Incumbent power generators and supply chains hold the keys to the energy transition.
Press releases often tell us that the future is about to change forever and is not looking back. They describe a future scenario that is often looked at in isolation and, therefore, is full of assumptions about the elements that surround that scenario and their evolution. These assumptions include the efforts of taking a product to a commercial scale, public policies, environmental permissions, third-party developments (such as infrastructure), etc. Based on your judgment of those assumptions, you may feel a press release is exciting, optimistic, or even unreal. And that’s fine. Press releases want to communicate about an event and often try to push surrounding elements in a specific direction.
Here are some recent examples:
As we advance toward that future, we realize how hard it is to deliver that promise. More often than not, surrounding elements don’t evolve as we need them to, forcing us to search and rely on available solutions and infrastructure to bridge us into that future.
The green hydrogen promise is not the exception. It will become a great way to store and transport renewable energy from where it is abundant to where it is most needed. But its challenges are not an exception either.
It is expensive to store and almost impossible to ship with commercially available technology and vessels. Producing it at scale is very capital intensive and requires a multi-disciplinary task force to develop a project with very high risks through uncharted-scale-waters.
And yet, press releases announce new green hydrogen projects left and right with precise dates and flows of operation as if required port terminals, infrastructure, and vessels will fall into place like a glove.
We are seeing (read: experiencing) this in the first person.
NewBalance Energy has been working with the most prominent hydrogen production projects in South America since 2020. Our mission is to unlock their path to operations by providing early offtake commitments, to supply a network of global off-takers with future de-risked supplies.
We typically join a production project before a press piece is even released.
During those days, every aspect of a project seems promising and achievable. For a moment, it lives in the future, in isolation. As a production project moves from feasibility studies to pre-engineering plans, everything flies back to the present, at the speed of light. Port infrastructure never advances as expected, required permitting gets delayed, and definitions of hydrogen carriers seem cloudy. We find this to be part of recurrent human misjudgment characteristics. If we had to write a press release about our future vacations, we would describe ourselves at (say) the beach, drinking something cold and nice, enjoying ourselves, and getting some deserved downtime. This is thinking in isolation at its best. It ignores the traffic on your way to the airport, putting you at risk of missing the flight, followed by flight delays, days of bad weather at the beach, and all the details that we sometimes go through during our downtime that make us feel like we need to get some time off after the vacation. Back to green hydrogen developments.
Adapt to advance
If you manage to produce green competitive hydrogen at scale, you still need predictable supply chains, infrastructure developments, vessels, and reliable port operations to transport hydrogen across the globe.
None of that is available to move hydrogen across the globe and won’t be anytime soon.
When we look around for potential partners or brownfield opportunities, what we find are established players and supply chains, but none of them played a role in the futuristic press releases. Those players know how to move products around and have been doing it for years. Just not the products we are making.
To advance, we need to adapt to what existing players can do instead of waiting for the future to unfold as we expected. That means transforming green hydrogen into a chemical carrier that can be stored and transported with available supply chains and technology and one whose infrastructure can be expanded with predictable results.
The challenge with deciding on such a hydrogen carrier is that it is not a decision for an individual project or a group of projects to make. Off-takers need to be aligned and ready to use the compound as it comes or be able to un-crack it back to hydrogen. These decisions need to happen at a national level, ideally, those in a position to purchase significant quantities.
Japan Publishes an Updated Hydrogen Strategy
In June 2021, Japan updated its national hydrogen strategy, introducing ammonia as a lead hydrogen carrier. The national hydrogen strategy, first published in 2017, focused on the usage of hydrogen for power generation and mobility through fuel cells and fuel cell-powered vehicles. The updated version presents ammonia as a solution to decarbonize the power generation and transportation sectors. For the former, the goal is to demonstrate 20% ammonia co-firing in coal-fired, 20-years-old power plants while developing technology to increase the co-firing rate to 50% before 2025. For mobility, the updated goal is to foster technology development to get ammonia-fueled ship demonstrations going during the early 20s. Both objectives live in the present.
To provide context, Japan has been at the forefront of green hydrogen adoption for decades. In 1996, the government published the Millennium Project, which targeted, among other things, the development of fuel cell vehicles and residential cogeneration energy systems to bring them to market by 2015. The early 2000s involved further fuel cell technology prototypes and applications development, with a first phase running between 2002 and 2005, aimed to develop the hydrogen infrastructure and determine performance statistics from a small fleet of FCV. Between 2005 and 2008, they conducted a large-scale demonstration program with more than three thousand fuel cell units installed by several companies.
