Has the hydrogen bubble burst or is it merely deflating?

In September, the growing uncertainty surrounding the hydrogen economy brought new projects from producers like Shell and Equinor to a halt. Is this the start of a wave of hydrogen project cancellations that we are about to see in Europe? Has H2 passed peak hype?

Richard speaks to Montel’s Environmental Markets Reporter and the Hydrogen Science Coalition about why we are seeing hydrogen projects collapse now, and what is next to come.  

Host: Richard Sverrisson - Editor-in-Chief, Montel
Guests: David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition; Rachael Burnett – Environmental Markets Reporter, Montel News

Transcript

Richard Sverrisson - Editor-in-Chief, Montel: 0:06

Hello listeners and welcome to the Montel Weekly podcast where we bring you the latest news issues and changes happening in the energy sector. This week we're focusing on hydrogen. There is growing uncertainty surrounding the hydrogen economy that has seen many projects and developments stored and also shelved. Earlier this month, we saw Shell and Equinor canceling blue hydrogen projects. We've also seen an auction that didn't take off in Norway. The question is, has the hydrogen bubble burst, or at best has it started to deflate in Northern Europe? We're gonna be hearing from one of the founding members of the Hydrogen Science Coalition. But before that, I'm pleased to be joined by Environmental Markets reporter Rachael Burnett. Welcome, Rachael.

Rachael Burnett – Environmental Markets Reporter, Montel News: 0:51

Hi, Richard. Thanks for having me.

Richard Sverrisson - Editor-in-Chief, Montel: 0:53

Rachael, before we go into the main discussion what is the significance of companies these big oil and gas majors like Shell and Equinor canceling their hydrogen projects?

Rachael Burnett – Environmental Markets Reporter, Montel News: 1:04

Well, I think it is quite significant. One important point to make is the projects which were canceled earlier in September. Were blue hydrogen projects, and in general, when we talk about renewable hydrogen, it tends to be what we call green hydrogen. And this is what the EU is putting quite a lot of emphasis on as part of the energy transition. But I think an important point to make is that blue hydrogen tends to be cheaper to produce than green hydrogen. So my question would be if we can't make these blue hydrogen projects. Financially viable. What does that mean for green hydrogen?

Richard Sverrisson - Editor-in-Chief, Montel: 1:43

What does it mean for countries like Germany, Spain, and the Netherlands who are actually, you know, or plan to be big producers of the fuel?

Rachael Burnett – Environmental Markets Reporter, Montel News: 1:51

Yes. These countries have very big plans, very big targets. Spain actually recently even increased. Is green hydrogen targets. But what a lot of people from within the industry seem to be saying is that they are not, when it comes to the crunch, they're not financially viable in the way people hope they might be. And that perhaps more government subsidies and public funding might be needed for this sector. But then I think. That does perhaps open up a question about whether these public funds will be better spent on wider electrification or looking at other aspects of the energy transition rather than trying to roll green hydrogen out. In the wide way, which has been envisaged,

Richard Sverrisson - Editor-in-Chief, Montel: 2:35

I think. I think that's a really pertinent question, and thanks very much Rachael. But I think I'm gonna pose that question now to, to David Cebon, who's professor of mechanical engineering at the University of Cambridge, and he's also the founding member of a Hydrogen Science Coalition. Now welcome to the Montel Podcast. David.

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 2:53

Hi. Thanks very much for having me. It's great. Great pleasure to join your podcast.

Richard Sverrisson - Editor-in-Chief, Montel: 2:58

I think we could, should really start by looking at, so why are these projects being canceled now? Is the sort of, is the hydrogen bubble bursting or certainly deflating at the moment, David?

