Hydrogen Rising: Is this the energy of the future?

The key technology behind decarbonisation hitherto has been battery technology. But could hydrogen power turn out to be the real game changer? Victor Hill investigates.

The primary element

Hydrogen power is poised to become ubiquitous. Currently it accounts for just five percent of global energy consumption and less than two percent in Europe – but that is about to change. Hydrogen will become a critical component of the renewable energy mix. Or that is what its proponents tell us. The truth is more nuanced.

Hydrogen is the first element in the periodic table – it has just one electron orbiting its nucleus, and it is reckoned to be the most abundant element in the universe. It is highly combustible; but when burnt it forms only water (it combines with oxygen atoms to form H2O). It is thus the ultimate green fuel. With all advanced countries now committed to attaining net zero carbon emissions (the UK by 2050 and China by 2060), hydrogen will undoubtedly play a vital role. The UK has now introduced an interim target of a 78 percent reduction in emissions (relative to 1990 levels) by 2035, so decarbonisation is top of the agenda (or will be, post-pandemic).

Hydrogen is produced either from natural gas (which is mostly composed of methane) or by means of electrolysis (passing an electric current through water). Methane is a chemical compound with the chemical formula CH₄ (one atom of carbon attached to four atoms of hydrogen). Thus, when hydrogen is sourced from methane, large quantities of greenhouse gasses are produced – unless they can be captured and sequestered underground. (This is feasible – SSE and Equinor plan to build a giant carbon capture and storage (CCS) facility in Peterhead, Scotland.) Hence the term blue hydrogen. Both processes require power in the form of electricity. If the electricity used for electrolysis is produced from renewable sources (solar or wind power) the resulting hydrogen is called green hydrogen.

Right now, electrolysis is favoured as the route forward. The EU has a target of 6 gigawatts of renewable hydrogen electrolysers by 2024 and 40 gigawatts by 2030. So hydrogen production is to be ramped up.

Buses and diggers

If you live in London or Aberdeen the chances are that you have already travelled on a bus powered by hydrogen fuel cells.

At the end of last year, Go-Ahead Group (LON:GOG), the bus and train operator which runs the Govia Thameslink, Southern and Southeastern rail franchises, was rumoured to have signed a deal to buy up to 40 hydrogen-powered buses from Wrightbus. Wrightbus, located in Ballymena, Northern Ireland was rescued by Jo Bamford, the son of JCB owner and chairman, Lord Bamford. The company, which manufactures both single- and double-decker hydrogen-powered buses, received a development grant last year from the Advanced Propulsion Centre. Jo Bamford spent 14 years at JCB before moving into the hydrogen sector, setting up Ryze Hydrogen and then buying Wrightbus.

JCB announced in July last year that it had developed the first hydrogen-fuelled excavator. The 20-tonne 220X excavator powered by a hydrogen fuel cell has been undergoing rigorous testing and will be commercially available shortly.

Shipping

The global shipping industry is currently responsible for about two percent of all global carbon emissions. Maritime UK, which represents the British shipping industry, is lobbying the government to invest £1 billion to accelerate low carbon shipping technologies. One technology is a reversion to the past – using sails (now called aerofoils) to enhance speed. A British company called Smart Green Shipping is working on this.

But the electrification of shipping is not straightforward. Some have calculated that a battery electric-powered ocean-going ship would have to tow another one behind it containing the battery to provide sufficient range. Artemis Technologies, based in Lisburn, Northern Ireland is developing a small electric vessel that has a range of 60 nautical miles – insufficient for cargo transport but suitable for, for example, servicing offshore wind farms. It has also received funding to develop a 350-seat electric-powered hydrofoil that could carry passengers over short distances.

Most experts thinks that hydrogen-powered cargo ships and super tankers would be viable. Shell is reported to be testing the use of hydrogen fuel cells to power ships. Watch this space.

Aviation

International aviation accounts for about seven percent of global carbon emissions. While the fuel efficiency of modern kerosene-powered airliners has been increasing, overall demand for air travel was increasing by about five percent per annum before the coronavirus pandemic struck. (Whether aviation demand will ever recover is something I have speculated upon in these pages.) Carbon emissions arise not just from the burning of kerosene in the air, but also from the emissions from airports and indeed the transport systems that people require to get to them.

There are two possible ways by which CO₂ emissions from aviation could be slashed. One is to re-engineer aircraft engines to run on biofuels instead of kerosene. The point about biofuels is that they do generate CO₂ emissions when combusted, but the next crop will theoretically negate these by removing CO₂ from the atmosphere as it grows. (Not everyone buys that analysis.) The other way is to build hydrogen-powered aircraft.

ZeroAvia, based at Cranfield, Bedfordshire and backed by the Jet Zero Council, a UK government initiative, is developing a 100-seat hydrogen-powered aircraft which it hopes will be airborne by 2030. This is a huge challenge. In a recent report McKinsey estimated that hydrogen-powered planes would have to carry a volume of liquefied hydrogen four times that of an equivalent kerosene-powered aircraft. 

