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A country with a future in green hydrogen

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In Colombia, the production cost of green hydrogen today would be between US$4 and US$8 per kilo, compared to the production cost of gray hydrogen, which is between one and two dollars per kilo.

Worldwide efforts to reduce global warming, in line with the goals of the Paris Agreement, depend to a large extent on replacing fossil fuels with renewable energies; the challenge is significant. However, the latter will not be able to fully meet the needs of industries such as shipping, aviation, and cement and steel production. Major technological breakthroughs are required.

Meeting energy demand will require fuels such as low-carbon hydrogen (H2) and a variety of low-emission hydrogen-based fuels such as ammonia, methane or kerosene. These fuels, known as power-to-X (P2X), use hydrogen produced exclusively from renewable energy sources. According to the International Energy Agency (IEA), these fuels must provide 10% to 12% of global energy consumption if we are to reach the Paris Agreement’s net zero emissions target by 2050.

According to analyses conducted by BCG, 380 million tons per year of low-carbon hydrogen and derived fuels will be required to restrict global warming to 2ºC. Meeting the Paris Agreement target of limiting the increase to 1.5ºC will require 565 million tons per year.

The need for low-carbon H2 supply will be very large. Therefore, we expect hydrogen production based on renewable energy, which is known as green hydrogen, to increase relative to natural gas-based hydrogen production as technological improvements and policies related to carbon emissions make it more competitive. Natural gas-based production is one of the methods of producing gray hydrogen (that created from hydrocarbons), and is the most prevalent today globally. Its use, combined with carbon capture and storage mechanisms, will also play a relevant role and will require ensuring abundant supplies of economical natural gas and strict policies to limit the release of fugitive methane emissions.

In Colombia, the cost of producing green hydrogen today would be between US$4 and US$8 per kilo, versus a cost of producing gray hydrogen that is between one and two dollars per kilo. These figures are estimates that we have made because to date green hydrogen is not produced on a national scale.

BCG expects that by 2030 this production will begin to be competitive with gray hydrogen. In addition, we estimate that by that year Colombia could be one of the most cost-competitive countries along with Chile, Australia and countries in the Middle East. Colombia also has a competitive advantage that it could potentially leverage, which is that about 80% of its electricity comes from hydro sources, which could eventually be used to produce low-carbon H2.

Meeting future demand for H2 will not be an easy task. Reaching the necessary level of production and supply will require concrete incentives: financing schemes, fiscal incentives, possible direct subsidies to production and the application of mechanisms to set a sufficiently high carbon price to ensure cost competitiveness with existing fossil fuel-intensive hydrogen. In Colombia, the first steps have already been taken to lay the groundwork for such regulatory and incentive incentives through the energy transition law.

On the other hand, producing sufficient green hydrogen will require the availability of an adequate supply of inexpensive renewable energy and the locations where it can be generated. Today, almost all available and planned renewable energy from wind and solar sources is reserved for direct electrification, which, from a cost reduction perspective, is the most beneficial decarbonization pathway. In order not to cannibalize available renewable energy, policymakers and other stakeholders must ensure that there is a sufficiently large source of renewables dedicated to hydrogen and P2X fuel production.

The stakes are ambitious and Colombia has the potential to be a relevant player in the market. However, to achieve that promising future, there are still several factors to work on. Green H2 needs to reach technological maturity in the electrolysis processes, and the country needs to ensure the deployment of renewable energies at scale, as well as having the appropriate infrastructure to enable the storage and transportation of hydrogen and its derivative fuels. On the other hand, it is critical to understand that human capital must be constantly trained in the technical and safety knowledge involved in working with hydrogen.

Nedim Husomanovic

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