Avoiding the hydrogen hype trap: lessons from blockchain

Hydrogen hype

Does anyone remember blockchain? A few years ago, the technology was all the rage. I should know – I was taken by the way it would allegedly “democratise” energy and enable households to trade green energy with each other. Many companies rushed in, afraid of being left out of the coming energy revolution: blockchain FOMO. Yet, years later, hardly any projects were realised, very few electrons changed hands despite the hyperbole and blockchain is now languishing in the murky world of cryptocurrencies. Is the current hype around green hydrogen comparable to the peak blockchain puffery? 

It might be facetious to compare two obviously different phenomena. One is a shared database or ledger, the other a gas. However, there are lessons to learn from the blockchain story, particularly regarding costs. Over the past three to four years, green hydrogen has been touted as the key to unlocking the energy transition. Riding the H2 wave, companies from Spain to Finland announced ambitious plans to produce the gas (or ammonia and methanol derivatives) from excess renewables. 

The EU has boosted its previous green hydrogen target of 40 GW by 2030 with an additional 10 Mt/year domestic production and 10 Mt/year imports. There’s even a EUR 3bn European Hydrogen Bank to help fund its development. While the bank plays an important role in funding some projects, as many companies are discovering, the available funds fall far short of what’s needed to get these plans up and running. 

Now, across Europe, companies are shelving green hydrogen projects citing high costs. In the Nordics, large utilities such as Orsted have cancelled plans due to a lack of demand. ENBW, one of Germany’s largest energy companies, has struggled to find buyers for its e-methanol plant outside Bergen, Norway. Even fossil-fuel giants, often seen as proponents of green hydrogen, have ditched their projects. 

Firms in Spain and Portugal have announced 25 GW in electrolysis capacity but experts believe only a fraction will be realised. Currently, only 30 MW is operational, with just 123 MW under construction. 

Why are these plans falling by the wayside? Clearly, it’s all about costs. I recently spoke with David Cebon, professor at Cambridge University, on the Montel Weekly podcast. He noted that many announced projects fail to meet the economic expectations of their proponents. He argued persuasively that the unexpectedly high costs stem from the “inefficiency inherent” in the technology. 

Hydex12 Green shows marginal costs during the 12 hours of a day most favourable for renewables.

Technological barriers facing Hydrogen

Transporting hydrogen, for example, is challenging and expensive. The molecules are smaller than natural gas which means infrastructure must be converted. Using it as an energy carrier or fuel for power generation is wildly expensive. In fact, the marginal cost of green hydrogen production in Germany, Europe’s biggest energy market, was EUR 176/MWh, according to E-Bridge Consultancy’s cost-based spot price index Hydex. This is more than three times higher than natural gas prices on Europe’s benchmark Dutch TTF hub, which was trading at EUR 46/MWh. 

Another troubling aspect of the hydrogen hype is the concept of “hydrogen-ready” gas plants. A leading energy expert recently posted that bragging that power plants are hydrogen ready is no more impressive than your showy neighbour telling you his driveway is “Ferrari ready”. 

Just call them what they are: gas-fired power plants providing back-up capacity during periods of “dunkelflaute”, what the Germans call periods of low wind and lacking sunlight, causing a temporary shortfall in renewable energy generation. There are far simpler – and cheaper– ways to keep the lights on than burning hydrogen. The use of such gas-fired plants will naturally decline over time with increased storage, demand response and a more flexible power system. 

Don’t get me wrong, I’m not anti-hydrogen. There are clear uses in industrial processes where switching from conventional grey to green hydrogen is not only desirable but necessary to decarbonise hard to abate sectors like fertiliser manufacturing. I’m just advocating for realistic ways to meet ambitious climate targets. Going all out for a costly, inefficient and untested hydrogen economy risks derailing the energy transition and jeopardising Europe’s industrial heartland. 

To avoid the blockchain effect, green hydrogen must be prioritised for industries like steel – not for power generation. The problem with hype is you then have further to fall. That’s why now is the time to focus on where hydrogen could really have an impact.

This article originally appeared as a column on montelnews.com