Designing Policies for Scaling Clean Hydrogen Supply and Demand, Energy News, ET EnergyWorld

By Gireesh Shrimali

Clean hydrogen will play a key role in transitions to net zero

In a previous article, we looked at the opportunity for clean hydrogen – blue and green – [1]. Our main assertions were as follows.

First, clean hydrogen can play a role in decarbonizing many sectors that have historically been difficult to decarbonize, such as long-distance and heavy transport, maritime transport, district heating, seasonal energy storage and heavy industry. [2]. Additionally, clean hydrogen can play a key role in accelerating the integration of renewables; distribute energy between sectors; and acting as a buffer of resilience [3]. The Hydrogen Council [4]IRENA [5] and IEA [6] estimate that clean hydrogen could reduce annual CO2 emissions by 6 billion tonnes by 2050, equivalent to 18% of the reduction needed to limit global warming to two degrees Celsius.

Second, the adoption of hydrogen and the associated carbon emission reduction potential in each potential application is difficult to predict and will depend on policy decisions, technology development, societal acceptance and choice, and cost. Currently, hydrogen accounts for 1.5% of the world’s energy supply. Estimates for global hydrogen use in 2050 range from 1.5% [7] (IPCC, 2018) to a theoretical maximum of 30% [8]. In 2050, the IEA predicts that the use of hydrogen will cover 7% of final energy demand in 2050, made up of transport (44%), industry (28%), electricity (19 %) and buildings (9%). [9].

In this article, considering the key role of policy, we provide policy prescriptions for the development (i.e. supply) and deployment (i.e. demand) of hydrogen clean, using best practices around the world, including the US federal level as well as California (CA).

To support development, use the US-DOE H2@Scale program as a model

On the supply side, in the United States (and elsewhere), the trick would be to allow the development of the required technologies, such as CCS (for blue hydrogen) and electrolysers (for green hydrogen), via support for R&D and pre-commercialization, in phases [10]essentially following and adapting the US Department of Energy (USDOE) strategy for the H2@Scale program, summarized as follows and explained in more detail shortly thereafter: [11]

1. Identify priority areas – e.g. production, delivery, storage, conversion, applications, etc.
2. Set targets – eg $2/kg by 2030, $1/kg by 2050 – in each of the priority areas.
3. Ensure the enabling infrastructure is in place – eg workshops, technology transfer, etc.
4. Provide financial support – e.g. R&D grants, pilot loans, etc.
5. Enable risk mitigation – eg loan guarantee for pilots.

We focus on the Department of Energy (DOE) federal H2@Scale program as it is one of the most comprehensive development strategies in the world, focusing on the following key elements for development : product, delivery, storage, conversion and application. A notable aspect is the coordination between various federal offices – Office of Energy Efficiency and Renewable Energy (EERE), Office of Fossil Energy (FE), Office of Nuclear Energy (NE), Office of Electricity (OE), Office of Science (SC), Advanced Research Program Agency (ARPA-E).

First, the H2@Scale program started on the development agenda by focusing on needs and challenges. Among the needs, he focused on the following key areas: production, delivery, storage, conversion, integration, manufacturing and supply chains, safety and codes and standards, and education and workforce. He then set clear program targets for each, such as the $2/kg green hydrogen production target as well as the $2/kg target for transportation and storage.

Secondly, the H2@Scale program plans to achieve these goals by defining program directions and activities and executing them through regular workshops as well as information and funding requests, where funding is provided not only for the research but also for technology transfer. Funding is provided through Funding Opportunity Announcements (FOA) 12 – for universities, laboratories, private sector; R&D cooperation agreements (CRADA) 13 for public-private partnerships; and Strategic Partnership Projects (SPP) 14 for the private sector to hire public resources.

Third, in this process, H2@Scale remains focused on efficiency through the continuous development of objectives and milestones, the execution of competitive selection processes, the conduct of external reviews and the guarantee of selection at the decrease. It also ensures coordination and collaboration internally, between the center and the States, between the public and private sectors and with international counterparts. Overall, this is a well thought out program and its effectiveness may be limited by the funds available.

To support demand, use a two-phase strategy, each with four targeted measures

On the demand side, in the US (and elsewhere), using CA’s early thoughts as a market leader in clean hydrogen deployment [15]the trick would be to use a two phase strategy as follows [16] –

In a first phase, during 2020-2030, the focus should be on deployment in industries that already use hydrogen, for green (and blue) hydrogen, such as: oil refining [17]biofuels [18], ammonia; using the following measurements.

