Green hydrogen to reshape global trade and disrupt bilateral energy relations, Irena says.

Hydrogen to account for 12% of global energy use by 2050, giving rise to new exporters and users

Francesco La Camera, director general of the International Renewable Energy Agency.
Green hydrogen could disrupt global trade and bilateral energy relations, Irena says. Victor Besa / The National

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Deena Kamel
Journalist
Dubai
Deena is an aviation and company news reporter, with a keen interest in gender issues. Previously she was the Gulf transport correspondent for Bloomberg Dubai. She has a masters degree in journalism from the University of British Columbia. Deena is a Rosalynn Carter Mental Health Journalism Fellow.

The rise in hydrogen as part of the global energy transition is set to reshape global trade and redefine bilateral energy relations as the emergence of new hydrogen exporters and users changes the geopolitical landscape, according to the International Renewable Energy Agency.

While this decade will mark a “big race” for technology developments in clean hydrogen, demand is expected to not take off until the mid-2030s as costs are likely to fall sharply with the scaling-up of needed infrastructure, Abu Dhabi-based Irena said on Saturday in its latest report, Geopolitics of the Energy Transformation: The Hydrogen Factor.

“The transition is not a fuel replacement but a shift to a new system with political, technical, environmental, and economic disruptions,” Francesco La Camera, director general of the 165-member country organisation that promotes renewable energy, said.

“It is green hydrogen that will bring new and diverse participants to the market, diversify routes and supplies and shift power from the few to the many. With international co-operation, the hydrogen market could be more democratic and inclusive, offering opportunities for developed and developing countries alike.”

Hydrogen is projected to account for 12 per cent of global energy use and 10 per cent of carbon dioxide emissions reductions by 2050, driven by climate change urgency and countries’ commitments to net zero, according to Irena estimates.

Current annual hydrogen sales represent a market value of about $174 billion, which already exceeds the value of annual trade in liquefied natural gas, and could grow to $600bn by 2050. The current barriers to scaling up hydrogen are the steep costs of production, transportation, conversion and storage, compared to high-carbon fuels.

Hydrogen comes in various forms, including blue, green and grey. Blue and grey hydrogen are produced from natural gas, while green hydrogen is derived from renewable sources. A cost reduction in green hydrogen which is created from the electrolysis of water using renewable energy, can help boost energy transition, Wood Mackenzie said in a report last month.

Irena’s latest report analyses the geopolitical drivers and potential consequences of developing clean hydrogen value chains, noting how hydrogen can disrupt future energy systems, who benefits or may be disadvantaged by these developments and offering policy recommendations on preparing for these disruptions.

A Hyundai Motor's Nexo hydrogen car is fuelled at a hydrogen station in Seoul, South Korea. Reuters

Jennifer Gnana

A scale-up in production of green hydrogen, which refers to gas produced entirely from renewable sources could lower costs by 40 per cent in the short-term and 80 per cent long-term, according to the International Renewable Energy Agency.

A number of climate policymakers have been pushing for countries to develop green hydrogen, as opposed to 'grey' or 'blue' hydrogen as they increasingly factor in the clean fuel as part of their energy transition.

Grey hydrogen refers to manufacture of the gas using fossil fuels and currently accounts for 95 per cent of production. Blue hydrogen is extracted from natural gas, through a process called methane reformation, which relies on carbon capture and storage.

Technology that uses renewables to split water molecules through electrolysis, is being increasingly favoured, as countries look to eliminate fossil fuels from future energy mixes.

"Green hydrogen is already close to being competitive today in regions where all the favourable conditions align, but these are usually far from demand centres," the intergovernmental agency said in its report.

It cites Patagonia as an example, where wind energy could have a capacity factor of almost 50 per cent, with an electricity cost of  $25-30 MWh. That is enough to achieve a green hydrogen production cost of about $2.5/kg, which is close to the blue hydrogen cost range, Irena said. But Irena also points out that green hydrogen is still 2-3 times more expensive than blue hydrogen and the cost of the former is defined by electricity costs, investment cost, fixed operating costs and the number of operating hours of the electrolyser facilities.

Costs for green hydrogen, currently considered steep, could fall below $2 per kilogram, enough to make it competitive with other fuels, within a decade, according to the agency's report.

"Green hydrogen forms a cornerstone of the shift away from fossil fuels," said Irena director general Francesco La Camera. "Its uptake will be essential for sectors like aviation, international shipping and heavy industry, where energy intensity is high and emissions are hardest to abate."

Several energy firms, including national oil companies such as the UAE's Adnoc are factoring in development of a hydrogen ecosystem as part of their long-term growth plans.

Saudi Arabia, the world's largest oil exporter, is also putting together a strategy to develop hydrogen production capabilities as it looks for newer, alternative fuels to be part of its energy mix.

Hydrogen is being trialled as a promising alternative to fossil fuels, particularly in transportation. Clean hydrogen can slash green house gas emissions from the hydrocarbons sector by 34 per cent, according to BloombergNEF. The growth of hydrogen can fuel a €120 billion (Dh523.1bn) industry in Europe by 2050, according to Aurora Energy Research.

McKinsey, meanwhile, estimates that the development of a hydrogen economy could generate $140bn in annual revenue by 2030 and help support 700,000 jobs in the US.

Irena estimates that industry investors are planning the deployment of at least 25 Gigawatts of electrolyser capacity for green hydrogen by 2026.

"Still, far steeper growth is needed – in renewable power as well as green hydrogen capacity – to fulfil ambitious climate goals and hold the rise in average global temperatures at 1.5°C," Irena said in the report.