Their hydrogen and fuel cell ambitions got even stronger after the 2011 earthquake, followed by the closure of nuclear power plants.
For them to shift to ammonia to achieve tangible goals after almost three decades of fuel cell policy and technology development is a major shift. One that will probably get other like-minded off-takers to follow through, immediately becoming the north star for multiple production projects that have been thinking about the hydrogen carrier dilemma for months.
Although it may seem far from the original roadmap, ammonia is leading the way to realize it. Japan adapted its original hydrogen vision to advance toward it..
Ammonia to the rescue
The world has been artificially producing ammonia since 1909 when Fritz Haber and Carl Bosch developed the first process to fix nitrogen into ammonia by a reaction with hydrogen at high temperatures.
The use of this compound in fertilizers rapidly grew to a current 200Mn tons per year market with established supply chains that enabled, among other things, an explosion in population growth, from under 2Bn in 1920 to almost 8Bn in 2022. For this unprecedented 300% growth, ammonia and the Haber Bosch process is often called the first chemical revolution.
The problem is that current ammonia production gets its hydrogen from reforming natural gas at very high temperatures. This process consumes close to 2% of global energy production and is responsible for 1.5% of global CO2 emissions. CO2-free ammonia production, on the other hand, uses renewable energy to get hydrogen by splitting water into H2 and O, and then to combine it with Nitrogen. Still an energy-intensive process, but one without a carbon footprint.
Ammonia’s second revolution
Through green (CO2-free) ammonia, we can capitalize on traveled roads and supply chains to store and transport the abundant renewable energy from places like the Atacama Desert and Magallanes in Patagonia to where it is most needed.
One of those places is Japan, and its 20-years-old coal-fired power plants, which generate 26% of the energy consumed and are responsible for ~25% of the country’s CO2 emissions. Achieving 20% to 50% green ammonia co-firing would reduce CO2 emissions significantly without major technological investments other than upgrading the burners. A minor investment, in relative terms, could put Japan on a path to reducing 25% or more of its CO2 emissions without installing new kinds of power plants, transmission lines, or port terminals.
Focus on what matters
Detractors will say that these tests and roadmaps are inefficient, arguing that it takes around 11MWh to produce one ton of green ammonia, which generates 6MWh of power through co-firing. Although true, these points miss the big picture about the existing opportunity.
In addition to reducing CO2 by leveraging existing infrastructure and power plants, generating green ammonia at scale would push value chain components such as electrolyzers to reach a critical scale, reducing costs further and fostering the development of surrounding technology.
The other point detractors miss is that as a by-product of scaling green ammonia production and making it cost-competitive, we would also be paving the path to decarbonize 200Mn tons of gray ammonia (again, 1.5% of the world’s global annual CO2 emissions.)
Instead of focusing on energy efficiency, one should focus on dollars per CO2 abated and the green premium paid above current feedstock. At USD 550/ton of coal, 20% green ammonia co-firing, assuming a cost of green ammonia of USD 600/ton, results in USD 22/ton of CO2 abated without considering cost reductions from scale or technology advancements. A significant discount to the proposed USD 100/ton carbon tax, especially if you consider second-order implications like making electric vehicles fulfill their promise.
The most competitive green hydrogen/ammonia production projects in the Antofagasta or Magallanes regions can produce green ammonia at USD 600 or less.
The future will come
Scaling green hydrogen/ammonia usage and production should snowball surrounding supply and value chain elements. It could accelerate and de-risk scaling hydrogen vessels and storage while making it easier for existing technologies to reach commercial scale, such as concentrated solar power or novel liquid organic hydrogen carriers.
We’ve seen what capitalism can do when there’s an opportunity to chase.
The world didn’t run out of oil as forecasted in 1874 (first released projection, four years worth of oil), 1956 (Hubbert’s peak), or 1973 (oil embargo) because enough capital chased the opportunity. Instead, we got super-efficient engines, new drilling technology, fracking, etc.
Similarly, the cost of solar electricity dropped by 90% in just over ten years making it cheaper to build a PV plant than a new natural gas or coal plant in most regions.
For green hydrogen to play a role in the energy matrix, we need scaled production and critical mass adoption. We have a way to get there leveraging existing infrastructure and established power generators if we manage to adapt and focus on what matters.