First, set long-term decarbonization goals, along with corresponding pathways to create demand. This would essentially require the green (or blue) hydrogen to be a certain percentage of hydrogen used. These standards will be similar to the renewable energy portfolio standards used in the electricity sector [19]or biofuel blending standards used in the automotive sector [20].

Second, allow regulation to remove barriers to deployment. Essentially, this would require thinking about how existing regulations might prevent the deployment of hydrogen. An example of this could be the limits on hydrogen blending in gas networks [21]. These limits should be increased over time, through careful analysis, and even by allowing for pipeline upgrades.

Third, provide subsidies to ensure cost competitiveness. Since green (or blue) hydrogen is more expensive than brown hydrogen, subsidies would be needed to become cost competitive. Grants can take the form of any combination of capital, fiscal or operating grants. For example, in CA, the Low Carbon Fuel Standard (LCFS) allows operational subsidies; while in the United States, 45Q allows for tax subsidies; and both make blue hydrogen projects viable in California [22].

Fourth, use risk mitigation instruments to secure large-scale private investment. This essentially involves developing financial instruments to reduce the risks associated with the development of hydrogen. An example is long-term power purchase agreements for renewable energy projects which, by reducing price and quantity uncertainties, reduce investors’ perception of risk, ultimately leading to a lower cost of capital and lower electricity delivery cost. Similar techniques can be used to reduce the cost of delivering green (or blue) hydrogen.

In the second phase, in 2030-2040, as green hydrogen becomes competitive with outside options (including gray hydrogen), enable deployment in industries that are difficult to (deeply) decarbonize, such as the following: 23 HDV (and other DV), shipping, aviation, steel, cement; using the four similar measurements above.

In summary, clean hydrogen offers a significant opportunity for deep decarbonization, in tandem with renewable energy and battery storage. However, to scale clean hydrogen and reach its potential, policymakers must act now, using the prescription discussed above as a template.

[This article was written exclusively for ETEnergyworld. Shrimali is the head of Transition Finance Research at the Oxford Sustainable Finance Group and the Technical Lead in the Secretariat for the UK Transition Plan Taskforce]

References:
1 Natural Gas Brief (stanford.edu)
2 See Economist (2020) as well as IRENA (2019), ibid.
3 See HC (2017), ibid.
4 See SC (2017), https://hydrogencouncil.com/wp-content/uploads/2017/06/Hydrogen-Council-Vision-Document.pdf
5 See IRENA (2019), https://www.irena.org/publications/2019/Sep/Hydrogen-A-renewable-energy-perspective
6 See IEA (2019), https://www.iea.org/reports/the-future-of-hydrogen
7 See https://www.ipcc.ch/sr15/
8 See BNEF (2020), ibid.
9 See IEA (2020), https://www.iea.org/reports/energy-technology-perspectives-2020
10 See USH, 2020, US Hydrogen Road Map — Fuel Cell & Hydrogen Energy Association (fchea.org)
11 See USDOE, 2020b, https://www.hydrogen.energy.gov/pdfs/hydrogen-program-plan-2020.pdf
12 See What is a Funding Opportunity Announcement (FOA)? – Grants.gov Community Blog (wordpress.com): Primarily announcing the availability of grants, for research, development and demonstration. For example, see the Department of Energy announces $33 million to advance hydrogen and fuel cell R&D and the H2@Scale | Department of Energy for the recent FOA.
13 See DOE O 483.1 (energy.gov): This is to ensure technology transfer from DOE to non-DOE entities.
14 View strategic partnership projects [Formerly Known as Work for Others (Non-Department of Energy Funded Work)] — DOE Directives, Directives, and Delegations: These are agreements that allow DOE to perform work for non-DOE entities.
15 See CEC (2020), https://efiling.energy.ca.gov/GetDocument.aspx?tn=233292&DocumentContentId=65781
16 See IRENA (2020b), Green Hydrogen: A guide to policy making (irena.org)
17 See ANL (2020), https://greet.es.anl.gov/files/us_future_h2
18 BTW, must remember green purpose, so oil refining can be risky.
19 See Berry T, Jaccard M (2001), The Renewable Portfolio Standard:: Design Considerations and Implementation Survey – ScienceDirect
20 See Sorda G, Banse M, Kemfert K, 2010, An overview of biofuel policies around the world – ScienceDirect
21 See Hydrogen: barriers to deployment – Features – The chemical engineer
22 See EFI (2020), https://static1.squarespace.com/static/58ec123cb3db2bd94e057628/t/5f91b40c83851c7382efd1f0/1603384344275/EFI-Stanford-CA-CCS-FULL-10.22.20.pdf
23 See ANL (2020), https://greet.es.anl.gov/files/us_future_h2

Abdul J. Gaspar