Windmills and solar panels are cropping up almost everywhere. The roads seem downright crowded with battery electric vehicles and hybrids. But hydrogen — the most plentiful element in the universe and touted by many as the ultimate alternative fuel — appears to be almost a no-show in the unfolding new-fuels battle for the future.
Lauded by many as an integral piece of the global energy transition, hydrogen energy figures prominently in the carbon-neutral strategy of companies like Exxon Mobil and Chevron. Toyota Motor, Honda and Hyundai market hydrogen-powered automobiles. And while Volkswagen has roundly rejected hydrogen technology, BMW has bought in and offers several hydrogen models worldwide.
But while all alternative energy sources face challenges, hydrogen technology seems to have stumbled more than have competing technologies. As the network of EV charging stations for cars expands rapidly, few places exist to top off a hydrogen tank.
For the broad industry, efficiently refining hydrogen into a usable fuel has been tricky. On Tuesday, a Department of Energy advisory committee announced that the effort to build up a "clean" hydrogen industry was moving far too slowly to meet U.S. climate goals. Energy Secretary Jennifer Granholm called the finding "sobering."
Blue, Gray, Black Hydrogen
Still, players as large as Exxon and Chevron, and as small as Plug Power and Fuelcell Energy, are grinding away at that challenge.
Currently, the world consumes about 100 million tons of hydrogen per year, around 2% of total global energy demand. Most of that comes from coal in China and natural gas and oil elsewhere, according to Catherine Robinson, an energy analyst for S&P Global Commodity Insights.
"Blue" and "gray" hydrogen are produced from natural gas. "Black" hydrogen comes from coal. Methods to produce hydrogen gas from water, called "green" hydrogen, are expanding for industrial-scale projects. Developing such technology with large-scale capacity is a key requirement of many carbon emissions reduction strategies.
The green or clean hydrogen market is expected to outpace the value of the liquefied natural gas (LNG) trade by 2030, according to consulting firm Deloitte. By 2050, Deloitte sees clean hydrogen as a $1.4 trillion market.
The Race For 'Clean' Hydrogen
Hydrogen, whether it is burned or fed into fuel cells, creates electricity without any carbon dioxide emissions, only clean water and heat. When transported, typically in tanker trucks, hydrogen gas is generally cooled to create a liquid.
China is the world's largest consumer and producer of hydrogen, with demand of around 25 million tons a year. Annual hydrogen demand in North America is about 15 million tons, according to Robinson.
Robinson estimates that by the end of 2027 at least 6% of global hydrogen production will be low carbon. That would be up from less than 1% in 2023.
The reason industries and big-name companies generally turn to the technology is not because they embrace "green" ideology. It is to meet regulatory requirements and emissions commitments.
"It is because of trying to reduce the emissions and decarbonize different (industrial and economic) sectors," Anne-Sophie Corbeau, a global research scholar on hydrogen and natural gas at Columbia University's Center on Global Energy Policy, told IBD.
Hydrogen Supplies And Economics
Corbeau said 2019-2021 was a period of "hypo-hydrogen," with many people claiming the gas was "going to save us all" and "hydrogen was going to be everywhere."
That gave people false hopes and expectations about what was going to happen, she said. "Hydrogen is a very complicated molecule. (The gas) is expensive to produce and particularly painful to transport."
This is why, in most cases, hydrogen is consumed where it is produced. Fertilizer manufacturers, the chemical industry, refineries and — to a lesser extent — the steel industry make up the bulk of hydrogen demand, according to experts.
"You only want to use hydrogen in the sectors where it makes sense," Corbeau said.
But supply remains limited. Enverus Intelligence Research estimates that 96% of U.S. clean hydrogen capacity skews to projects in developmental stages. Thus, the industry still has far to go to become a serious contender for capital.
Without subsidies, market economics favor blue hydrogen, produced from natural gas, over green hydrogen. This is especially true in areas where natural gas is plentiful, including the Texas Gulf Coast and Appalachia.