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 3:10

I think it's a good two, two questions there. Why are they not going ahead? They're not going ahead because they don't meet the economic expectations of the people that pitched them in the first place. I think that's pretty clear. Another way of saying that it's just much more expensive to do than people said they were gonna be. The reasons for that are that hydrogen is very difficult to make. It's very difficult to transport and it's very difficult to use. It's expensive. Very difficult, means very expensive. So all aspects of the hydrogen economy are hard. They're expensive. It's very easy for proponents to say, we're going to have, you know, hydrogen at X, one, $2, euros, a kilogram. Very easy to say that. It's very easy to pitch projects based on over ambitious pricing. But when the rubber hits the road and you have to actually do that that engineering and that real costing, and you find out what it's really gonna cost, not what the the charismatic leader said, then you get a different, you get a different story. And I think we're seeing that everywhere, that the real cost of hydrogen manufacture, transport, end use is way higher than. The optimistic predictions, and that's why, the optimistic predictions are the reason. One of the reasons why we've had such a lot of hype about hydrogen and the reality is the reason that hype is falling apart, why the projects are falling apart.

Richard Sverrisson - Editor-in-Chief, Montel: 4:48

And there's a part of this as well, isn't that it's much easier to announce with great fanfare plans for hydrogen, as you say. But when you actually see and ask companies and ask questions as our team of reporters does on the ground they, you know, they don't announce publicly that they're canceling or shelving or certainly very few do anyway. That's part of the story here as well, isn't it, David?

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 5:10

Well, that's absolutely right. The hype is around announcements of possible projects. Lots of them. Lots of them. And everybody wants to be in this, this is a real competition. Who can, there's dozens of countries that are going to be the world leaders in hydrogen and have, a fantastic hydrogen exports and so on. The number of countries that have made that a center of their economic policy and their industry policy is staggering, but it's all based on. Unrealistic expectations for what hydrogen is gonna do. Your listeners might know about the Gartner Hype Cycle. If you don't know about the Gartner Hype Cycle, then Google it. Have a look. It's fabulous. And it, what it shows is the general trajectory of hype for any kind of new technology. Whether that's, VCRs or Walkman or mobile phones, or in this case we can talk about hydrogen. The features of the Gardner Hype cycle is it has it shows the level of hype around a project, and it shows this, what they call the peak of inflated expectations, maximum hype level after the peak of maximum inflated expectations. It doesn't turn out to be quite as rosy as everybody thought. And you get this fall in demand and the fall in in expectations to what they call the trough of disillusionment. And after the trough of disillusionment, what happens is that we gradually work out that there are real applications for hydrogen in this case and in the steady state, they're the ones that start to be. Successful, and they call that the product, the plateau of productivity. So we go from peak of inflated expectations, which I think is pretty much where we are with hydrogen at the moment. We're going to have a big trough where projects fall apart and everybody's very disillusioned about the whole thing. Ultimately, we'll get onto that plateau of productivity and what will happen in that product Plateau of productivity in my prediction, would be the applications of hydrogen that are really important. Will come through the things where we have no choice. For example 1% of world carbon emissions come from making fertilizer from hydrogen and ammonia. That isn't gonna go away. That has to be cleaned up. And in a way, the first thing that we have to think about is how do we make that clean? How do we make that 1% of emissions, which. We have no choice about making fertilizer. We've gotta feed 9 billion people. So how do you do that cleanly? And that is, in a way, the most important application for green hydrogen. It's a huge application. 1% of world carbon emissions, that's plenty of hydrogen for anyone who wants to make hydrogen. Plenty. There's some other applications like that. A large amount of petrochemical processing uses hydrogen manufacture of things like glass. In all these applications, hydrogen is being used for its chemical properties and it's used now, it's used in big manufacturing plants and. And petrochemical plants and it's all dirty. Hydrogen. It's all gray, hydrogen, all made from fossil fuels, and it's all pretty much essential. Some of that fossil fuel petrochemical processing won't be needed in future, but all the plastics manufacture are, all the chemicals that we use that come from oil-based, have an oil base. And that's a huge part of the, of the chemicals industry. So in the end, they're the things which we have no choice about. They are things which will be there on that plateau of productivity. And the question is, what, from the peak of inflated expectations is going to make it down to the plateau of productivity? We know that the essential things will, but there's a lot of hyped up applications which are way too expensive, which won't,

Richard Sverrisson - Editor-in-Chief, Montel: 9:15

so that, that's the absolute crucial, that's the crucial element here, isn't it? I think where, but do you expect on that plateau to see a few peaks or a few bumps, or is it gonna be just a, a sort of flat plateau?

