Project-enabling policy and improved technology to help lower costs will be needed to enable development of low-carbon hydrogen projects, according to energy industry executives.

“There’s no way you can take a methane molecule or a natural gas molecule, build an SMR [steam methane reforming], put carbon capture on it. Store the carbon and have the product that pops out be less expensive than the thing you put in,” said Steve Kellogg, hydrogen strategy adviser for Exxon Mobil Corp. “So, policy is going to be required.”

Companies in pursuit of low-carbon hydrogen see it as a renewable energy source capable of driving down emissions from carbon-heavy and energy-intensive industrial processes and being a cleaner alternative to fossil fuels. Today, hydrogen—used mostly in petroleum refining and ammonia production—is typically made by steam methane reforming with no carbon capture and storage (CCS). However, producers plan to add CCS or use renewable energy during the production process while pursuing additional applications. Problem is production and adoption costs are higher than existing methods.

Initiatives to help bring down costs include the hydrogen production tax credit in the U.S., known as 45V, among others. Producers could qualify to receive up to $3/kg of hydrogen, depending on carbon intensity and other conditions. However, companies like Exxon Mobil are awaiting more clarity amid political uncertainty in the U.S. The company has said it expects to make a final investment decision on its planned low-carbon hydrogen project in Baytown, Texas, in 2025.

Policy

Supportive policies include those like Europe’s contract for difference scheme, Kellogg said while speaking on a panel recently at a Houston hydrogen conference. The scheme aims to incentivize investment in low-carbon hydrogen by offering long-term price certainty and covering the cost difference between conventional fuels and lower-carbon ones.

Carbon contracts for difference (CCfDs) could have a high impact on development of the hydrogen market, according to the International Renewable Energy Agency (IRENA). In a report, the agency noted that the CCfDs, which cover fuel switching costs, are not expected to have a big impact on government budgets.

“This is because CCfDs with high strike prices would only be available to kick-start commercial projects, followed by lower strike prices as the processes mature, to be eventually phased out when the technology becomes widespread and the market for green products is established. Moreover, the government would not pay the full strike price of the CCfD,” IRENA said in a report.

Rather, the government would pay the difference between the strike price and the observed Emissions Trading System allowance price, the report said.

If the carbon price rises over time, the net annual cost would eventually come down and go negative, IRENA said.

“Estimates indicate that CCfD prices in Europe may be in the order of a few million euros per country to decarbonize 10% of the hard-to-abate sectors.”

Currently, the U.S. does not have contracts for difference programs for hydrogen.

“Over time, we are going to have to move into what Exxon Mobil would call a market-forming policy mode. The ETS, when it becomes more mature and higher valued to enable deep decarbonization technologies, is going to be one of those things,” Kellogg said. “Other examples could be a carbon tax. It could be a carbon intensity standard on industry, for example. Those will enable a pathway to net zero and the sustainable policy mechanisms that allow for confident investment.”

Technology

There is also opportunity to improve technology. While renewables and natural gas are mature, as well as processes such as electrolysis and SMR, work is still needed to scale carbon capture and other reforming processes, Kellogg said.

And, when it comes to moving ammonia, he added, “we’re going to need a bigger boat.”

Ammonia serves as a hydrogen carrier, allowing it to be more easily stored and transported.

“Ammonia moving by boat, mature technology. But when it goes from being a fertilizer to an energy carrier, the scale is going to need to be much bigger to be cost-effective, or to be optimal, right?”

Nicolas de Coignac, deputy CEO of Americas and hydrogen for John Cockerill, said the industry is facing the famous chicken and egg equation.

“We would like the market to grow for this to have enough uptake that is committed,” de Coignac said. “And the uptakers will say I need enough stability and regulation. I need better prices. … And here, as an OEM, what we’re saying is, we know what is our technology roadmap.”

Like Kellogg, he agreed that several processes and technologies used to make hydrogen have been around for decades.

“This is nothing new,” de Coignac said, using alkaline electrolysis as an example. “But we can improve dramatically the technology and we know exactly what to do. But this will take time. Something I learned when I lived here in Texas, one of my colleagues … told me, you don’t grow carrots faster [by] pulling on their leaves.”

Maturing technology takes time, and that is gained through experience and by adjusting.

“You go down the experience curve just by starting to prime the pump with several projects and they don’t need to be a gigawatt-scale project,” de Coignac said, “but you need some projects to start and this is where regulation, incentives and all this matter.”

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