Is Hydrogen the fuel of the future?

The world is currently going through a transformative phase that is disrupting almost every industry and sector. The energy sector is one such sector that is in the midst of changing paradigms. For almost a century, the energy sector has been driven on the raw power of fossil fuels but it seems like the tide is now turning in favor of other more sustainable energy sources, to power the future.

Hydrogen has always been in the foreground as a clean and alternative fuel but the rise of fossil fuels was simply too strong to compete with. Even before the Wright brothers perfected their aircraft, hydrogen was being used to fly airships. It was the Hindenburg disaster that to a great extent sealed the fate for hydrogen as a potential fuel source.

One disaster however does not mean that hydrogen can be discounted as a possible contender to replace fossil fuels as the major energy source. Hydrogen is the most abundant gas on earth, it can be extracted from water through the simple process of electrolysis. Electrolysis consumes vast amounts of electricity. This means that if the electricity for electrolysis comes through fossil fuels, it creates grey hydrogen. Simply put it this way, using fossil fuels to create hydrogen does not solve the problem of fossil fuels.

If however, renewable sources such as solar or hydro power are used to produce electricity for electrolysis, then the hydrogen produced would be green hydrogen. Green hydrogen is thus completely sustainable. Furthermore, when hydrogen is used in a fuel cell, for instance in a vehicle, then the only byproduct that it produces is water.

So why have we neglected hydrogen for such a long time? Surely had we adopted hydrogen as a main source of energy production even half a century ago, the damage to the environment could have been averted. This question can be answered in one word and that word is investment.

Changing flow of investment

Anything is possible in this world, as long as you have got investors interested in it. A century ago, as oil reserves were being discovered, fossil fuels became a very profitable commodity. As investors pumped money into fossil fuels, it created a self feeding loop where more investment meant more research and development and thus reduction in cost. As the cost of producing extracting fossil fuels and producing energy through them reduced, it simply became inefficient to look for other sources of energy.

Now however, With every passing day the disastrous impact of fossil fuels on the environment is becoming clearer, thus making the shift to more sustainable sources of energy inevitable. With the current infrastructure however, any shift towards hydrogen based sustainable energy has to take place in a phased out manner, over a number of decades to be effective.

To understand how the flow of investment can cause a paradigm shift, we can look at how Tesla almost single handedly convinced not only the investors but also the whole industry to start looking at electric vehicles as the future of the automotive industry. Tesla, through its research and development, was able to create electric vehicles that can compete with their fossil fuel based counterparts. Over the years, the flow of investment has created economies of scale that have pushed the electric vehicle industry to create better and more efficient electric vehicles. The same analogy can be applied to the energy sector, which is currently powered by fossil fuels.

According to Bloomberg, in the last decade alone the cost of production for solar and wind power have dropped by almost 39% thus creating economies of scale and making further investment, research and development more feasible. The same applies to hydrogen production plants, related infrastructure developments and fuel cell production. At present the cost of green hydrogen production is almost three times the cost of the production of natural gas. For any shift to occur, it is essential to bring this cost gap down.

The G20 nations have already pledged investments of up to $258 billion for sustainable energy sources, out of this almost $1.28 billion has been pledged for hydrogen based fuel cells. This however is the pledge made by the public sector. Any transition towards sustainable energy has to be made with public and private sectors working in synergy with each other.

According to the Energy Transitions Commission(ETC), almost $15 trillion need to be invested till 2050, to transition from fossil fuel based energy to hydrogen based energy. This translates to almost $510 billion in annual investment, if the world is to meet the net zero emission goal set by the Paris agreement till 2050.

According to a report by reuters, at present roughly 115 million tonnes of hydrogen are produced and consumed annually. At the current rate of growth, hydrogen demand is expected to grow between 500 to 800 million tonnes annually by 2050. Thus accounting for approximately 15% to 20% of the total energy demand. If net zero emissions are to be achieved then all stakeholders will have to invest considerably more, to scale up current production levels.

It is not just the production but also the infrastructure. Feasibility studies are already underway in Australia to replace natural gas with hydrogen, for this the current pipelines will have to be replaced with new pipelines and related infrastructure that will be more suitable to carry hydrogen. Australia in fact is leading the research and development of hydrogen fuel infrastructure. According to a report by the Australian National University, by the end of the decade, Australia will be able to produce green hydrogen between $3.18 to $3.80 per kg, thus making it cost competitive with fossil fuels and at the same time allowing Australia competitive edge over other hydrogen producing countries.

The catch!

This increase in interest in hydrogen as a fuel, has started to influence investor decisions. As governments pledge more investments and create policies to facilitate the private sector investment into hydrogen, we should see more investors pumping their investment into hydrogen.

The graph shows the share movement of six main energy companies in the hydrogen sector. While this uptick is going to drive more investment and create a self feeding loop. What many experts are critical about is the nature of this uptick. Is this increase in interest going to be backed by substantial results and scaling up of the hydrogen based fuel industry or is this a temporary bubble?

Critics argue that the electric vehicle industry already has a head start, replacing lithium based batteries with hydrogen fuel cells is not going to be easy. Particularly when opinion makers such as Elon Musk are vocal against hydrogen cell usage.

Proponents of hydrogen however believe that the future of sustainable energy will have hydrogen fuel at its core because lithium is a key component of batteries and it is not as abundant on earth, as hydrogen. Similarly, solar and wind power cannot generate the energy required to run industries, whereas hydrogen is a perfect alternative for fossil fuels to power up the industries, thus minimising the need to change the way industries are run.

As stated earlier, anything is possible when enough investors are interested in the idea. At present, hydrogen fuel is being backed by governments and private investors alike. The push to achieve net zero emissions by 2050 means that we do not have enough time to look for new options. Hydrogen fuel is already there and with increased research and development, it can be scaled up and marketed as a cheaper alternative to fossil fuels.

Have something to say to us?



  • What our investors are saying