"Projects need exposure to superior asset quality, including proximity to abundant and low-cost resources, such as renewable power generation, carbon storage and natural gas basins," Alex Nevokshonoff, an Enverus Intelligence Research analyst, said in an April 3 note.
U.S. Spends Billions On Hydrogen
Cost increases in recent years have also taken some wind out of hydrogen's sails. Prices of wind and solar energy have ramped higher — especially after tariffs were placed on China-made components. So has the cost of components for electrolyzers, the devices that separate water into hydrogen and oxygen molecules. Meanwhile, higher interest rates have made the financing of major hydrogen projects more difficult.
The cost of clean or green hydrogen is now around $5 per kilogram. Corbeau estimates that should come down to around $1 per kilogram by the end of the decade, making hydrogen more competitive. However, she added that it will depend on the cost of wind and solar energy.
To bring prices closer to what customers will pay, the U.S. government is chipping in. Federal incentives include tax credits for hydrogen producers and $7 billion of funding for seven regional hydrogen hubs. The Energy Department envisions hydrogen hubs as regional clean industrial centers tying clean energy and hydrogen production together with transporting, shipping and training facilities.
The Hydrogen Energy Rollout
California and Texas are developing single-state hubs. Others involve three-state regions, like Pennsylvania, West Virginia and Ohio or Washington, Oregon and Montana. (Pennsylvania is part of two separate hubs.) The hub-and-spoke design aims to push the U.S. toward a target of about 10 million tons in annual production by 2030.
Plug Power is a corporate sponsor of five of those seven U.S. hydrogen projects. The company expected the U.S. Department of Energy to finalize $1.6 billion in loans related to those developments by the end of the first quarter. Investors and analysts will be listening closely to the company's first-quarter financial report for an update. Plug Power has not yet announced a reporting date.
In March, the Department of Energy announced $750 million in funding for 52 projects across 24 states designed to reduce the cost of clean hydrogen and "reinforce American leadership in the growing hydrogen industry."
Plug Power was again situated as a major recipient, selected for nine awards — three as a prime contractor and six as a subcontractor. Those grants for Plug Power are worth more than $70 million in funding.
Plug Power, Fuel Cell Establishing Hydrogen Markets
Latham, N.Y.-based Plug Power originally formed around replacing forklift batteries with fuel cells. It served companies including Walmart and Amazon.com, and earned credit for creating the first commercially viable hydrogen fuel cell market.
It has increasingly focused its business on the green hydrogen supply chain. Plug still has its materials handling business. It also makes various fuel cells and electrolyzers, and offers storage and transportation solutions.
In December, the company completed its first electrolyzer system at an Amazon fulfillment center. The center, in Aurora, Co., now powers its 225 forklifts with hydrogen produced on-site.
Looking well beyond forklifts, Plug aims to become the world's largest green hydrogen producer. As a first step, it targets production of more than half of its hydrogen energy from entirely renewable sources this year.
It also has branched out from forklifts to heavy-duty vehicles serving seaports in the U.S. and Europe, as well as stationary fuel cells providing dedicated power to data centers and distribution hubs.
FuelCell Energy has also expanded into ports. It operates its Tri-Gen system at the Port of Long Beach in California under an agreement with Toyota America. Tri-Gen uses biogas to produce electricity, hydrogen and water. The hydrogen is then used to fuel emissions-free industrial vehicles in the port, powered by electrical motors fed by electricity from fuel cells.
Bean Counters Vs. Being Green
Plug has struggled as delays held its hydrogen production below the level of its supply commitments. It has filled the gap by buying hydrogen from third parties. That has driven its costs higher.
Consequently, the resulting cash burn helped drive shares down 94% from January 2021 to the end of November.
In April, the company's first green hydrogen plant in Georgia reached planned capacity of 15 tons per day. That helped narrow the shortfall. Still, analysts have handed the stock a parade of price-target cuts. The most recent, early in April, was a downgrade to sell from Citi, which trimmed its price target to 2, from 3.25.
