Introduction
Many countries across the globe have taken significant steps towards embracing hydrogen as a pivotal component of their energy landscape. With the aim of fulfilling their commitments under the Paris Agreement, countries have launched comprehensive national hydrogen strategies, encouraging the private sector to bring forward investment in low carbon hydrogen production.
The concept of the hydrogen rainbow aptly illustrates the diverse array of sources harnessed in the energy industry to produce hydrogen, with each colour representing a specific production method, such as grey hydrogen sourced from natural gas and black and brown hydrogen derived from coal. Currently, grey hydrogen is the most prevalent form of hydrogen production, posing a challenge for achieving low carbon goals. However, significant advancements in the hydrogen sector are paving the way for low carbon hydrogen such as, blue hydrogen which is produced using natural gas with carbon capture and green hydrogen which is produced using renewable energy sources.
Development 1
A notable challenge to the hydrogen sector was the lack of set industry standards in regards to PPAs with hydrogen electrolysers attached. In June 2023, the EU Commission published two delegated acts outlining the EU definition of renewable hydrogen as part of its aims to ensure that hydrogen is produced from renewable energy sources and achieves 70% emissions savings.
- The first Delegated Act defines when hydrogen, hydrogen-based fuels or other energy carriers can be considered as a renewable fuel of non-biological origin (also known as the “Additionality Delegated Act”).
- The second Delegated Act outlines the methodology, setting out detailed rules for the production of renewable liquid and gaseous transport fuels of non-biological origin.
The Additionality Delegated Act incorporates two additional sets of criteria to ensure that hydrogen production is powered by renewable sources:
- The additionality requirement: This set of criteria mandates hydrogen producers to enter into power purchase agreements (PPAs) with new and unsupported renewable electricity generation capacity.
- The criteria on temporal and geographic correlation: These rules guarantee that hydrogen production aligns with the temporal and geographic availability of renewable electricity. In essence, this means that hydrogen production is closely tied to when and where renewable electricity is abundant.
A key example of the importance of the delegated acts is their application in the EU Hydrogen Bank auctions where the definition provided for renewable hydrogen will be used to determine which projects are eligible for funding allocation. However, whilst the delegated acts are a welcome development, they fall short in significant areas such as failing to address important questions on demand and imposing overly complex regulations.
Development 2
As an additional indicator of the growing recognition of green hydrogen, tax incentives are being implemented as another means of promoting its production.
The US incentives introduced by The Inflation Reduction Act 2022 (IRA) are a key example of this, particularly The Clean Hydrogen Production Tax Credit which creates a new 10-year incentive for clean hydrogen production tax credit with up to $3.00/kilogram; this tax credit is only available to projects based in the US. Hydrogen projects can elect to claim up to a 30% investment tax credit under section 48. Clean Hydrogen for the purposes of this tax credit means blue and green hydrogen. This credit provides a varying, four-tier incentive depending on the carbon intensity of the hydrogen production pathway with the greatest tax credits being awarded to projects with the cleanest production method, favouring green hydrogen. The system encourages projects to use clean electricity from renewables and minimise the fossil fuel-based facilities which might utilise the subsidised programme and significantly add to greenhouse gas emissions.
Looking Forward
In the coming years, the sector's key challenge is optimising low-carbon hydrogen's role in curbing carbon emissions within our energy system. For example, the ability to store hydrogen has great potential; green hydrogen can be generated during periods of excess renewable energy production and then stored for use when energy demand spikes. Tackling this challenge involves overcoming obstacles like global electrolyser capacity constraints and the need for improved distribution and storage infrastructure. These are hurdles the renewable sector has previously faced and successfully overcome.
Currently, power prices account for 70% of hydrogen electrolysis costs. 1 To address this issue, it is important to introduce more incentives and clear guidelines that will encourage the collaboration of the two sectors and the integration of renewable energy sources such as solar and offshore wind for the production of green hydrogen.
