Green Hydrogen: Opening Probabilistic Feasibility Space to Inform Policy Choices

Green hydrogen as an energy carrier is once more generating a lot of interest in both the scientific and political worlds. It offers a flexible substitute for non-renewable fossil fuels, has a high energy density, can be stored as a gas or a liquid, and is relatively simple to transmit via pipeline.

Especially in some end-use sectors where emissions are difficult to cut, like aircraft, long-distance maritime transport, or the chemical and steel industries, hydrogen and hydrogen-based fuels can reduce carbon dioxide emissions and alleviate climate change if produced with renewable energy.

Following a burst of enthusiasm among numerous nations and businesses in the 1990s and early 2000s, which was swiftly followed by disillusionment, some governments around the world have recently stepped up their efforts to support hydrogen ecosystems. A hydrogen strategy was also agreed by the EU in 2020. The European energy crisis has lately gained speed as a result of the significant political and economic threats posed by many nations’ reliance on imported fossil fuels.

More than 99% of the hydrogen produced worldwide in 2021, however, came from the combustion of fossil fuels. Despite this, the development of hydrogen technology has, up until this point, largely been driven by end-use applications, market and sector demands, rather than efforts to green the supply.

Global electrolyzer capacity is a significant barrier to the use of green hydrogen.
Gunnar Luderer and his co-authors highlight the need for scaling up green hydrogen supply as essential since they believe it to be a significant barrier to the energy carrier’s success in their Nature Energy paper, “Probabilistic feasibility space of scaling up green hydrogen supply.” According to the net-zero scenario presented in the “World Energy Outlook 2022,” 3,670 GW of installed electrolyzer capacity will be required for our planet by the year 2050. The amount is estimated to be 5,000 GW by the International Renewable Energy Agency (IRENA) in order to be consistent with a route toward the Paris 1.5°C objective. According to the authors, this would need an increase in global electrolyzer capacity of 6,000 to 8,000 times between 2021 and 2050.

The difficulty of rapidly scaling up a novel technology is not specific to hydrogen. In light of this, recent research that looked back at the pattern and rate at which energy technologies developed in the past has provided important information about how to scale up new technologies. However, the authors note that they adopted a novel strategy: whereas earlier research “constructed feasibility spaces by looking at historical precedents of the same technology in different regions,” Luderer’s team contends that historical growth rates are primarily indicators of previous policy support because green hydrogen is not competitive. As a result, they decided to apply this strategy to both the European Union and the rest of the world by drawing lessons from “historical precedents of diverse technologies in the same region.” What if green hydrogen grew as quickly as wind and solar electricity did during their heyday, the authors wonder in their main scenario.

Analysis of the potential risks of increasing electrolysis capacity

Their research examined potential electrolysis-produced green hydrogen expansion paths. In order to do this, the authors did an uncertainty analysis of the market ramp-up and the continued growth of the capacity for electrolysis in the EU and globally. Their research is based on an S-shaped model with three separate phases called the modified logistic technology diffusion model. The earliest or formative stage of the pathway is characterized by significant technological challenges, high costs, and high levels of risk, which cause growth to be sluggish and uneven. The growth phase that follows, which is when the breakthrough point is reached—the year when the absolute deployment of electrolysis capacity peaks—is then reached. Because of economies of scale and cost-decreasing learning effects, the growth phase is characterized by growing returns. Due to restrictions in technology, the economy, and society, growth slows after achieving its maximum pace of expansion. The final market level is now getting closer, signaling the start of the saturation phase.

With regard to green hydrogen, the initial phase’s unpredictability is brought on by the fact that subsequent electrolysis projects will be dependent on final investment decisions, projects delaying, and the potential inclusion of additional projects in the future. The growth rate is governed by uncertainties related to policy support, technological qualities, and potential cost reductions. Because it is difficult to estimate future demand due to ambiguity surrounding potential end-use applications as well as laws, regulations, and competitiveness, the final market volume is also unknown.

Three crucial logistic function parameters

The beginning capacity in 2023, the emerging growth rate, which may be understood as the steepness of the logistic function, and the demand-pull are three crucial characteristics that these phases define. The initial capacity was calculated by the authors using information from the IEA Hydrogen Projects Database and their own market analysis. By examining historical analogs and fitting the data to the associated logistic functions, growth rates were calculated. The authors also created probability distributions for initial capacity and growth rates because these were speculative parameters.