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 9:26

Oh, that's, there's always gonna be, there's always gonna be bumps out there. Yes, it, I mean, it's very, it's, highly idealized concept. But and in that plateau, it'll be undoubtedly increasing demand for hydrogen in the future. But that, that, those applications that I mentioned. Just to make those out of green hydrogen is something like two to three times all the renewables that we have on the planet at the moment, right? So to get just to those absolutely essential applications, we need to expand renewables production by about two or three, which is a hell of a lot, and that's a big job in its own right. Before you start talking about things like powering trucks or making. E fuels or heating homes or, all kinds of other applications that people have been talking about before you even start to look at those things where hydrogen is used as an energy carrier, right? So these two important distinctions for the. For making fertilizer, for making glass, for petrochemical processing. Hydrogen is used because of its chemical properties, not because of its energy carrying. Most of the applications where the hype exists, it's for use as an energy carrier, energy storage. And there it has got real, it's hydrogen has got real problems because of the inefficiencies. Associated with it and it makes it very expensive and very hard for it to compete with electrification, for example.

Richard Sverrisson - Editor-in-Chief, Montel: 10:53

Absolutely. So I think you know, we should be focusing much more on those, the use cases you described here, where it's really will make a massive difference to decarbonizing our industrial processes. But do you think then, in light of what you've just said, David, that we can expect more cancellations of these type of projects that we've seen where hydrogen is used as a, as you say, an energy carrier, so something that is either transported or burnt or whatever.

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 11:20

Yeah, absolutely. We can, we'll see them in two places, and actually for two reasons. And it is quite interesting to see what's going on. There's a whole series of transport projects which have stopped hydrogen transport projects, hydrogen buses, hydrogen trains, those kinds of things. In those cases, they have been canceled because somebody's tried it. They spent a bunch of money subsidizing it and they've tried it and they've realized that it's just way too expensive, but they've got the practical experience from those lessons. In the other cases, it's, these major utility projects and, energy, major energy projects. And what's happening there is that they're actually doing the numbers, calculating what's really involved and find that that it doesn't work. So on both sides of that, I think we'll see a lot of promised hydrogen projects disappearing for and it's principally because of cost. And the cost comes around because of inefficiency. There's inherent in hydrogen and because of the great difficulty of doing hydrogen projects, for example, it's really hard to pump hydrogen. It's really hard to transport it by pipeline. Very expensive. Much, much more difficult than pumping natural gas for all kinds of reasons. Some to do with the physical properties of the hydrogen, which make it require a lot of energy to pump and have a lot of losses and some to do with the materials, often people say hydrogen is the most abundant element in the universe. My take on that is well at it may be, it may be the most abundant but it's locked up in water and it's locked up in stars, and it is not in any way we can get at it. You have to make it if you want it. But what we do know is hydrogen is the most leaky element in the universe. It's the smallest molecules. It goes through all kinds of materials. It causes steel to be become brittle and to fail by fatigue fracture. And that's a big problem in pipelines. It causes seals to fail. It causes compressors to fail. You look at the problems of hydrogen fueling stations in California. Where Shell pulled out, they've got, enormous downtime of the fueling stations. And it's all because the compressors compressing hydrogen, putting it in tanks and delivering it is incredibly difficult and the compressors leak and they have to be made of special, fancy materials and the seals leak and the it's just really difficult and really expensive stuff to do. So they're the reasons that that the projects are much more expensive.

Richard Sverrisson - Editor-in-Chief, Montel: 14:04

Could you give us some kind of indication of just how expensive, how do the economics of hydrogen green, hydrogen, even blue hydrogen, how do they stack up?