Heating homes with hydrogen

Home boilers in the UK emitted an estimated 87 million tonnes of CO₂ equivalent in 2019, accounting for about 17 percent of the country’s total carbon emissions. Including offices and commercial property, that figure rises to about 23 percent. As part of the Johnson government’s decarbonisation agenda, gas and oil-powered boilers will not be permitted to be installed in new homes from 2025 onwards. The government has even suggested that all new gas boiler installations will be halted by 2035.

Hitherto, policymakers have favoured replacing fossil fuel powered boilers with electric heat pumps, of which there are two kinds: ground source and air source. These work like refrigerators in reverse. The UK government’s target is to install 600,000 new electric heat pumps in British homes by 2028. That compares to about 1.7 million new fossil fuel boilers installed in British homes each year. The Climate Change Committee concluded that 19 million heat pumps will need to be installed in existing homes, not including new builds, by 2050 if we are to reach net zero. Only about 240,000 heat pumps are operational in British homes right now.

But there are doubts as to whether heat pumps are the optimal solution. For a start, they are expensive to buy and install. Air source heat pumps cost between £7,000-£14,000 for the average home plus insulation costs, though grants are available. (Grants for insulation have been withdrawn.) Ground source heat pumps cost from £15,000 to £35,000. Costs have been bid up because of the scarcity of technicians trained to install them. Moreover, the running costs of heat pumps (cost of electricity) are also higher than those of an equivalent gas boiler. A recent report by Public First – commissioned by Ovo, Eon, EDF, Scottish Power and Centrica – reckoned that the average household would have to pay £408 more each year.

I looked at this option last year when I was replacing an oil boiler in an old property, and it turned out that one would need to rip out the entire system of radiators for a heat pump to work effectively. They are therefore unsuitable for retrofitting in old houses. They also use huge amounts of plastic tubing. They are bulky and can easily occupy a typical domestic garage entirely. They use a lot of electricity. They are noisy. Many users find them inadequate to the task of providing hot baths and showers on demand. What’s more, the German Federal Environment Agency (Umweltbundesamt) recently issued a warning about the risk of heat pumps polluting the water table because they contain hydrofluorocarbons.

The prime minister’s ten-point plan for a green industrial revolution, released in November last year, commits the government to work with the private sector to evaluate hydrogen as an option for heating our homes and workplaces. The idea is that hydrogen could utilise much of the existing gas mains network without too much costly adaptation. Hydrogen formed part of the town gas (manufactured by heating coal) which powered most urban British homes until the system was switched to North Sea natural gas in the 1970s. But domestic hydrogen-ready domestic boilers are not yet available. Centrica (LON:CNA), which owns British Gas, predicts that it will be over a decade before hydrogen-powered domestic heating becomes viable.

Domestic boilers in the residential quarter of the RAF base at Spadeadam, Cumbria, are to be powered entirely by hydrogen in a novel experiment in collaboration with National Grid (LON:NG.). The objective is to determine whether hydrogen could ever fully replace natural gas to heat Britain’s homes. In another trial at Keele University, a blend of natural gas and hydrogen is being piped into homes. In Fife, Scotland, SGN Gas will heat around 300 homes using hydrogen manufactured from a wind-powered electrolysis plant.

The government is also keen on enhanced insulation (with some justification – British homes have a poor record in this regard). All homes in the private sector will have to be rated EPC-C by 2030. That entails double or triple glazing, solid or cavity wall insulation and in many cases underfloor heating.

In order to produce enough green hydrogen to heat all of Britain’s homes it would be necessary to generate about 30-times more offshore wind power than is currently available. Even if that were feasible, the cost of hydrogen will be more than three times that for the equivalent amount of natural gas.

Eco-inflation beckons

Eco-inflation, borne largely by the consumer, is going to be a salient issue going forward, with many lower income people being plunged into fuel poverty. Carlos Tavares, CEO of the world’s fifth biggest car-maker, Stellantis(BIT:STLA), believes that the global rush to electrification could make EVs too expensive for even the middle classes to afford. A petrol-powered Vauxhall Corsa costs £16,000, while the Corsa-E costs £26,400. He thinks the that if EVs remain too expensive then people will continue to drive second-hand ICE vehicles for years to come. He said last month that the scientific decision on the choice of this technology has not been made by the automotive industry. Electric vehicles are 300-500 kilograms heavier than their ICE analogues because of their mineral-heavy batteries. And if they are charged by fossil-fuel produced electricity (as they will be in most developing countries) then CO₂ emissions globally might rise even faster.

Andrew Montford, Deputy Director of the Global Warming Policy Forum, reckons that the cost of getting to net zero will cost well over £100,000 per household. Furthermore, there will be unpopular restrictions – such a ban on the sales of homes with poor energy ratings. That will not be popular in the Tory shires where there is already muttering about restrictions on woodstoves and coal fires.

