The merit order of green hydrogen use
Challenges and realities of current hydrogen production
Sustainably produced hydrogen, also referred to as “green” hydrogen, is rapidly gaining attention as a key component in a future fossil-free energy system. Beyond its environmental benefits, its remarkable versatility allows it to function as a feedstock, a fuel or an energy carrier, finding applications across a wide spectrum of industries, including heavy manufacturing, power generation and transportation.
Acknowledging the global consumption of 95 Mt of hydrogen in 2022, it's imperative to recognize that over 99% of this volume is generated through the unabated use of fossil fuels*. This leads to staggering CO2 emissions, estimated at approximately 900 Mt, which rivals the combined emissions of the UK, France, Netherlands, Sweden, Norway, and Denmark. This challenges the notion that hydrogen, serves as a decarbonization agent. Instead, it underscores its role in exacerbating carbon emissions.
Assessing the merit order of green hydrogen use
Water electrolysis, which coupled with a fossil-free electricity supply, produces green hydrogen, accounts for just 0.1% of today’s global hydrogen production. Despite a notable surge in announced projects in recent years, the production remains limited. Consequently, in the near- to mid-term perspective (until 2030 and potentially beyond) green hydrogen will continue to be a scarce resource which use requires careful consideration to achieve maximum economic and environmental benefit. Basically, there is a need for a green hydrogen merit order.
A useful framework for this is the so-called Hydrogen Ladder proposed by Liebreich Associates.
They argue that use cases for green hydrogen ranges from the unavoidable to the uncompetitive, largely based on the availability of credible alternative pathways, such as biofuels and direct electrification.
Thus, fertilizer (ammonia) and methanol production, which today are completely dependent on hydrogen derived from fossil fuels (commonly by steam reforming of natural gas), ends up on the top rung of the ladder. Conversely, urban transport and domestic heating, which are very suited to direct electrification, through electric motors and heat pumps respectively, find themselves on the bottom.
However, between these extremes lie numerous other applications where the merit of green hydrogen use must be carefully evaluated on a case-by-case basis. Industries such as steel production, which currently rely heavily on fossil fuels for high-temperature processes, may find green hydrogen to be a valuable alternative. Similarly, sectors like long-haul transportation, aviation, and certain industrial heating processes may benefit from the portability and energy density of green hydrogen, especially in the absence of viable electrification options.
Strategic deployment and future considerations
In determining the merit order of green hydrogen use, it's essential to consider not only the environmental benefits but also the economic feasibility and technological readiness. While green hydrogen holds great promise as a decarbonization tool, its widespread adoption will require significant investments in renewable energy infrastructure, electrolyser technology, and hydrogen storage and transportation systems.
Moreover, it's crucial to recognize that the merit order may evolve over time as technological advancements are made and market dynamics change. Therefore, regular reassessment and adaptation of strategies are necessary to ensure that green hydrogen is deployed where it can deliver the greatest benefits.
Conclusion
In conclusion, while green hydrogen holds immense potential as a decarbonization tool across various industries, its use must be carefully prioritized based on factors such as environmental impact, economic viability, and technological maturity. The Hydrogen Ladder provides a valuable framework for assessing the merit order of green hydrogen use, guiding policymakers, investors, and industry stakeholders in making informed decisions to accelerate the transition towards a sustainable energy future. By strategically deploying green hydrogen where it can deliver the greatest benefits, we can unlock its full potential as a key component of a low-carbon energy system.
*Source: IEA https://www.iea.org/energy-system/low-emission-fuels/hydrogen#
Content contributor
Jonas Alin, Project Director, Liquid Wind