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Paving way for hydrogen in low & middle-income countries

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ECA recently completed a multi-part study for the Energy Community Secretariat (ECS) on the potential for hydrogen use among its Contracting Parties in partnership with E4tech UK (CPs). Our research includes a review of recent hydrogen advances and the CPs’ readiness to integrate hydrogen into their energy systems, based on interviews with national stakeholders and conclusions supported by local economic analyses.

For a variety of industries, sectors, and end-use applications, hydrogen may be the only viable decarbonization alternative. Costs are still high, but this might alter drastically over the next decade as international interest rises as demand and supply-side variables, such as increasing carbon pricing, increase.

We provide some recommendations on how smaller, low- and middle-income countries might begin to investigate the possibilities of hydrogen to satisfy decarbonization goals, such as the Paris Agreement NDCs.

Whether it’s ‘green’ hydrogen (made by electrolyzers supplied by 100 percent renewable power) or ‘blue’ hydrogen (generated by electrolyzers fed by 100 percent renewable electricity), low-carbon hydrogen generation remains expensive and untested at scale (steam methane reforming with carbon capture storage). This might change substantially over the next decade, as governments commit to building low-carbon hydrogen generation capacity, especially in light of rising natural gas prices.

Producing hydrogen, on the other hand, is only half the struggle. The price and logistics of distribution and storage must also be considered since they might account for up to two-thirds of the ultimate delivered cost of hydrogen. Scale and high utilization can assist lower related costs, but for smaller, low- and middle-income nations, this might be difficult. Coordination of regional hydrogen initiatives offers a way for such nations to achieve sufficient offtake for manufacturers. Piecemeal low-carbon hydrogen programs, on the other hand, risk stopping at the pilot project level.

The formation of a ‘hydrogen coordination group’ among the CPs, for example, was suggested as a possibility for leveraging regional expertise, identifying common prospective hydrogen routes, and facilitating alignment and collaboration with larger European energy market trends. The ECA also identified five “cohorts” of CP combinations and end-use applications that might draw on worldwide models for policy, strategy, regulation, and pilot project development.

The cohort method used in the Energy Community research demonstrates how crucial it is to include both the local and regional contexts when formulating long-term hydrogen development goals. We quickly discuss the background required to make hydrogen viable for a number of important applications.

To decarbonize short-to-medium-length transportation, battery-electric cars (BEVs) may already be too far ahead of hydrogen fuel cell electric vehicles (FCEVs) in terms of scale. FCEVs will very certainly continue to fulfill specialized transportation needs, such as long-distance travel when BEV range is limited, such as heavy goods trucks (HGVs), buses, trains, and marine ships.

To make hydrogen transportation viable, scale and high use of refueling facilities are required. Countries can work together to build hydrogen refueling infrastructure along critical cross-border transportation routes, as infrastructure will likely account for more than half of the cost of hydrogen ‘at the nozzle.’

Hydrogen-for-power is uneconomic for baseload electricity due to efficiency losses, hence large-scale batteries are likely to be chosen for short-term reserves. However, during protracted times of poor solar and wind output, hydrogen-fired turbines may be the sole realistic alternative for providing large-scale, low-carbon power. As a result, hydrogen-for-power offers a long-term flexibility option for electrical networks that are becoming increasingly reliant on intermittent renewables. Electrolyzers can also help to keep the system running smoothly by providing auxiliary services.

The availability of low-cost, high-volume storage is a critical factor. Countries can use a regional approach to find geological storage or upgrade existing gas storage facilities, as well as promote cross-border commerce. Small-scale and underutilized storage, similar to transportation, might make hydrogen-for-power prohibitively costly.

Fuel cell units, which may be used as an alternative to expensive diesel production in small systems, provide further possibilities for remote locations (this may be linked to off-take for transport and heat loads to leverage economies of scale).

Many industrial processes have traditionally used hydrogen produced from fossil fuels as a feedstock, making these industries a prime target for scaling up low-carbon hydrogen. Individual industrial locations, on the other hand, may not be able to deliver the size or utilization rates required to support manufacturing. Countries can look at establishing hydrogen at ‘industrial parks,’ which can include a range of industrial offtake possibilities as well as backup hydrogen-fired turbines and local distribution networks for heating.

Because many industrial hydrogen pilot projects are being investigated in high-income nations, low- and middle-income countries may wait to see ‘what works’ before making large expenditures. However, small pilot applications will continue to have a place, and local firms should start looking at hydrogen and clustering prospects now. This might become critical in the near future to secure access to markets that are growing more discriminating about carbon content in imports, such as the EU’s development of carbon border adjustments.

For low-carbon heating, hydrogen can be utilized to replace current gas boilers or compete with heat pumps. The preferable alternative will be determined by a variety of considerations, including whether a gas network exists, the status of the electricity grid, and the insulation quality of the existing dwelling stock.

Some nations may be aiming to replace biomass-based heating, or their electrical infrastructures may be unable to handle heat pumps, especially if EV deployments are planned.

Hydrogen for heating might be contingent on the economic and technical viability of retrofitting existing gas pipes, which could be a key avenue for reducing stranded asset risk in the gas industry. Blending hydrogen onto existing gas networks also raises difficult regulatory issues.

On its own, low-carbon hydrogen cannot compete in today’s energy mix. The policy can make the road to economic viability a little easier.

Carbon pricing has long been the economist’s preferred technique for accounting for environmental externalities, which would favor low carbon hydrogen directly. However, due to hydrogen’s greater inefficiency, carbon costs of more than €100/tCO2 would very certainly be required to compete with today’s fossil fuels, which will necessitate political backing.

There are several different methods that can help make hydrogen investments appealing and bridge the finance gap, based on experience supporting renewable power production. Payments to producers in the form of premiums or Contracts for Differences (CfDs), regulated returns (e.g., a Regulated Asset Base (RAB) model might be used to both production and infrastructure), offtake obligations, and direct subsidies are all examples of these.

Temporary legislative exemptions might be justified if scaling up takes precedence over, say, third-party access, especially for localized hydrogen networks supporting industrial clusters where trade prospects are restricted and unbundling is impossible. The European Commission’s recent legislation appears to have paved the way for dedicated hydrogen infrastructure, including cross-border trade, as well as serving as a model for preferential treatment of low-carbon gases in existing gas grids through injection, storage, and cross-border tariff discounts.

Although the renewed interest in hydrogen is still in its early stages, it has the potential to be a crucial energy vector for achieving decarbonization if well-targeted to appropriate end-use applications. Over the next decade, commercialization will be a slow process, and low- and middle-income nations can benefit from international experiences.

In the meanwhile, governments may keep track of the newest hydrogen advancements, notably the results of pilot projects in high-income countries, look for niche possibilities for pilot project deployment, and start planning their hydrogen future roadmaps. Regional cooperation has the ability to guarantee that complementary efforts are undertaken in order to reduce total costs. Although the cost of producing hydrogen is expected to drop significantly, using hydrogen in energy mixes will still need a great deal of cooperation, regulatory backing, and ingenuity.

Arnes Biogradlija
Creative Content Director at EnergyNews.Biz

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