Finally, by extracting and linearly interpolating short- and long-term targets from the REPowerEU Plan, the EU Hydrogen Strategy, and the IEA roadmap “Net Zero by 2050,” the demand-pull was modeled as a fixed pathway and augmented by a sensitivity analysis. The authors also made a distinction between the demand pull’s real strength and investors’ expectations of it, which are typically five years out.

The authors used several values for the initial capacity and emergent growth rate to produce thousands of potential electrolysis development pathways on the basis of their logistic technology diffusion model. The nonlinear propagation of these uncertainty is captured by this Monte Carlo simulation method. The probabilityistic feasibility space of scaling up the supply of green hydrogen is the end result, which is a probability distribution of electrolysis capacity.

Overall, the team’s analysis indicates that there is at least a 75% chance that green hydrogen will account for less than 1% of the total final energy demand in the EU before 2030 and globally before 2035, even if electrolysis capacity increases similarly to that of wind and solar power on an EU level and on a global level—the two biggest success stories in green energy technology adoption thus far. The authors claim that “under conventional growth rates, neither the EU 2024 target of 6 GW nor the 2030 ambition of 100 GW are within reach.” They explain this by pointing to the first phase’s gradual, yet exponential, expansion, which prevented even high annual growth rates from quickly translating into substantial market shares. They also remind out that after the breakthrough point, bigger market shares can come soon.

The timing of this breakthrough point, however, is at best 25% likely to occur before 2036 in the EU and before 2043 globally, as indicated by the highest yearly capacity growth. According to Luderer’s team, there is a significant chance that a long-term gap will develop between a possibly high demand and a supply of green hydrogen that is likely to be low. This risk results from the significant uncertainty around deployment in the near term and practical growth rates.

Challenges for policymakers in coordination

The main issue, according to the authors, is that short-term shortage causes a three-part coordination barrier because the infrastructure, infrastructure demand, and supply of hydrogen are all hesitant to move first without the other two. Investors may be discouraged from jumping on board early due to the associated long-term uncertainty; instead, they may choose to wait until markets consolidate and prices decline.

Making policy is challenging because of this ambiguity. Societies might be forced to continue using existing fossil fuel infrastructure and end-use applications if hydrogen abundance and affordability do not materialize while other climate mitigation options like direct electrification technologies are neglected, having essentially bet on the wrong horse. Green hydrogen may be doomed to failure before it ever gets off the ground without early assistance from investors and governments.

To reduce hazards, “unconventional” policy support is needed.
The authors propose that one approach to reduce these risks is for politicians and business to act first and promote quick investment in green hydrogen supply chains – much more so than they did for wind and solar power, which was regarded by Luderer’s team as the “traditional” development scenario.

According to their standard scenario, growth rates could result in a breakthrough by 2045 on a global scale and around 2040 in the EU. Conversely, the breakthrough point would be reached in both scenarios before 2035 with “unusual” high growth rates. The production of military equipment and nuclear weapons during wartime; the centrally planned introduction of nuclear power in France and high-speed rail in China; and the market-driven adoption of the internet and smartphones are just a few historical examples that the authors used to model this unorthodox growth. (The COVID-19 vaccination was disregarded as an anomaly.)

According to the authors, this strategy “breaks the vicious loop of unreliable supply, insufficient demand, and inadequate infrastructure, and turns it into a positive feedback process.” They provide data to support their claim. They estimate that, for conventional growth in 2040, the interquartile ranges will be 3.2-11.2% in the EU and 0.7-3.3% globally. The interquartile range is a statistical measure of the dispersion of data and, therefore, an indicator of uncertainty. The estimates should be less uncertain under unconventional growth because the ranges are substantially narrower (11.7-12.9% in the EU and 6.6-7.8% globally).

To put it another way, a bold legislative decision to introduce gigawatt-scale electrolyzers in the upcoming years would spur additional innovation and scaling effects. To reduce costs, businesses might convert to automated production, which “would secure expectations and further accelerate growth.” In that case, green hydrogen might outperform the better established development curves of wind and solar energy.

However, the authors warn that policymakers face a dual challenge. On the one hand, promoting unconventional growth will necessitate speeding up technological development across the entire supply chain. On the other hand, it is their duty to take precautions against the unavoidable danger of availability restrictions. To stimulate green hydrogen investment, governments must therefore give regulatory stability. At the same time, they must maintain a realistic assessment of hydrogen’s long-term prospects and exert every effort to scale up essential alternative zero-carbon technologies.

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