling is expected to reduce plastic feedstock • CCS Chemical demand, virgin feedstock will still be needed. H could prove a Industry 2 • Bioplastics industry key pathway to decarbonize plastic production. Fertilizers will • Recycling need to transition to green ammonia to become truly net-zero.
Within the heat to industry segment, H2 will primarily be used for process heat in industrial boilers. Efficient electric boilers Heat to • Electricity and heat pumps will offer alternatives to traditional techniques industry • CCS as well, but this will depend on the required temperatures of various processes.
The decarbonization technology of choice will likely depend on • Other Power how much of the storage market can be covered by lithium-ion energy generation batteries and how much needs to be covered by long term storage storage, such as hydrogen and other energy storage systems. solutions Power and buildings The energy needed to heat buildings with hydrogen is five to six times that of electric heat pumps. This implies that Buildings • Electricity hydrogen will likely have limited potential in this segment. This market will likely be nearly 100% electrified.
Hydrogen is utilized for refining processes to sweeten crude (reduce the sulphur content) and hydrocarbon cracking. This is • Battery Energy Refineries relevant for jet fuel, gasoil, gasoline and diesel. The • Synfuels competitiveness of the application is dependent on the displacement of oil in these sectors.
Source: Rystad Energy research and analysis
ENERGY TRANSITION REPORT 8 HYDROGEN SOCIETY FEBRUARY 2021 KEY END-USE APPLICATIONS FOR HYDROGEN Road transportation
Passenger vehicles H2 technology Hydrogen fuel cell
Hydrogen can be applicable to the passenger vehicle segment through the use of hydrogen fuel cells in fuel cell electric vehicles (FCEV). Unlike battery electric vehicles (BEV), wherein electricity is generated via external charging, hydrogen fuel cells function by creating an electrochemical reaction that powers an electric drive train, releasing only water vapor and heat as byproducts.
Key advantages: Legacy technology Quickly refillable, long range relative to Gasoline/diesel weight internal combustion Key disadvantages: Competitors Lacking H2 infrastructure, immature supply chains, large volume Battery electric
Technological feasibility FCEVs are already commercially available as passenger vehicles. However, BEVs have quickly gained market dominance and have Competitiveness established significant infrastructural support in the form of widespread charging station availability and robust manufacturing streams. This stands in
contrast to the relatively limited H2 infrastructure in the vast majority of regions, making H2 refueling a challenge. Additionally, the advantages gained by using a hydrogen fuel cell – somewhat lighter drivetrain and longer range – diminish for every incremental improvement in battery electric technology. This, combined with low consumer demand, points to BEVs likely being the decarbonizing technology of choice for light-duty transportation. However, FCEVs may be able to establish market share in some niche markets or geographies, as some countries still push policies Toyota Mirai FCEV Photo: Toyota dedicated to FCEVs.
Source: Rystad Energy research and analysis
ENERGY TRANSITION REPORT 9 HYDROGEN SOCIETY FEBRUARY 2021 KEY END-USE APPLICATIONS FOR HYDROGEN
H2-powered passenger vehicles to remain more costly than BEVs
Passenger vehicles
Total cost of ownership over five years USD per kilometer
0.8 Audi A5 Tesla M3 0.7 Toyota Mirai Toyota Camry 0.6
0.5
0.4
0.3
0.2 10 12 14 16 18 20 Annual distance driven (thousand kilometers)
Assumptions Audi A5 Toyota Camry Toyota Mirai Tesla M3 Purchase price $44,200 $24,600 $49,500 $39,190 (LR) $0.40 per kilowatt Fuel cost $1.50 per liter (L) $1.50 per L $0 per kg H * 2 hour (kWh) Fuel consumption 9 L 9 L 0.76 kg 15 kWh (per 100 km)
*Toyota recently started to offer complementary fuel for the first six years of ownership Source: Rystad Energy research and analysis
ENERGY TRANSITION REPORT 10 HYDROGEN SOCIETY FEBRUARY 2021 GLOBAL HYDROGEN DEMAND Hydrogen demand to quintuple by 2050
It’s still early days, but hydrogen shows The new major end-use markets for promise as a decarbonization pathway in hydrogen include: several hard-to-abate sectors. The chart • Steel, where H-DRI seems to be the below shows Rystad Energy’s outlook for most promising decarbonization hydrogen demand across the demand technology sectors discussed in the previous sections. • Aviation, where long haul to a large The overall legacy consumption of extent is likely to be covered by hydrogen is expected to decline as global hydrogen-based fuels (direct H2 or oil demand reduces refinery throughput synjet) towards 2050. Fertilizer and other ammonia • Shipping, where deep sea shipping will use will follow these general socio- benefit from ammonia or other H2 economic developments, although derived fuels technological developments in agriculture Road transport and power & buildings are might pose both upside and downside risks less obvious and will hinge on regional to these estimates. policy support.
