Slashing costs to make hydrogen trade economically viable will require innovation, policy support and scale, according to an international renewable energy group, along with nearly $4 trillion in investment to meet global hydrogen demand by 2050.
While most hydrogen is expected to be produced and used domestically, one-fourth of the total global hydrogen demand—about 150 megatonnes (Mt) per year—could be met through international trade, the International Renewable Energy Agency (IRENA) said in a July 7 report. Research indicates half of the hydrogen will be traded through existing gas pipelines that have been retrofitted, with shipping of green ammonia accounting for the rest.
“Governments must make significant efforts to turn trade aspirations into reality. … Whether trade potentials can be realized will strongly depend on countries’ policies and investment priorities and the ability to decarbonize their own energy systems,” IRENA’s Director-General Francesco La Camera said.
The report, ‘Global hydrogen trade to meet the 1.5°C climate goal’, is the last of a three-part examination of global hydrogen trade. Its release comes as world leaders, energy players and others work to reduce carbon emissions to slow global warming. Hydrogen, an energy source that can be produced from renewable power, natural gas, nuclear power and biomass, is seen as a potential clean replacement for carbon-intense fossil fuels.
For hydrogen trade to take off, IRENA said first a market needs to be created, generating demand, promoting transparency and connecting suppliers and end-users. Second, a certification scheme is needed, focusing initially on hydrogen production and emissions reduction before including commodities and social dimensions regarding a just energy transition. Required technology must also be improved, and funds are needed to build infrastructure for global trade and larger-scale renewable energy generation.
Using hydrogen as an energy carrier could enable renewable energy to be traded globally in the form of molecules or commodities such as ammonia, IRENA said. However, liquefying hydrogen for transport is not only expensive but some energy is also lost during the conversion process.
“To make trade cost-effective, the cost of producing green hydrogen must be sufficiently less expensive in the exporting region than in the importing region to compensate for the transport cost,” IRENA said in the report. “This cost differential will become larger as the scale of projects increases and technology develops to reduce transport costs. Hydrogen trade can lead to a lower-cost energy supply since cheaper [imported] energy is tapped into. It can also lead to a more robust energy system with more alternatives to cope with unexpected events.”
Transporting hydrogen via ships runs between US$6.5/kg and US$17.3/kg, according to IRENA, which noted project scale is the main factor driving costs. Ships and liquefaction plants account for the largest share of the liquid hydrogen value chain.
If the scale rises to 100 kilotonnes (kt) of hydrogen per year (ktH2/y), the cost drops by 75%—not yet commercial but not cost-prohibitive either. Scaling up to 1.5 MtH2/y could drop transport cost to between US$1.6 and US$2.7/kgH2.
Other avenues to bring down costs include innovation, collaboration, design standardization and incorporating lessons learned—all of which could help reduce the weighted average cost of capital (WACC), seen as critical to the cost-effectiveness of trade, according to the report.
The agency said a WACC change of 15% or more to 5% could lower hydrogen shipping costs by 25% to 45%.
Further savings could be found in improved efficiencies, particularly regarding energy needed to reconvert the carrier back to hydrogen at importing terminals. This involves processes such as ammonia cracking (when ammonia is separated into hydrogen and nitrogen), hydrogen liquefaction and liquid organic hydrogen carrier (LOHC) dehydrogenation.
Still, uncertainty remains, considering some technologies are not yet commercially available and some—including LOHC dehydrogenation—are not mature. The report pointed out that hydrogen liquefaction technology, for example, is commercial but a massive scale-up is needed. That could bring on engineering challenges.
“If innovation unlocks direct ammonia use for multiple applications, it will also prevent the need for reconversion, improving the overall efficiency by system design rather than technology-specific research,” IRENA said in the report.
It added the biggest lever to lower transport cost is scale with larger project sizes. But that won’t likely happen without a simultaneous increase in demand.
Hydrogen production costs are expected to continue falling.
“Innovation, increase of manufacturing capacity and scaling up of single modules and global capacity could reduce the investment costs of electrolyzers by at least 40% in the short term,” the report stated, “which when combined with the ongoing decrease in the cost of renewable electricity should lead to a level below US$2/kgH2 within the next decade.”
Several governments are taking aim at hydrogen production costs.
In the U.S., the Department of Energy, which offers funding opportunities, launched in 2021 the Energy Earthshots initiative. The Hydrogen Shot aims to reduce the cost of hydrogen to $1 per 1 kg in one decade.
Similar initiatives are underway in Australia and Chile, which target costs of about US$1.5/kgH2 by 2030.
Capital costs could also fall with assistance from governments in the form of grants and loans, helping to de-risk projects.
Other incentives to boost the hydrogen sector could include tax credits, exemption from taxes and fees associated with electricity prices and exempting electrolyzers from levies. Public procurement and carbon contracts for difference (carbon price targets) could also encourage global hydrogen trade.
Hydrogen has the potential to cut CO₂ emissions by 10% and meet 12% of global energy demand by 2050, according to IRENA, but it’s only a viable climate solution with electrification.
“Satisfying the global hydrogen demand requires an investment of almost US$4 trillion by 2050,” the agency added. “However, it will be critical to ensure that large hydrogen projects can be financed affordably. Net zero-aligned finance instruments must leverage the investment needed by the energy transition including ramping up green hydrogen in regions with good renewable potential but traditionally high cost of capital, fostering hydrogen trade further.”
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