The net zero backlash is coming – and it will not be pretty. The gilets jaunes set France ablaze after President Macron imposed carbon taxes – something equivalent could happen here. Many Londoners are already up in arms about so-called Low Traffic Neighbourhoods (another of Mayor Khan’s splendid ideas). In its Sixth Carbon Budget report published last December, the Climate Change Committee (an independent public body established under Ed Miliband’s 2008 Climate Change Act) estimated the cost of decarbonising the economy between now and 2050 to be £44.5 billion a year. The Johnson government has set ambitious targets but has not been so forthcoming about who will foot the bill.

Bank of England Governor Andrew Bailey warned recently that the global shift to green energy will not be frictionlessand could result in higher inflation. The Monetary Policy Committee recently discussed climate change for the first time. Separately, the UK central bank recently vowed to tilt its bond-buying investments to greener issuers.

Stellar returns for the brave

Over the past two years, shares in companies operating in the hydrogen sector have been on the up. The share price of AIM-listed Ceres Power (LON:CWR), which manufactures its own technology hydrogen fuel cells, has more than doubled over 12 months; and shares in  AFC Energy (LON:AFC) have risen by over 150 percent over the last year. Shares in ITM Power (LON:ITM), which boasts the world’s largest hydrogen electrolyser, have risen by about 43 percent. This despite revenues and profits to back up the bullish valuations. Players in this sector tend to be still relatively small and are largely yet to break even.

For all that, investors should be cautious. Valuations of companies in the hydrogen sector tend to rise in tandem with the oil price – the more expensive fossil fuels, the more attractive the alternatives to it. That happened before in 2008-10 when the oil price rocketed.

The question is how quickly hydrogen power will become mainstream and whether the cost of hydrogen production at scale can be sufficiently reduced. Established energy giants – the oil majors – are looking to transition to become suppliers of renewable energy. Shell (LON:RDSB), BP (LON:BP.) and Danish wind power giant Orsted(CPH:ORSTED) have all set up hydrogen operations. BP is planning to build a hydrogen plant in Teesside which it says could provide hydrogen for local industry and homes. We should bear this in mind when we evaluate oil stocks.

The energy mix

Fossil fuels accounted for three quarters of electricity production in the UK in 2010. As I write this, fossil fuels account for just 25.3 percent of current generation according to the National Grid Live Status website. That is a major advance. Coal has become almost obsolete in the UK energy mix – even though neighbours such as Germany are still highly dependent on it. (Germany could be obliged to import energy from Britain soon, according to S&P Global Platts.) But electricity demand is going to double in the UK by 2050 with electrification stroke decarbonisation, and it is still not clear how that will be achieved.

One proposal is for a network of Allam Cycle gas turbines – gas-fired power stations with built-in carbon capture and storage. In similar fashion, the Drax biomass power plant near Selby, Yorkshire is building a massive carbon storage facility in collaboration with Mitsubishi Heavy Industries to offset all the carbon emissions it produces. Another proposal is to roll out a network of mini nuclear reactors – Rolls Royce (LON:RR.) is working on this. The fact that five of the UK’s nuclear power stations will be shut down over the next three years (including, as we learnt this week, Dungeness in Kent) will make the net zero target more difficult to attain. Britain cannot rely on solar and wind energy alone because the sun does not always shine in the UK (as we know) and on some calm days there is no wind.

There may be technologies out there which, so far, have been off the radar. Cars of the future could be powered by hydrogen extracted from – unpleasant as this sounds – human sewage. This is already being pioneered by UK water companies such as Northumbrian Water. Sewage is rich in ammonia (chemical formula NH₃) which can be broken down into nitrogen and hydrogen.  Northumbrian estimates that each tonne of sewage could yield two grams of green hydrogen.

As I have previously discussed in these pages, a typical electric car requires six times the mineral extraction of an internal combustion engine-powered car. An onshore wind plant requires nine times more mineral inputs than an equivalent gas-fired power plant. These minerals are increasingly scarce. The bald fact is that the technology that will facilitate net zero carbon emissions by 2050 without massive dislocation does not yet exist – despite all the green rhetoric by politicians. Hydrogen could be the answer – but that is not yet assured.

Finally, it is sobering to reflect that even if we reduce our net carbon emissions to zero by 2050, and even if other advanced countries do likewise, we might not be able to halt the increase in CO₂ in the atmosphere. A study by the Institut national de la recherche agronomique (National Institute for Agronomic Research) in France recently showed that, due to increased logging and deforestation, the Amazon rainforest – once dubbed the lungs of the Earth – now emits more CO₂ than it absorbs. Total global carbon emissions reached 40 billion tonnes in 2019. Plants and soil will have absorbed about 30 percent of that; and the oceans another 20 percent. That still means the total volume of CO2 increased by 20 billion tonnes the year before last.

Climate policy therefore becomes a prisoner’s dilemma type problem: it depends not on just what we do but what others do in response. No doubt the leaders of the G-7+ nations and their advisors will be reflecting on that in Cornwall this weekend.