Solving the chicken-and-egg problem of green hydrogen

Andrew Cunningham, CEO of ‘green’ hydrogen company GeoPura, likens the challenge of scaling the sector to a gridlock.

“It’s about breaking through the ‘chicken and egg’,” he says. There is a “cycle of people not building hydrogen production capacity because they are not sure who will use it. . . And [of] people who do not build up the capacity for this need hydrogen [because of the lack of supply]”.

GeoPura, in collaboration with Siemens Energy, has developed green (or renewable energy-derived) hydrogen alternatives to replace diesel generators in sectors from live music to construction. Cunningham, previously the founder of other technology startups, self-funded GeoPura after recognizing the world’s “mind-boggling” dependence on diesel generators.

Green hydrogen is produced by splitting it from water using an electrolyser powered by electricity from renewable sources. GeoPura’s business model includes generating hydrogen in this way, but also building fuel cells that use the gas to make more electricity.

The company was launched in 2019 at the Goodwood Motorsports Festival in West Sussex, southern England. It powered part of the event with its hydrogen generator and attracted interest from potential customers. After years of own research and investments, it turned out to be a turning point for Cunningham.

“It gave me the confidence to break that cycle and actually buy an industrial electrolyser [and to] buy the trailers that allow you to move that hydrogen,” he explains.

Once the concept was proven to work, the next step was to scale the business and secure funding from external investors. GeoPura succeeded earlier this year, closing a funding round that raised £56 million, including a £30 million commitment from state-owned UK Infrastructure Bank. Customers to date include the National Grid and the BBC.

Cunningham’s carefully phased approach highlights the concerns that still exist around hydrogen innovation. The gas is seen as a potential silver bullet as countries rush to decarbonize their economies, but has also suffered setbacks as projects that could demonstrate its long-term viability fail to get off the ground.

It is a common problem in sectors that claim to have potential solutions to help countries reach net zero targets. Governments are often quick to set targets – such as phasing out diesel and petrol cars – but are slow to provide funding and regulations to facilitate behavioral change and the formation of new industries.

In the case of green hydrogen, cost-effective production has proven elusive as high inflation and insufficient subsidies have made it difficult to manufacture the required electrolysis systems.

Most of the hydrogen currently used is so-called ‘grey’ hydrogen, extracted from natural gas, which releases carbon dioxide into the atmosphere. Green hydrogen does not require natural gas, but its production is more expensive and costs are rising rather than falling.

Government support – needed to support the supply chain of producing, storing and transporting the gas – has been slow around the world, despite widespread support for the technology as a way to decarbonise energy-intensive industries such as long-haul transport to make.

$5Costs for hydrogen production, per kilogram

Earlier this year, the International Energy Agency said hydrogen-specific renewable energy capacity would grow by 45 GW between 2022 and 2028, 35 percent less than the capacity it forecast a year earlier, suggesting momentum was being lost go.

Producing electrolysers, which use electricity to split water into hydrogen and oxygen, is typically the most expensive step in green hydrogen development. And it is these costs that risk undermining efforts to increase the competitiveness of green hydrogen versus hydrogen produced through dirtier methods.

Sourcing cheap components from China, a leader in clean hydrogen development, could help cover costs, but remains problematic due to geopolitical tensions. Western governments have instead sought to develop local supply chains and reduce dependence on a country they view as a competitor. Yet the cost of producing green hydrogen is still about $5 per kilogram higher than gray hydrogen, making it three times more expensive to produce – according to data company Argus Media.

“For renewable hydrogen to really take off, this cost difference would need to be reduced, which will not be easy and will require a combination of scale effects, efficiency gains and government subsidies,” said Stefan Krümpelmann, global head of hydrogen pricing at Argus.

He points out that while the number of planned electrolyser plant construction has increased, not all planned projects will reach completion and “production may be hampered by bottlenecks for individual components.”

Some projects simply don’t go ahead at all. In the latest blow to hydrogen transition ambitions, the British government last month shelved plans for what would have been Britain’s largest trial – using the gas to heat up to 10,000 homes – after being canceled last year had stopped two smaller-scale trials.

Industry bodies Energy Networks Association and Hydrogen UK found last year that no significant low-carbon hydrogen production projects had reached a final investment decision, despite the country targeting a production capacity of 10 GW by 2030.

“Seeing is believing,” says Clare Jackson, CEO of Hydrogen UK. “Although we have some small-scale projects in the UK, we have not yet seen the first large-scale project. We need to get the first projects off the ground [because] you have to be able to scale up somewhere.”

Fredrik Mowill, CEO of Hystar, a Norwegian electrolyser developer, admits that some of the ‘hype’ around hydrogen has subsided, but says a reduction in the number of ‘lofty’ projects would leave room for higher quality alternatives.

Hystar recently signed a supply agreement with Johnson Matthey, a London-listed technology group that makes vehicle catalysts, to boost green hydrogen production – showing that there may be a demand for energy technologies compatible with the decarbonisation agenda .

This article has been updated to show that the cost of producing green hydrogen is approximately $5 per kg higher than gray hydrogen.