Is Hydrogen really the Swiss Army Knife of Energy Transition? Let’s find out.

The Context

Globally we emit ~39 Gt CO2 from use of coal, oil and natural gas across Power, Industry, Transport and Buildings. The ambition is to get the emissions to Net Zero, i.e., either avoid emissions by using alternate technology or capture emissions and store/use it in a way that it is not released in atmosphere. Hydrogen is one of the technology alternative to fossils.

The Swiss Army Knife in theory

Hydrogen potentially finds applications across all major sectors driven by its flexibility:

• Hydrogen and its derivatives can be used as an energy vector to store renewable power use it later.
• Hydrogen can be used to produce Hydrocarbons using biogenic CO2 which can further be used to produce chemicals and synthetic fuels (basically replacing oil and natural gas as feedstock).

The alternatives to Hydrogen

Hydrogen is primarily competing against Electrification and Biofuels/Biogas. The technology option which makes economic sense in a particular application will prevail. The economic sense will be from two perspectives:

• From Buyer perspective: Buyer must have willingness to pay which is linked to the current price that buyer is paying.
• From Investor perspective: The price that buyer is willing to pay must create attractive business case for the technology asset investor (IRR, NPV)

Where does Hydrogen make sense?

Considering the current and expected economics towards 2030, applications can be categorized in three segments:

• Applications where Hydrogen is best positioned: These include applications where H2 is already being used. The applications where Electrification is not feasible due to power density or applications high heating.
• Applications where Jury is still out: Both are competing. Innovations and Cost curves will define who will win in long term.
• Applications where use of hydrogen may be sub-optimal: These are the applications where alternatives make better economic sense.