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Another bubble or a game changer in the energy and fuel sectors?

The global green hydrogen market size was $1bn in 2021, and is projected to reach $72bn by 2030. Governments and industry bodies have put hydrogen at the forefront of their strategies for achieving net zero carbon emissions by 2050, and have highlighted it as the element that will spearhead a major paradigm shift in the energy and fuel sector. Whenever we see such intense activity over a short span of time, we ask ourselves the question: Is the hype justified?


There is consensus that hydrogen has the potential to play a vital role in transforming the energy sector given its high energy potential. This is not a new revelation. Companies have been working with this versatile element in different capacities for over 100 years. But time and again, hydrogen has failed us; most recently in the 2000s.


Over the last few years, something has changed: Technology has advanced, enabling hydrogen to be developed at scale, not only as an energy carrier, but also as a storage resource. Some believe that this was the missing factor. Advanced technology and storage in conjunction with global support and investment will enable us to unleash the full potential of hydrogen to achieve decarbonisation of the energy sector as well as hard-to-abate industrial and transport sectors. This is why the ‘hydrogen hype’ may be justified this time, and why it has the potential to support the world in achieving net zero carbon emissions by 2050.


But this doesn’t mean the journey will be easy. The IEA estimates that currently hydrogen is only 4% of the energy mix of which 95% is grey hydrogen. This suggests that hydrogen demand is low and therefore investment in infrastructure and increased use of hydrogen (irrespective of the colour) is required in order to justify the additional investment required for commercial adoption of green hydrogen.


But what do these different colours mean? There’s green, blue, grey, red, turquoise, red, black, brown, pink.. and the list goes on! But the most important colours to know about are:

Green hydrogen

Predominantly produced by splitting water using electricity generated from renewable energy sources (electrolysis). Alternative methods exist, however, these are less developed.

Blue hydrogen

Derived from fossil fuels with most of the CO2 emitted during the process being captured and stored underground (carbon sequestration) or bound in a solid product (such as bricks). 

Grey hydrogen

Produced from natural gas and commonly uses a method called steam methane reforming. During the process, CO2 is produced and released to the atmosphere.

Ultimately, the goal will be to use green hydrogen, however, there is growing consensus that in order to get to this position, we will need to use other colours of hydrogen in the short term. Once hydrogen demand increases and hydrogen production technologies advance, green hydrogen has the potential to decarbonise the mobility sector, industries such as steel, glass, cement and semi-conductor which can use hydrogen directly as a gas, and as a chemical or any other liquid fuel including aviation fuel.


Before green hydrogen can be adopted at commercial scale, certain challenges relating to cost, infrastructure, transport and demand need to be addressed.

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Lack of Infrastructure

Industries must build infrastructure to before they can use H2. Currently, only 4% of energy usage is from H2.

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Energy Consumption

Approximately 53kWh of renewable energy is required to produce 1kg of green hydrogen.

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High Cost of Green H2

Due to high cost of electrolysers, renewable energy (50-70% of total cost) and desalinated water.

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Transportation Challenges

Given its light weight and flammable nature, pure H2 cannot be transported in its gaseous state.

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High Water Consumption

9kg of desalinated water is required to produce 1kg of hydrogen.

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High Footprint

4 acres of land (for solar panels) is required per MW of green hydrogen produced.

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Storage Challenges

Being the lightest element, hydrogen needs to be stored at 750 bar pressure.

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Negative Externalities

Desalinated water used in electrolysis creates brine at 50°C which can have a negative impact on marine life.

Taking into consideration both the potential of green hydrogen as well as the challenges that the industry currently faces, the primary focus should be on tackling production issues as this will atleast enable on-site use of hydrogen in industries. Storage and transport of hydrogen, while important, can be tackled when production has been ramped up. So how is hydrogen produced?

