Challenges and opportunities for green hydrogen in a future energy system

To meet our climate targets, the global economy must reach net zero emissions by 2050. While it is anticipated that much of this will be facilitated by electrification, hydrogen may play a role in decarbonising the ‘toughest third’ of our energy supply, writes Niall Farrell, Senior Research Officer, Economic and Social Research Institute (ESRI).

Cost, rather than technological feasibility, is the primary factor determining the extent with which hydrogen may feature. There are many known processes to synthesise zero carbon ‘green’ hydrogen, and the transport of hydrogen once produced is relatively straightforward. Gas Networks Ireland, in its recent hydrogen feasibility study, has noted that the Irish gas network can readily facilitate hydrogen blends of up to 20 per cent, with 100 per cent hydrogen possible with some modifications.

Cost

When evaluating cost, one must first consider the projected production cost. Production costs are primarily influenced by the rate of electrolyser deployment and the cost of electricity generated using renewable sources, which is used to synthesise green hydrogen. Electrolyser costs will fall with greater international rollout.

Aurora Energy Research tracks electrolyser deployment in its rolling database, which finds a strong and growing pipeline of electrolyser production. If the planned development materialises, production costs could fall sharply in the coming years. The cost of renewable electricity has fallen considerably in recent years, although inflation may be putting upward pressure on costs in the short term.

Capital and renewable electricity costs are not the sole factor determining cost competitiveness – the proportion of time with which the electrolyser is in use (the ‘capacity factor’) has a considerable influence on the cost per unit synthesised. This may have important implications for Irish industrial policy.

Ireland’s hydrogen strategy places a strong emphasis on locally-produced green hydrogen. However, there may be competition. The IEA’s global hydrogen review suggests that locations that can exploit both solar and wind resources can provide the strongest capacity factors and therefore cheapest hydrogen. In 2023, the IEA identified the west of Ireland among the best-placed to produce green hydrogen, but Irish producers may wish to investigate whether electrolysers can use both wind and solar-sourced electricity to maximise capacity factor. A backup source of electricity, such as a grid connection or storage, may provide electricity when the wind does not blow. This may also improve the capacity factor and therefore the competitiveness of Irish hydrogen. Of course, grid-sourced electricity is not necessarily 100 per cent carbon-free, and the hydrogen produced may not receive ‘green’ hydrogen status.

Application

While the cost of the hydrogen itself is important, adoption is ultimately determined by the extent with which applications, such as use for heat or transport, are cost competitive with non-hydrogen alternatives. These will now be discussed.

Transport

Much research suggests that electric vehicles are more likely to provide a cost-effective decarbonised transport solution, particularly for light vehicles such as private cars. There is a greater likelihood that hydrogen could fuel heavy goods vehicles, however, uncertainty remains.

“Hydrogen’s role in the future energy system will likely be determined by the cost of hydrogen synthesis and the cost competitiveness of hydrogen-based technologies.”

Niall Farrell, Senior Research Officer, ESRI

Heating

Hydrogen-based space heating is at an early stage of development. Cost projections are therefore speculative; estimates suggest that costs must fall considerably to be competitive with electric heat pumps. It should be noted that cost is not the only factor determining technology adoption. Inconvenience, disruption, and other non-financial costs are of notable magnitude for home insulation upgrades, for instance. This could impede timely decarbonisation through electrification, given that insulation investment is often required to accompany heat pump installation. Should hydrogen provide a less-invasive alternative, it may have a role to play, even if more expensive than electric alternatives. Further research is required to understand to what extent such preferences exist and influence technology choice.
Should widescale hydrogen heating systems be considered, policy should be mindful of the lead-in time required. In 2016, Dorrington et al discussed the transition in the UK from ‘town gas’ to natural gas in the 1970s, noting that the required conversion of appliances and infrastructure took around 10 years to complete. While the lead time is not necessarily the same for hydrogen conversion of the gas network, it is an important factor, and must be considered in the context of a 2050 deadline. Indeed, this is also an important factor for electrification.

Industrial applications and electricity

Industrial processes require a very low cost of green hydrogen to be competitive with alternatives. This suggests that the cost competitiveness may be achieved at a late date in our decarbonisation transition. The use of hydrogen in the electricity sector could well transpire in the context of long-term storage. This is likely to become a pressing requirement as Ireland approaches and surpasses its 80 per cent 2030 renewable electricity penetration target.

Conclusion

Hydrogen’s role in the future energy system will likely be determined by the cost of hydrogen synthesis and the cost competitiveness of hydrogen-based technologies. The former is of particular interest for Irish industrial strategy.

Irish hydrogen production may have to compete with that produced elsewhere, particularly from locations that enjoy a combination of suitable wind and solar resources. Electric transport and heating applications are likely to be most cost effective, given current information. However, hydrogen may have a role if non-financial barriers are prohibiting decarbonisation through electrification.

Further research is required to understand the extent with which hydrogen may contribute. For industrial processes, the cost of hydrogen must fall considerably to be competitive. This may lead to adoption in the latter years as we approach 2050. Hydrogen may have a role in long-term electricity storage. In an Irish context, this is likely to be of increasing importance as renewable electricity penetration grows.