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 14:14

A good way to use to look at that is on the use side. So my specialist area actually is not hydrogen. I'm professor of mechanical engineering and I actually. Have for many decades focused on transport applications and particularly on heavy vehicles, heavy goods vehicles. So the reason that I've got heavily involved in hydrogen is because there's a big, a lot of push and you'll know to make heavy vehicles, hydrogen powered heavy vehicles. Now, when you look at the problems with that if you take an amount of electricity. Say a hundred kilowatt hours of renewable electricity if you want to put it into a battery electric truck. You have a few losses. You have loss of electricity through the grid. Maybe you used lose 10%. You have a loss of energy when you put it in and out of the battery of the vehicle. You have a loss of energy in the drive train of the vehicle, and through all of that, you lose about 30%. So only about 70% of the energy you started with gets to the wheels of a battery electric vehicle. And it's the same for any vehicle. That's the same for a battery electric car. Your Tesla. It's the same for battery, electric bus. Battery, electric scooter, or bicycle or ferry or small test aircraft. In all cases you lose 30% between the wind turbine and the propulsion, right? 30%. That's okay. You keep 70%. If you look at it on the hydrogen side, you take that a hundred kilowatt hours of electricity. You convert it from AC to DC, you put it into an electrolyzer, which is about 75% efficient maximum. You take that hydrogen that comes out of that, you compress it, you transport it, you decompress it, you put it in a fuel cell. Fuel cell is 50% efficient at most. At most, and that's because of the laws of thermodynamics, and I won't go into the details, but just like a diesel engine is, 40% a petrol engine, 30% efficient. So a fuel cell is 50% efficient and you can't improve on it. Now if you take that 50% efficiency of the fuel cell and the 75% efficiency of electrolyzer, and add in all those other steps where you lose energy. You end up with about 25% of the energy you started with at the wheels of the vehicle. So on the one hand you've got 70%, let's, in the other hand, 20, 25% of the energy that gets through. You've got about a factor of three difference. It means that it takes a factor of three times more renewable energy to power a hydrogen fuel cell truck than it takes to power an electric truck because of those efficiencies in the, in, in those chains. And no amount of wishful thinking is gonna change that. No amount of, you can tweak it, you can make small tweaks, but basically there is a factor of three difference. So your hydrogen fuel cell truck is always going to need three times more electricity to power it because you waste 75%, right? So you need a lot more to start with because you've gotta waste a lot of it. Now, the fact that you need three times more electricity means that you need three times more wind turbines. You need three times more Land area, you need three times more maintenance. Men, you need three times more helicopters. You need three times more spare parts. You need three times more Grid connections. You need three times more of everything, and that means that it will cost three times more. So the fundamentals of this is that if you have a hydrogen fuel cell powered truck, it will cost you at least three times more to power it than if you have a battery electric truck. And that's because of the inefficiencies associated with turning electricity to hydrogen and back to electricity again. Which is, yeah. You have to suffer the losses caused by the laws of thermodynamics. There's no choice. So that's on the operational side, opex. On the CapEx side, the hydrogen fuel cell vehicle is significantly more expensive than battery electric vehicle because it's got at these complicated materials, it's got platinum fuel cells and safety critical pressure vessels and valves. Seals and complicated mechanical equipment, expensive exotic materials. So hydrogen fuel cell truck costs about double the cost of a battery electric truck. So your fundamentals here is you've got hydrogen fuel cell possibility, which costs you twice the capital cost, and three times the running cost of the electric vehicle. You've got an industry which is hand to mouth. It can't afford, two to 3% profit margin in the logistics industry. Nobody can afford to spend three times more on fueling their vehicle, which, that's absolutely not. So the question isn't, should we have hydrogen, should be using hydrogen instead of electricity is hydrogen. The question is, can the electric vehicle do the work, the logistics work that it needs to do? Because if it can, there is no way that anybody's gonna spend the money to buy actually two hydrogen vehicles. Two, two electric. You can have two electric vehicles for the price of one hydrogen vehicle. And there's nobody, no way that anybody's gonna buy a hydrogen powered vehicle if they can do the work with the electric one, because the electric one is so much cheaper. And so it is, with heat pumps and other applications where it's much cheaper to electrify in the long term. Because of the inefficiencies of the hydrogen route.

