It’s been a busy few years in the world of green hydrogen, from the proposal of long-anticipated rules for tax credits to funding bumps for electrolyzer startups. But as BloombergNEF highlighted in a May report, hydrogen has a long way to go to reach its full potential.
In BNEF’s net zero scenario, hydrogen use globally quadruples in the next two decades. And that growth is driven primarily by the steel, aviation, and shipping sectors.
At that scale, hydrogen will account for around three percent of carbon abatement between now and 2050. But hydrogen production of that magnitude would make up 19% of total electricity demand during that period.
- The top line: In order for green hydrogen to be a key decarbonization lever for a small but essential corner of industry, it must also scale to be the largest source of new electricity demand on an already strained grid. Threading that needle will require some major changes in relatively short order — nine terawatts of solar and wind capacity need to become available, and electrolyzers are going to have to become a lot more flexible.
- The current take: While the need for more electricity isn’t unique to hydrogen, the potential for electrolyzers to be flexible grid assets is unique, said Adithya Bhashyam, a BNEF hydrogen analyst. “There’s this huge value in a net zero power system in having assets that can ramp up and down, both from a hydrogen production perspective, but also to absorb excess power on the grid,” he said.
Producing hydrogen is an inherently inefficient process. Very few other technologies or decarbonization processes in the energy transition have the immense trade-off that green hydrogen does, Bhashyam said. But getting electrolyzers online can’t necessarily wait until grid backlogs have been sorted out and mass amounts of clean energy are waiting in the wings.
“The net zero scenario is a very challenging but achievable scenario,” Bhashyam said. “But achieving that means everything needs to happen at the same time.”
The first hydrogen projects will crop up where there’s existing demand for fossil fuels, he added — refineries and ammonia production, for example. Those are processes where hydrogen can be integrated relatively easily without a lot of new infrastructure.
But green hydrogen’s value is expected to increase over time, as electrolyzers become flexible assets on the grid. While green hydrogen developers are facing many of the same grid connection and cost challenges as other areas of the clean energy world, electrolyzers are unique in their ability to soak up otherwise curtailed renewable generation.
For this reason, BNEF anticipates that the bulk of a green hydrogen build-out will happen later in its net zero scenario.
“It’s not necessarily because we couldn’t use it today,” Bhashyam said. “It’s more because the technology to use hydrogen in some of these new sectors isn’t available, and building these projects takes time.”
As we inch closer to 2050, industries like steel will increasingly rely on hydrogen, and electrolyzers will have to become flexible, he added. (BNEF’s scenarios assume that electrolyzers are most economic when grid-connected, though Bhashyam said he expects “a good chunk” to be off-grid and colocated with green power sources.)
A 45V flexibility boost
In BNEF’s net zero scenario, electrolyzers are modeled as a fully flexible form of demand, operating during the cheapest hours of the day.
In 2025, it includes electrolyzers running at 90% capacity, but by 2035 it drops that number to 50%, and remains constant from there.
Ramping up and down to meet that relatively low capacity factor is a technical challenge that many hydrogen developers flagged in the wake of the Biden administration’s proposed hourly matching requirement for the 45V green hydrogen tax credit. Some developers even argue that the strict guidance will suffocate the market before it really gets off the ground.
Today, said Bhashyam, most green hydrogen projects want to run their electrolyzers on baseload power.
“While a lot of promises have been made about how flexible electrolyzers are, the technology at 100-megawatt or gigawatt scale doesn’t really have a huge track record,” he said. “Today, electrolyzers wouldn’t be a flexible asset unless you have an incentive for them to be.”.
And even with 45V’s hourly matching requirement — which is expected to be finalized in the coming months — most projects are still looking to source baseload electricity rather than run their electrolyzer flexibly.
“That flexibility benefit isn’t something that is there today,” Bhashyam said. “It’s more that in the future, we think that when you have gigawatts of [electrolyzers] on the grid, hopefully they will be a flexible asset.”
