Hydrogen redraws the energy map, providing huge opportunity for UK

In the hydrocarbon era, influence in energy markets was largely a function of luck – those blessed with the biggest deposits of crude oil and natural gas became exporters and gained the power to set, or at least shape, prices, while those without were importers and subject to fluctuations in market forces.

Those dynamics have shaped the world for decades, bolstering regimes in the likes of Russia, Saudi Arabia and Qatar, while intermittently pressuring the economies of major energy importers, such as India and Turkey.

For decades the world has been shaped by the dynamics of crude oil and natural gas deposits, bolstering regimes like Russia, Saudi Arabia and Qatar.

The UK has sat somewhere in the middle of the pack, enjoying at times the financial benefits of North Sea oil and gas, but also, as a net importer of petroleum products since 2013 and natural gas since 2004, increasingly prey to periods of extreme prices in recent decades.

The emergence of clean hydrogen as a major future source of energy effectively throws all the pieces of the global energy jigsaw into the air. Where they land this time will depend less on luck and more on industrial strategy, because green hydrogen can be produced by any country with some renewable energy resources and an electrolyser to turn water into H2.

For sure, some countries have more in the way of renewable energy resources than others, allowing them to produce hydrogen more cheaply and in greater volume than others – the International Renewable Energy Agency (IRENA) points to Australia, Chile, Saudi Arabia, Morocco and the United States as best placed to become major exporters.

Pictured: Wind turbines in western Australia. The International Renewable Energy Agency has pointed to the country as one of the future most powerful exporters of hydrogen.

However, there are a far greater number of countries that can produce clean hydrogen at scale, meaning fewer opportunities for the market to be manipulated by a few powerful producers.

Hydrogen could account for 20% of global energy use by 2050, with 30% of that traded across borders.

“Green hydrogen will bring new and diverse participants to the market, diversify routes and supplies and shift power from the few to the many,” IRENA Director General Francesco La Camera wrote in a recent report. “With international co-operation, the hydrogen market could be more democratic and inclusive, offering opportunities for developed and developing countries alike.”

Insights also point to a relatively small window during which these changes are going to take place. The race for technology leadership will be most intense in the current decade, while demand is expected to take off in the 2030s.

There are numerous areas within the hydrogen supply chain where technology leadership can be obtained, from production to transportation and storage, and end uses in industry, transport, heating and power generation.

A look at hydrogen patents shows OECD countries dominating research and development (R&D) spending, but China catching up quickly (government spending on hydrogen R&D increased six-fold in 2019, according to the International Energy Agency).  Japan is the leader in fuel cell research with about 40% of patents, followed by Europe, South Korea and the United States. Fuel cells account for about 41% of all hydrogen patent activity. Europe leads in patents for hydrogen production and storage, which account for 36% and 21% of hydrogen patents, respectively.

Japan has been credited as global leader of fuel-cell research for owning 40% of patents.

Electrolysers are expected to be a $50-60 billion market opportunity by 2050, while fuel cells could be $21-25 billion. Currently, most of the world’s electrolysers are manufactured in Europe, but it remains a fractured market with plenty of opportunity for consolidation, scale and power production costs.

However, Chinese electrolysers are much cheaper European ones, and able to produce hydrogen for $300/kW, 75% less than Western machines. New technologies, such as proton exchange membranes, may provide an opportunity for European and US manufacturers to retain market share.

In this area alone, the UK has a number of leading companies, including INEOS, CPH2 and ITM Power, while innovators like Johnson Matthey produce some of the essential components for these machines. Elsewhere in the supply chain, companies such as Ryze Hydrogen are building transport and distribution infrastructure while Wrightbus and JCB are building vehicles and plant machinery and an award-winning hydrogen combustion engine that runs on clean hydrogen fuel.

While not blessed with the world’s best solar irradiation, the UK does have some of the best offshore wind resources with which to create green hydrogen, something it is already beginning to exploit.

The UK has some of the best offshore wind resources with which to create green hydrogen.

The opportunities for the UK are many, but support is needed at this critical period in the development of the hydrogen economy if it is to make the most of them.

Research by Bloomberg New Energy Finance shows that as of August last year, UK targeted support available for hydrogen through 2030 was below Italy, France, Germany and Spain. The UK also falls short when it comes to government clean hydrogen targets, with our 5 GW less than France’s 6.5 GW and Germany’s 10 GW.

The UK government is moving in the right direction when it comes to hydrogen strategy but needs to increase its ambition if it is to grasp this once in a generation opportunity.

The creation this week of the UK Hydrogen Policy Commission, made up of politicians from across the political spectrum as well as private-sector experts and academics, to advise the government in this crucial area will hopefully create a greater sense of urgency and accelerate the UK’s journey towards a hydrogen-powered future.

We will be watching closely.

To learn more about HYCAP click here.