Green hydrogen must face up to the 3 Ps: power, pipelines and pricing

On Friday 11th November, renewables intelligence specialist Tamarindo convened the first meeting of our Power-to-X Leadership Council at the Institute of Mechanical Engineers in London. This members-only working group is seeking ways to advance the integration of renewables and hydrogen production.

Our members said the biggest challenge for the industry is to develop viable green hydrogen production and distribution methods that do not need government support, and help the sector reach commercial scale fast. We were joined by representatives of the sector’s top developers, electrolyser makers, hydrogen producers, investors, banks, consultancies, law firms, and corporate off-takers.

Many topics and challenges were discussed and, while our members were broadly positive on the prospects for green hydrogen, they identified three big challenges for the industry to grapple with in the short-term: power, pipelines and pricing.

Power: Will rising LCOE harm hydrogen? 

The levelised cost of energy (LCOE) at wind and solar projects is rising in 2022, due to increased power prices on the open market, higher raw material costs and supply chain disruption following Covid-19. If the LCOE of green electricity goes up then so too does the cost of generating green hydrogen. For example, a 25% rise in the price of wind turbines would drive up green hydrogen costs for the next 12 months.

The only way for green hydrogen operators to tackle this is to make it more efficient to produce green hydrogen. If this can’t be done then it will weaken the demand for green hydrogen, because off-takers are unlikely to want to pay more for green fuels than their fossil fuel equivalents as they cannot pass on those rises to consumers.

Pipelines: How do you get hydrogen to where it’s needed?

Our members were positive that the industry could solve most technical challenges, but there was a great deal of discussion about whether you could get hydrogen into the existing pipeline network; and how you can then get it safely to the end user.

One potential solution was to use offshore-wind-and-hydrogen production facilities, as green hydrogen could then be transported back to shore bypassing the existing grid. However, this is only applicable to projects with the offshore wind element. For smaller amounts of hydrogen produced on land, it makes sense to transport the fuel by road vehicle. The biggest challenge will come as the sector reaches utility-scale. 

Pricing: How can you create price transparency?

Finally, our members discussed the challenge of how to create customer demand as it requires upfront investment to retrofit existing technology to run on hydrogen.

There is also the challenge that there is no established hydrogen market, meaning it is difficult for off-takers to know how much they should be paying. Buyers are unlikely to want to commit to prices that would expose them to price risk. Our members said this would require off-takers to provide evidence to justify their pricing levels.

One solution could be the use of government support to provide pricing guarantees for both parties, such as the H2Global initiative is doing in Germany. The sector may not want to rely on governments long-term, but they can help reduce short-term risk.

Our Leadership Council will explore these critical challenges in the coming months.