Global hydrogen demand by sector Mtpa 350 5x
300
250
200
150
100
50
0 2015 2020 2025 2030 2035 2040 2045 2050
*Other ammonia includes refrigerants, pharmaceuticals and textiles Source: Rystad Energy research and analysis, HydrogenCube beta
ENERGY TRANSITION REPORT 11 HYDROGEN SOCIETY FEBRUARY 2021 HYDROGEN SUPPLY AND COMPETITIVENESS Historical production dominated by refineries and ammonia
Historical production has traditionally taken As new end-use segments emerge, we place at three distinct locations: expect the merchant fleet of H2 plants will grow to outpace other existing sources. In 1. In dedicated ammonia production order to produce hydrogen with a zero facilities, with most output going to carbon or low carbon footprint, these new fertilizer production commercial facilities will need to either 2. At refineries for local consumption, produce green or blue H2. The following either as a refinery by-product or to pages discuss the current costs of these feed on-site SMR facilities two sources of supply and highlight the key 3. At merchant hydrogen plants with most sensitivities that determine the output dedicated to the refining sector. competitiveness of each.
Historical hydrogen production Million tonnes per annum (Mtpa)
80
Other* 70
60
Ammonia 50
40
Merchant 30
20 Captive SMR
10
Process hydrogen demandRefinery
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
*Other is primarily methanol production for plastics production (MTO) Source: Rystad Energy research and analysis, HydrogenCube beta
ENERGY TRANSITION REPORT 12 HYDROGEN SOCIETY FEBRUARY 2021 HYDROGEN SUPPLY AND COMPETITIVENESS Amid policy push, plummeting costs spawn a massive ramp up in renewable capacity
Utility PV and wind capex USD per watt -19%
-58%
The cost of renewable energy development In combination with a policy push, this has is the key obstacle for green hydrogen, as resulted in a massive ramp up in renewable the cost of solar and wind generation has generation capacity, making green already dropped by 58% and 19%, hydrogen increasingly more enticing as an respectively, in the past five years. alternative to its fossil counterparts.
Global power capacity from solar* and wind GW 700
600
500
400
300
200
100
0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
*Including Rooftop Solar Source: Rystad Energy RenewableCube
ENERGY TRANSITION REPORT 13 HYDROGEN SOCIETY FEBRUARY 2021 HYDROGEN SUPPLY AND COMPETITIVENESS Blue hydrogen Just a transition fuel or does it have a role to play in a world with abundant renewable energy?
Capture Transport Storage
CO2
Favorable factors for blue hydrogen in a transition phase
Steam methane reforming (SMR) is a mature and widely used technology. Most of the world’s grey hydrogen production today Maturity of is produced through SMR. Autothermal reforming (ATR) is also technology in a state of medium commercial deployment, and better suited
for blue hydrogen production given its higher CO2 capture rate and lower capex.
Both SMR and ATR are deployable at large scale, making it possible to produce large volumes of blue hydrogen without further technology development. Blue hydrogen production at Scalability large scale favors centralized production, which requires large- scale demand within close proximity. Green hydrogen is favorable for smaller scale distributed production.
Both Europe and the US have well-developed natural gas Existing natural gas infrastructure, making it possible to feed hydrogen plants with infrastructure large volumes of natural gas.
There is less need for infrastructure investment for blue hydrogen, meaning that lead times for the construction of large- scale production plants are shorter in areas where natural gas Lead time infrastructure already exists. However, blue H2 still requires large investment as the production plant must have scale to be economical.
Willingness to pay for 100% clean products is increasing and often higher than the market price of CO2. The increase in price seen by the end consumer is often small compared to the total product cost. This might favorSource: green Rystad hydrogen, Energy research even and when analysis blue hydrogen is considerably cheaper to produce.
ENERGY TRANSITION REPORT 14 HYDROGEN SOCIETY FEBRUARY 2021 KEY END-USE APPLICATIONS FOR HYDROGEN Get access to the complete report…
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ENERGY TRANSITION REPORT 15 HYDROGEN SOCIETY FEBRUARY 2021 RYSTAD ENERGY TRANSITION REPORT, HYDROGEN EDITION Be among the first to access Rystad Energy’s HydrogenCube
Scheduled for release in 2021
• Country and sector level hydrogen/ammonia demand • Asset by asset overview of hydrogen/ammonia supply by source, operator, and capacity • Hydrogen project costs • Hydrogen infrastructure • Price formation and cost developments for both blue and green hydrogen
• CO2 storage infrastructure relevant for blue hydrogen • Renewable power generation relevant for green hydrogen • Hydrogen related policy developments
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ENERGY TRANSITION REPORT 16 HYDROGEN SOCIETY FEBRUARY 2021 Rystad Energy is an independent energy consulting services and business intelligence data firm offering global databases, strategy advisory and research products for energy companies and suppliers, investors, investment banks, organizations, and governments. Rystad Energy’s headquarters are located in Oslo, Norway.
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