PF in the Early Stages of Hydrogen | Page 2

HYDROGEN uniquely required for certain processes and cannot be easily replaced . However , in order to play a role in the energy transition , hydrogen must be used as a general store of energy and as a general fuel – to power vehicles through fuel cells , to drive gas-fired turbines for large-scale electricity generation and as feedstock to boilers for heating . As a general fuel , hydrogen has many competitors , from traditional hydrocarbons through to batteries . Key considerations for the practicability of any general fuel include transportability , energy density and energy efficiency :
• Transportability – Similar to methane , hydrogen can be transported through a pipeline or by truck , train or ship in either compressed or liquid form . However , due to the differences in properties between hydrogen and methane , existing infrastructure would require substantial modifications or replacement to deliver pure hydrogen . In addition , the cost and complexity of transporting hydrogen is significantly higher than transporting fuels that are in liquid form at room temperature , such as gasoline , diesel and fuel oil .
• Energy density – Hydrogen , both in compressed and liquid form , has a higher energy density than its main zero-emission energy storage rival , the lithium-ion battery . According to DNV-GL 2 , liquid hydrogen has an energy density of approximately four times that of a typical NMC lithium-ion battery , meaning liquid hydrogen requires a quarter of the space to hold the same amount of energy as a typical NMC lithium-ion battery . However , when compared with traditional hydrocarbons , diesel has an energy density of approximately 3.5 times that of liquid hydrogen and even LNG has an energy density of over double that of liquid hydrogen . 3 Compressed hydrogen , which is commonly used in fuel cells , requires more space than liquid hydrogen . This means that larger ( and more sophisticated and expensive , given the requirement to store compressed or liquefied gas ) storage tanks will be required for wide adoption of hydrogen and that it may not be practical for some purposes ( for example , as a bunkering fuel for shipping , given the needs to frequently refuel compared with the alternatives ).
• Energy efficiency – The energy lost in the production and transportation of hydrogen is relatively high . When considering grey hydrogen , energy contained in the natural gas feedstock and consumed as part of the steam reforming process is lost when producing hydrogen and , if capture and storage technology is also used that will consume additional energy . However , the more relevant consideration is the energy cost of green hydrogen produced through electrolysis . Volkswagen ’ s research 4 estimates that up to 45 % of the existing energy is lost during the production of hydrogen through electrolysis and subsequent compression / liquefaction , compared with 8 % for transmission and storage of the same electricity on a grid . While more efficient electrolysis technologies , such as polymer electrolyte membrane electrolysers and solid oxide electrolysers , are in various stages of development , it could be some time before they are ready to be deployed cost-effectively and at scale . In addition to these losses , where hydrogen requires liquefaction , transportation and storage , further energy is consumed or lost .
Notwithstanding these challenges and costs , the appeal of hydrogen remains threefold : ( i ) when hydrogen is consumed , the only by-product is water ; ( ii ) it is possible ( even if inefficient ) to produce emission-free hydrogen using existing technology ; and ( iii ) hydrogen can be stored and transported ( even if inefficiently ) using existing technology .
The role of project finance In addition to the challenges discussed above , there remains a material cost differential between grey , blue and green hydrogen which means that projects across the hydrogen colour spectrum cannot directly compete with each other in terms of pricing . In 2020 , according to Platts Analytics ( https :// www . spglobal . com / platts / en / market-insights / latest-news / electricpower / 031920-cost-logistics-offer-blue-hydrogenmarket-advantages-over-green-alternative ), producing grey hydrogen can cost under US $ 1 / kg , producing blue hydrogen raises the costs to roughly US $ 1.40 / kg and producing green hydrogen through proton exchange membrane electrolysis more than triples that cost to an estimated US $ 4.40 / kg . As many other commentators have noted , the real push to the hydrogen sector will have to come from government regulation and incentives . To that end , the UK government recently unveiled its long-awaited Hydrogen Strategy , part of which included commitments to provide a revenue mechanism and market framework for low carbon hydrogen that will support first of a kind projects ( which are essential if the UK is to meet its ambition of 5GW of hydrogen production capacity by 2030 ).
Given this , it can be easy to dismiss a role of project financing in the near future of hydrogen . However , project financing has always been an innovative form of financing that has evolved with the markets it serves and the new breed of hydrogen projects will be no different . While current hydrogen projects are primarily financed through equity , we are already seeing innovations that could help future project financings , such as captive offtakers for the hydrogen produced , take-or-pay arrangements , virtual PPAs to limit the project-on-project risk inherit in constructing dedicated power generation and electrolysis facilities and experimentation with hydrogen pricing indices .
With the right structuring , however , project financing can already play a role in primarily blue but also green hydrogen projects . For example :
• Grey-to-blue hydrogen – As mentioned above , almost all current global hydrogen demand comes from existing refineries and fertiliser
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