Russia-Ukraine war drives $73B fresh investment in green hydrogen

The Russia-Ukraine war has driven 25 countries to commit $73 billion in fresh lower-cost green hydrogen investments as record-breaking gas prices have made fossil-fuel-based hydrogen uneconomic, a new report from the London-based financial think tank, Carbon Tracker, found Thursday.

According to Carbon Tracker’s Clean Hydrogen’s Place in the Energy Transition report, soaring gas prices have caused a jump in the levelized cost of fossil-produced hydrogen and favored the acceleration of investment plans in more clean hydrogen assets.

Since the start of the war, the price of natural gas has soared by 70% on international markets, pushing lawmakers globally to urgently find alternative fuel sources, the report said.

Due to increasing natural gas prices, supply insecurities and commitments to reduce gas consumption in line with net zero targets, $100 billion of ‘dirty’ hydrogen assets may be stranded by 2030.

According to the report, Europe and Asia will be the most exposed regions to stranding assets as 8 million tons of new fossil-hydrogen assets are expected to come on stream from this year onwards.

Fossil-hydrogen production costs in Europe could increase by about 50%, or $7.6 per kilogram, while in Asia blue hydrogen — hydrogen produced from natural gas and supported by carbon capture and storage — could cost $6.4 per kilogram.

The cost of new blue hydrogen is 35% higher than the base average green hydrogen cost while the cost of the most common form of hydrogen, grey hydrogen, created from natural gas, or methane without capturing greenhouse gases, is roughly 29% above this average.

As the cost of green hydrogen is expected to fall further, commitments from 25 countries since the start of the war, with Germany, Morocco and the US pledging the most, could lead to $73 billion in private and public expenditure for the manufacture of green hydrogen.

‘The price of green hydrogen today ranges between $3.8 to $5.8 per kilogram and the war has only acted as a catalyst to drive this cost further down in the near rather than distant future,’ the report said.

– Green hydrogen could become one of the cheapest forms of energy

The report found that the production of green hydrogen will be dominated by the global south, responsible for 50% of the total world production, or about 68 million tons, with South Africa, Morocco and Chile controlling the majority.

The levelized cost of energy for green hydrogen could fall under $2 per kilogram over the next few years, becoming one of the cheapest forms of energy, thanks to rapid capital investment.

‘With increasing learning rates, along with the right financial structure, future asset owners would be able to produce new non-fossil hydrogen at record costs lower than $2 per kilogram before the end of 2030,’ the report said.

– Green hydrogen production is not 100% environmentally friendly

However, Carbon Tracker warns in the report that despite the obvious benefits of utilizing green hydrogen in helping to achieve net zero, environmental factors like excessive freshwater consumption and technological and energy efficiencies in its manufacture will stymie growth in the short to medium term.

A third of the energy needed is wasted in production, up to a further 25% is lost when liquefying or converting to other carriers such as ammonia, while another 10% of hydrogen’s energy is consumed to transport the product, the report highlighted.

The volume of water required to produce green hydrogen is unattainable and basically it is fresh water, Kofi Mbuk, a senior cleantech analyst and author of the report, said in a phone interview with Anadolu Agency on the report.

‘We are now going to be facing competition with the hydrogen sector for water consumption, as well. Green hydrogen should be solution for sectors which do not have plan B for decarbonization,’ he underlined.

Mbuk explained that the commitment to scale up green hydrogen is very aggressive and everybody in every single facet of the economy want to use the green hydrogen or to play it a vital role.

‘What we would like to stress is this is not a sustainable way of scaling up green hydrogen,’ he said.

According to the report, hydrogen can be used as a short-term measure to help solve power intermittency issues caused by renewable energy technologies until renewable batteries become economically attractive.

Carbon Tracker projects the global weighted average levelized cost of energy for renewables and batteries will be cheaper than the marginal cost for both gas and coal by the early-to-mid 2030s.

• Russia-Ukraine war