On the Horizon: Green Hydrogen

With projects ranging from anaerobic digestion and landfill gas to battery storage and renewable power, Leyline Renewable Capital invests in the development of renewable energy projects that will transform the clean energy sector. One up-and-coming technology that has been on our mind lately is green hydrogen - named by the World Economic Forum as one of the most exciting technologies that emerged in 2020. Green hydrogen has the potential to transform the energy industry, and Leyline is looking to support this new energy transition. However, as it is an emerging technology, many people know little to nothing about what green hydrogen is or how it works. This piece will provide a primer on the technology and why it may be the next big thing.

What Is Green Hydrogen and How Is It Used?

Hydrogen (H2) is an abundant element in the universe. Here on Earth, it occurs in compound form with other elements in liquids, gases, or solids. Many of us are familiar with hydrogen as paired with oxygen, forming water - H2O.

The most common method of producing hydrogen is known as steam methane reforming (SMR). Methane from natural gas reacts with high-temperature steam in the presence of a catalyst to produce hydrogen, carbon monoxide, and small quantities of carbon dioxide. An estimated 95 percent of the hydrogen produced in the United States is made by SMR in large natural gas power plants.

Today, hydrogen is predominantly used as a feedstock or an intermediate chemical in oil refining processes, ammonia production for fertilizers, and methanol production. Despite growing momentum and expanding renewable energy generation coming online across the country, decarbonizing these hard-to-abate sectors has proven to be a formidable challenge. Significant systemic shifts are required to reduce emissions from heavy-duty industrial processes that require hydrogen. Beyond industrial applications, hydrogen can be used for energy storage and even to power fuel cell vehicles, which convert hydrogen gas into electricity without emitting any greenhouse gases.

The nomenclature used by the hydrogen industry is quite colorful, depending on the production methods. There are four main types of hydrogen - blue, gray, brown, and green - but green holds the most potential. Thus, it is our focus here. Green hydrogen is produced using renewable energy sources to split hydrogen from water via electric current (electrolysis), or by using feedstock for steam methane reformation.

What Is Green Hydrogen's Potential Impact in Decarbonization?

Green hydrogen has a profound ability to decarbonize multiple sectors. Its usage, however, has lacked the economics and policy drivers that determine how its benefits can be compensated. Furthermore, the high cost of producing it from renewable energy sources and lack of a robust infrastructure present significant hurdles. The price of electrolyzers primarily drives this, in addition to the cost to supply power for the electrolyzers, transportation, and storage costs. Capital expenditure for electrolysis technologies is estimated to be in the range of 950 $/kW - 2500 $/kW, depending on efficiencies and capacity factors. Driving the cost of operating expenses for electrolyzers down will depend on access to low-cost renewable electricity, which can be considerably variable. A combination of low-cost renewable energy and high-capacity factors (steady supply of solar/wind and water) seems to be the secret sauce.

The best way to accelerate progress is through policy initiatives and innovative market design. A recently announced "Earthshots" initiative by the U.S. Department of Energy (DOE) seeks to drive that process. Part of this entails "The Hydrogen Shot" policy framework to support increased deployment, as well as bringing down the cost of green hydrogen from approximately $5 per kilogram today to $1 per kilogram by 2030. U.S. Energy Secretary Jennifer Granholm appears to be a proponent of green hydrogen, which she calls a "game changer." The DOE has issued a request for information on viable hydrogen demonstrations to understand what regions would be best suited for hydrogen projects and the associated needs or challenges.

On a more local level, Los Angeles aims to become the first major city in the country to commit to creating a North American market for green hydrogen. Together with the Los Angeles Department of Water and Power and other key partners, the Green Hydrogen Coalition recently announced the launch of HyDeal LA. This initiative seeks to bring together developers, green hydrogen off-takers, EPC companies, and investors to launch the commercialization of the technology at scale. To attract investment, the costs and benefits provided from green hydrogen projects will need to be recognized and advantageous. Hydrogen production will have implications that span across the power sector (transmission, distribution, generation, load), pipeline gas distribution, and the transportation sector. What remains unclear is whether compensation for all these various pathways will supplement or succeed the existing Low Carbon Fuel Standard credits provided by the California Air Resources Board.

Leyline's Interest in Green Hydrogen

The pressure to decarbonize heavy industry and transport has been very modest at best due to the lack of viable alternative solutions. We know the significant impact these industries have on our climate and environment, but the challenges, barriers, and pathways to reduce emissions have been widely overlooked and under-resourced. This new horizon for hydrogen production predicated on renewable energy looks to solve the hard-to-abate electrification challenges. Our funding could go toward projects that require capital for land acquisition, securing offtake agreements, and EPC-related costs, to name a few. Leyline is keeping a keen eye on the development of green hydrogen projects and initiatives with our internal technology and trends working group as we continue to invest in decarbonization and the clean energy transition.

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