Richard Sverrisson - Editor-in-Chief, Montel: 20:11

I, so certainly you made that abundantly clear though, that you certainly don't get much bang for your buck or for your kilowatt hour there in terms of hydrogen in these use cases. But in, in the power sector, you, well, certainly over the last sort of six months to a year, we've heard talk of hydrogen ready. Gas plants, gas power plants. Now I always found that a bit perplexed and I didn't know quite what that meant. But what in your view, does that mean? I does that mean, I know potentially people are talking, you have the sort of backup capacity when the wind doesn't blow and when, when there's high demand that some, you could run hydrogen plants in the background, but really a hydrogen ready gas plant. What does that mean in your view?

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 20:50

I think the first thing is. Is there, there are really two, there are really two points here to actually do that. You take electricity, you electrolyze water, you make hydrogen, you store it in a salt cavern or something, you get it back again. You put it through your power plant and you get some energy back. When you do that, if you go through that in exactly the same way, as I said for the truck, you get 25% out, you don't get much more, maybe 30%. From the electricity that you started with, the renewable electricity that you generated at great expense. Which is very precious. You've thrown away 60% or so going through that process, and that's very expensive, right? So if you had an arbitrage kind of model where you said, okay, I'm gonna buy electricity, I'm just gonna give you the number, right? I'm gonna buy electricity at 10 pence a kilowatt hour. I'm going to put it into a storage system, which only gives me a third of it back. Now that means you have to sell that one third that you sell back for 10 pence in order to break even. So you have to sell the one third of electricity that you've stored for 30 pence a kilowatt hour if you're gonna break even. That's not a very good business model. And if you compare that, that business model to hydroelectricity, for example, pumped hydro plant where the efficiency is upwards of 80%. In that pumped hydro plant, the same calculation says that the electricity that you bought at 10 p per kilowatt hour, you have to sell it at about 12 or 13, 14 p per kilowatt hour in order to break even, right? And that's because of the efficiency gain. So people say, your engineers, you're always talking about efficiency, right? It's boffins thing, efficiency, but it's not. It fundamentally drives how much energy you need. It, and therefore the cost, right? And in this case, if you use hydrogen to store electricity, which is what's proposed, you suffer these efficiency losses, which means that it is very expensive to use that hydrogen to create electricity because you've thrown away two thirds of what you generated in order to do it. So two thirds of your generating capacity is essentially useless.

Richard Sverrisson - Editor-in-Chief, Montel: 23:09

Even, sorry, David, if even if I could just interject here slightly, even at times when you mentioned 10, 10 p a kilowatt hour, but there are times when there's abundance of generation, there's an oversupply of wind.

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 23:20

Sure.

Richard Sverrisson - Editor-in-Chief, Montel: 23:21

Even solar. So then almost the electricity is almost free. And what about in those cases?