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Source: S&P Global Platts, Goldman Sachs Global Investment Research

In terms of green hydrogen production, electrolysis is most common. Simply put, electrolysers use energy to split water into hydrogen and oxygen. There are currently four types of electrolysers available in the market at varying degrees of viability, based on technological advancement and cost.

  • Alkaline electrolysers are well established and the most commonly used electrolyser in the market.

  • Proton Exchange Membrane (PEM) electrolysers are emerging as a viable alternative and are expected to surpass alkaline electrolysers.

  • Solid Oxide Electrolysis Cell (SOEC) have recently made progress, however, this technology is still at an early stage.

  • Anion Exchange Membrane (AEM) electrolysers are based on new technology that is currently being researched at lab scale.

While in the past, Alkaline electrolysers have been most commonly used, PEM electrolysers have been gaining significant attention, primarily because PEM electrolysers have a fast response ramp-up / ramp-down capability and a wide dynamic operating range of 0-100%, making it ideal for generating hydrogen using excess renewable energy. It also has the potential to produce hydrogen at higher pressures by electrochemical compression and is safer given caustic or corrosive electrolytes are not required. In addition, unlike Alkaline electrolysers, PEM electrolysers have not achieved economies of scale and technical maturity and therefore there is more scope to reduce cost and improve efficiency.

Alkaline Electrolysis Process

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Source: BloombergNEF, Goldman Sachs Global Investment Research

PEM Electrolysis Process

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Source: BloombergNEF, Goldman Sachs Global Investment Research

Apart from electrolysis, there are other methods of green hydrogen production including direct solar water splitting, thermochemical methods such as biomass gasification and biological methods such as microbial biomass conversion. However, these methods still require significant development before they can be considered as commercially viable options.


While we believe production should be the key focus at this stage, we would be remiss to not talk about hydrogen storage and transport.


Hydrogen fuel cells are expected to play a transformational role both in terms of mobility, particularly for heavy vehicles, as well as in terms of stationary storage. Hydrogen fuel cells operate in reverse to electrolysers – fuel cells generates electricity through an electrochemical reaction, where hydrogen and oxygen are combined to generate electricity, heat, and water. 


In terms of transport, hydrogen can be transported by pipeline or shipping pathways: ammonia, liquid organic hydrogen carriers (LOHC) and liquid hydrogen. However, each of these methods have their advantages and disadvantages. For example, ammonia has an existing market and has a relatively low shipping cost compared to the cost of conversion and storage - it is therefore more attractive as the distance increases. LOHCs are oil derivatives and can use existing facilities, are stable compounds and do not have boil-off losses during transport or storage, however, most LOHCs are speciality chemicals, produced in limited quantities and have a high cost. Liquid hydrogen is attractive for large flows over relatively short distances, however, its low temperature requirement (-253°C) translates into high energy consumption for liquefaction (30-36% of energy contained in the hydrogen) and a high cost for all the equipment, as it needs to be designed for cryogenic conditions. 


So coming back to the question at hand. Is the hydrogen hype justified? Could the bubble burst? Not this time. Hydrogen is here to stay. We can’t escape the fact that hydrogen is part (and a very significant part) of the solution to get to net zero. However, the hype that is fuelling the industry at the moment could lead to disillusionment in the short term. Particularly given the changes and investments that industries need to make before they can actually use hydrogen! 

Partner's Note: At Peak, we like separating the signal from the noise. We're always excited when we see an immense amount of hype around something new, because usually that means it's worth diving deeper to understand it better. Hydrogen is an area we've known about for a long time as an alternate fuel source. To develop our thesis, in addition to our internal research, we spoke with several corporates actively engaged in this space, academicians that have studied the viability of hydrogen, and organizations built specifically in the vertical. We've evaluated several early-stage entrepreneurs, both in India and globally, who are involved in different parts of the value chain. We've emerged as bullish on hydrogen as a new fuel source in our energy mix, but unclear on the timeline till we figure out certain parts that Sarah has highlighted above. 

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