Green hydrogen systems have had a wild few months on the financing side. For every massive investment, there seems to be another company scrapping funding for the technology altogether.
Just in the last month, Morocco announced a US$32.5 billion plan to produce green fuel for the ammonia, steel, and industrial sectors. Also last month, Saudi Arabia announced it would build a $US 5 billion plant to make the green fuel for export, in a bid to wean itself off oil. Calgary announced last week a regional hydrogen hub, aggregating regional demand and focusing on transport.
In recent years, China invested US$42 billion in the green hydrogen systems sector, using the funds to trial hydrogen fuel cells in trucks and ships as well as pipelines for long-distance hydrogen transport.
Cancellations Highlight Challenges for Green Hydrogen Systems
But there’s also been hesitation among investors and governments.
Last week, commodities trader Trafigura canceled US$ 471 million it had planned to invest in a green hydrogen plant for a lead smelter in South Australia. In Canada’s British Columbia, seven hydrogen projects have been canceled or paused due to high cost and limited electricity supply since January 2024, while last month the Queensland government in Australia pulled funding from the country’s largest proposed green hydrogen project.
Industry Experts Weigh In on the Future of Green Hydrogen Systems
“I can’t deny that it’s challenging in our industry at the moment,” industry association Green Hydrogen CEO Jonas Moberg told Climate Insider.
The cancellation of projects is really about companies’ appetite for risk, WSP’s Hydrogen market lead Beverly Pilling told Climate Insider.
“Some clients will announce a project early on in the project,” she noted, and then later find that the project is economically unfeasible for a variety of reasons.
However, she said, there are many companies in Canada who have been building their green hydrogen system projects for many years, who haven’t announced these plans publicly.
The development of the green hydrogen system industry in the last five years has been “phenomenal,” Pilling said.
“When we first started, there were a handful of electrolysis companies out there who were willing to share information, and help develop designs in the green hydrogen system space,” she said.
“Now, the technology is up and running.”
Making Green Hydrogen Systems the Go-To Option
Moberg believes green hydrogen systems can start to emerge as the go-to hydrogen fuel once industry understands that blue hydrogen is not a climate-friendly option.
“If blue hydrogen is properly accounting for itself in terms of emissions, this is a very good step for renewable energy, and green fuels like green hydrogen and its derivatives take off,” Moberg said.
“An organization like ours has no problem with blue hydrogen. If it is done well, it’s fine,” he said.
“BP and Equinor have defined ‘well’ as a carbon capture rate of 95+% and virtually no leakage. But most of the blue hydrogen is not at that rate.”
But Pilling emphasizes that all hydrogen – no matter what color – is good for the environment.
“Electrification is good. Hydrogen is good. LNG is good,” she said, adding it was important to diversify energy sources.
Green hydrogen must be applied strategically
Green hydrogen systems must be applied to where it makes the most sense, and not just because it looks like a shiny new technology that will generate headlines, one analyst told Climate Insider.
“Hydrogen takes a lot of energy to use – you’re going to invest more energy in creating it, than you’re going to get from it,” FC Architects’ Director of Technologies and Impact Magnolia Tovar said.
“We need to use it where we need it the most: food security, fuels production (moving people and goods), and nascent sectors like steel.”
Guardrails for Policy and the Future of Green Hydrogen Systems
FC Architects are calling for policy-makers to establish a set of “guardrails” that will help them understand where green hydrogen systems can make the most impact, both in powering certain sectors and applications, and in reducing greenhouse gas emissions.
Policy-makers should ground their decisions, and particularly energy decisions, on science-based information, Tovar said. They should always land on decisions that the delivers the most energy-efficient system at the lowest carbon abatement cost.
FC Architects have outlined a system to determine best-use options for hydrogen.
First, policy leaders should focus on decarbonizing current hydrogen uses first.
Leaders can increase the number of renewable energy projects to help hydrogen-dependent industries decarbonize their production. The group also encourages leaders to assess whether it is feasible to decarbonize existing hydrogen production assets, either through deploying carbon capture and storage or implementing measures to control methane emissions.
Secondly, FC Architects argues that hard-to-abate sectors where electrification is not possible – like long-haul aviation and shipping – should be prioritized. These targets should be solidified in national strategies to make it clear that hydrogen is only to be used in specific industries and cases.
Third, the use of hydrogen for heating, road transport, and other sectors which are more easily decarbonized should be abandoned. Not only will this enable enough green hydrogen to be available for priority uses, but it also removes the need to expend energy to split hydrogen for sectors that can easily run on electricity.
Fourth, the organization urges all levels of government to invest in research and development, so that future green hydrogen needs can be met. Additional research will also help governments overcome upstream challenges and ensure that hard-to-abate sectors always have access to green fuel, FC Architects said.
Having such guardrails enshrined in legislation for public funds, for instance, could ensure that hydrogen is only applied in best-use scenarios.
“Imagine the government says they want to promote hydrogen for home heating,” Tovar said. “When you look at the numbers, you’ll see that a heat pump is way more efficient. If these guardrails are in place, public funding will not go to that option.”