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 23:26

So that's an interesting it's an interesting problem and it's a question of quantities. The UK curtails about 5% of its electricity, of its renewables at the moment. That is a small number of gigawatts of electricity. If you compare that small number of gigawatts to the proposals for making hydrogen, it's a thousandth. You need a thousand or more times the amount of curtailed electricity to make the quantities of hydrogen that people are talking about, right? So there's absolutely no correlation between the amount of electricity that's curtailed. What would be available, what is necessary for the scale of hydrogen economy that people are talking about. So yeah, there is a little bit of cheap electricity probably, and there are other ways to store it. So the problem that, so the question is, what problem are you trying to solve, right? So the problem that I think that we're trying to solve, is the first problem that we have to solve here is that we need to have a renewable electricity based economy, which can work throughout the day, where you can say, for one day, I'm gonna base everything on renewables. I'm not gonna have any peak peaking plants. You may have some baseline nuclear. We're not gonna have any gas peakers. I'm gonna have the coal. We've recently. Finished with coal in the uk, which is fantastic. So the first thing is we need to meet our supply and demand for one day. Now how do you do that? How do you do that? You've got a lot of different tools available for matching supply and demand. The first of course, is that you've got flexibility in the system and increasing amounts of flexibility. And if you listen to. People that specialize in flexibility like OC octopus. The flexibility available from choosing the time of day when you charge your EV batteries or choosing, adjusting the time of day when you when you power your heat pump. Let's heat just power the heat pump an hour or two earlier and store that heat in the house. Rather than running it at peak times, the amount of flexibility that provides is enormous and does a good job on leveling out that duck curve. It doesn't do everything, but flexibility is number one. Number two is some storage. Now, the storage that you need here is one day storage, not one year storage for one day storage. You'll wanna cycle it every day. And it needs to be profitable on that basis. It needs to be profitable on the basis you're gonna buy it at 10 p, you're gonna sell it at 15 p and that is not hydrogen storage. That is battery storage. It's pumped hydro. It's a number of other technologies like compressed air, like flow batteries like thermal storage. There's a bunch, high temperature thermal storage. There's a bunch of technologies that you can use. That are much, much more efficient than hydrogen, which are good for filling in the one day. And the third thing you can do is high voltage DC interconnects between regions east to west for time shifting north to south for seasonal. And when you put all those things together in a smart electricity grid, you can balance out the duck curve for one day or for. Three days. If we can do that's the first step. Once you've got to that point, then you have some other problems. Then you've got, or two other problems. One is how do you deal with the fact that we use more gigawatts on average in winter than we do in summer? You can't deal with that in any of the ways that I've said except for the high voltage DC interconnects. You can bring in more gigawatts from Morocco, from Spain. From places which have abundant renewables , in the winter. And that's, that is a doable thing. The final thing is energy security around the dunklefloute, how do you deal with the week or two of no wind in the winter? And the answer to that, in my opinion. Is we deal with that the way we deal with it now. And that is we run the gas peakers and gradually over time we run the gas peakers less and less. And by 2050 with a bit of luck, we've, we're only running them for a week a year. And if you did that, if you only ran the gas peakers for a week, a year, that would be 2% of carbon emissions in the economy. And we'd have got the economy down by 98%.

Richard Sverrisson - Editor-in-Chief, Montel: 28:13

Absolutely fascinating. David unfortunately, interest of time. I'm gonna have to stop you. I think I'm gonna have to invite you back 'cause we've only covered at least three or four of my questions. But fantastic. And a real reality check here and a way of and a call to to look at the use cases that are actually applicable where we can use green hydrogen and not to go down some blind alleys, which are gonna be extremely costly. And I think that's a very important message, David. So thank you very much for being a guest on the Montel weekly podcast.

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 28:42

Can I make just one more point? Sure. I was listening to one of your recent podcasts and there was a lot of discussion about the European Commission and the industrial competitiveness and the drive to go for competitiveness. And what I would say, which I think is really important, is that energy efficiency translates into economic efficiency. If you use energy inefficient systems, then you have to subsidize the additional energy cost. It becomes a drain on the economy. So if you use inefficient heating, home heating, people can't afford it. You have to subsidize it and whatever. So low efficiency. Translates into low competitiveness. In my view, those countries that go for flat out for big hydrogen economies are going to be forced to subsidize their energy industry into the long distance future with very large amounts of money that will seriously damage their competitiveness. And so if I had one message. For the European Commission and the new commissioners, it is electrify everything that you possibly can because that is the most efficient way to use energy. And as soon as you make hydrogen, you damage the quality of your energy and you damage your economic competitiveness. So making hydrogen is a mistake from the point of view of national and international competitiveness.

Richard Sverrisson - Editor-in-Chief, Montel: 30:21

David, once again, thanks very much for being a guest on the Montel Weekly podcast.

David Cebon – Professor of Mechanical Engineering at Cambridge University and founding member of the Hydrogen Science Coalition: 30:26

My pleasure.

Richard Sverrisson - Editor-in-Chief, Montel: 30:27

It's been a fascinating discussion and thank you listeners for tuning into the episode.