Falling costs of renewables could lower cost of developing hydrogen, Irena says

Costs for concentrated solar power fell by 16% last year, while wind fell by 13%

Steam rises from the Miller Coal Power Plant in Alabama. The declining costs for renewables are also likely to challenge
 coal's predominance as a cheap source of fuel, particularly in developing economies, according to Irena. AFP

Falling costs of renewable energy generation could drive down the cost of hydrogen production, particularly in the Middle East, the International Renewable Energy Agency said in a report on Tuesday.

Record low tariffs for solar power projects among oil-exporting states of the Middle East could allow for the development of low-cost green hydrogen, which refers to the clean fuel produced entirely from renewables.

"The potential levelised cost of hydrogen, assuming the low solar photovoltaic and onshore wind prices from the recent auctions in Saudi Arabia, could be as little as $1.62 per kilogramme of hydrogen (kgH2)," the Abu Dhabi-headquartered agency said.

"This compares favourably with the hypothetical cost of natural gas steam methane reforming, with today’s carbon capture, utilisation and storage (CCUS) costs at between $1.45/kgH2 and $2.40/kgH2," the report added.

Hydrogen produced from steam methane reformation, which uses captured carbon dioxide as a source, is known as blue hydrogen. The variant of the gas produced through electrolysis of water using renewable energy as a source is known as green hydrogen. Both can later be stored and exported in the form of ammonia.

The UAE is building a massive blue ammonia facility at the country's downstream hub in Ruwais. Abu Dhabi National Oil Company is advancing plans to develop the 1,000 kilotonne per year facility within the Ta'ziz industrial complex.

On Tuesday, Fertiglobe, a joint venture between Adnoc and Dutch firm OCI said it will join the development of the blue ammonia plant.

Irena noted that falling costs of solar with record-low bids such as $0.0157 per kilowatt-hour in Qatar, $0.0135/kWh in the UAE and $0.0104/kWh in Saudi Arabia over the last 18 months are accelerating the deployment of green energy – and eventually green hydrogen.

Globally, renewable energy costs were lower than fossil fuels in 2020, according to the agency's Renewable Power Generation Costs in 2020 report.

Costs for concentrated solar power fell by 16 per cent last year, while wind fell by 13 per cent. Offshore wind and solar PV also saw costs decline 9 per cent and 7 per cent, respectively.

The declining costs for renewables are also likely to challenge coal's predominance as a cheap source of fuel, particularly in developing economies.

“Today, renewables are the cheapest source of power,” said Francesco La Camera, Irena's director general.

"Following the latest commitment by G7 to net-zero and stop global coal funding abroad, it is now for G20 and emerging economies to match these measures. We cannot allow having a dual track for energy transition where some countries rapidly turn green and others remain trapped in the fossil-based system of the past," he added.

“Shaping the rules, standards and governance of hydrogen could lead to geopolitical competition or open a new era of enhanced international co-operation,” the report said.

“Assisting particularly developing countries to deploy green hydrogen technologies and advance hydrogen industries could prevent the widening of a global decarbonisation divide and promote equity and inclusion, creating local value chains, green industries and jobs in renewable-rich countries.”

Access to technology, training, capacity-building and affordable finance will be key to realising the full potential of hydrogen to decarbonise the global energy system and contribute to global stability and equity, it said. Establishing hydrogen trade relations could open new possibilities to set up local hydrogen value chains, stimulate green industries and create jobs in countries rich in renewables.

Africa, the Americas, the Middle East and Oceania have the highest technical potential for green hydrogen production, according to the agency. Europe, North-East Asia and South-East Asia have fewer resources for producing green hydrogen.

While countries such as Chile, Morocco and Namibia are net energy importers today, they are set to emerge as green hydrogen exporters.

The UAE and other countries around the region have formulated plans to introduce hydrogen into the energy mix and tap into the clean fuel’s potential.

State entities Adnoc, Mubadala and ADQ formed an alliance last year to develop a hydrogen economy in the UAE. The alliance plans to develop a roadmap to accelerate the adoption and use of the lighter, cleaner gas in the UAE across major sectors such as utilities, mobility and industry.

Hydrogen has an estimated $11 trillion market potential, according to Bank of America, and is expected to generate $2.5tn in direct revenues and $11tn of indirect infrastructure by 2050 as its production increases sixfold.

“Realising the potential of regions like Africa, the Americas, the Middle East and Oceania could limit the risk of export concentration, but many countries will need technology transfers, infrastructure and investment at scale,” the report said.

Cross-border trading of hydrogen will increase in the 2030s, with demand starting to take off from 2035. Irena estimates that two-thirds of green hydrogen production in 2050 would be used locally and one-third traded across borders. Pipelines, including adapted natural gas pipelines, are likely to facilitate half of this trade. The other half would be loaded on ships in the form of hydrogen derivatives, mainly ammonia.

Hydrogen trade flows are “unlikely to become weaponised or cartelised” because hydrogen can be produced from many primary energy sources and in a wide variety of places worldwide, Irena said.

“Green energy trade flows are unlikely to lend themselves as easily to geopolitical influence as oil and gas,” the agency said. “That said, supply shortages could arise, particularly in the early years of hydrogen trade, when the number of suppliers is limited and most trade is still governed by bilateral arrangements.”

In its 12th assembly under the theme Energy Transition: From Commitments to Action on Saturday, Irena’s chief said energy systems of the future must be cleaner and ensure “more equity or at least less injustice” in the world than the current system.

Governments must speed up the energy transition by “investing massively” in renewables, which will lower energy prices for consumers and bring development in energy-poor regions, Frans Timmermans, executive vice-president of the European Commission’s work on the European Green Deal and its first European Climate Law, said.

Developed nations must take responsibility for their role in contributing to air pollution and pay for the damage done to small-island states that have suffered years of droughts, floods and hurricanes, Molwyn Joseph, Antigua’s minister of health and environment, said.

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