Morgan Stanley clean-tech analyst Andrew Percoco expects some margin improvement from Plug's fuel delivery business in 2024. Percoco rates Plug stock underweight. Plug Power's profitability will be depend on third-party suppliers reducing prices and on the company's ability to raise prices on existing contracts.
Besides Plug Power and FuelCell Energy, other hydrogen energy companies include Ballard Power Systems and NextEra Energy.
In Rotterdam, Netherlands, Exxon Mobil and FuelCell Energy are developing technology to capture emissions from industrial facilities while generating electricity and hydrogen.
Meanwhile, TotalEnergies put out a call last year for the supply of 500,000 tons of green hydrogen per year for its refineries in Europe.
"We are now approaching third-party providers to supply us with green hydrogen to accelerate the decarbonization of our operations," the French energy company said in September 2023.
Corbeau said the big problem everywhere for hydrogen-based companies is the lack of customers willing to sign long-term contracts.
"When you are going to invest several billion dollars, somebody has to be the guarantee and that is someone who is going to sign a long-term contract," she said.
Transport Sector Eyes Hydrogen
While hydrogen production costs are limiting growth for fuel cell manufacturers, S&P Global's Robinson believes interest in hydrogen is increasing in transportation. Aviation and maritime shipping, for example, look to synthetic jet fuel for airplanes and methanol or ammonia for freighters.
"The first market for low-carbon hydrogen is existing uses of hydrogen — refineries, ammonia production — but we are also seeing a lot of interest from sections in the transport sector," Robinson said.
She added that hydrogen derivatives like methanol, synthetic aviation fuel and synthetic methane "will be at the heart of the energy transition for hard-to-abate sectors like industry, shipping and aviation."
Chevron Adds Hydrogen Bet To Portfolio
To this point, a Chevron unit in early March announced it was working on a five-megawatt project to produce green hydrogen in California's Central Valley.
The proposed Chevron New Energies plant will use electrolysis to produce 2 tons of "low carbon intensity" hydrogen on a daily basis. The facility will be powered by electricity from solar panels and will be supplied with water from Chevron's existing assets at the Lost Hills oilfield.
"Chevron already offers lower-carbon fuels like sustainable aviation fuel, renewable diesel and others, and this project is expected to expand the portfolio of solutions Chevron could supply to the region," Austin Knight, vice president for hydrogen at Chevron New Energies, said in a statement at the time.
Chevron says it now produces around 1 million tons of hydrogen a year.
Globally, production of hydrogen from electrolysis is doubling year on year. This is expected to continue throughout the decade, Robinson told IBD. At the same time, energy companies are making large investments in hydrogen production with carbon capture, she added.
Hydrogen Cars Vs. Battery Electric Vehicles
Meanwhile, although hydrogen packs a stronger energy punch than batteries do, it appears to be losing out to electric batteries in the alternative energy wars to power personal vehicles.
Gallon for gallon, gasoline carries about twice the energy content of hydrogen. And pound for pound, gasoline has about 100 times the energy density of a lithium-ion battery, according to the American Physical Society.
Despite that advantage, hydrogen is a less-developed market than battery charging.
To drum up sales for its 2023 hydrogen-fueled Mirai model, Toyota is offering a $40,000 rebate along with $15,000 worth of free hydrogen refueling and interest-free financing.
Shell is closing six of its seven hydrogen refueling stations for passenger cars in California, citing supply complications. Instead, it will focus on EV charging stations.
Hydrogen Energy On The Road
Fewer than 12,000 hydrogen-powered vehicles were on U.S. roads in 2022. California reported that 3,143 hydrogen-powered vehicles registered there in 2023. That was less than 1% of the number of all EVs, according to the California Energy Commission. California is the most developed market in the U.S. for hydrogen-fueled cars. Still, it has only 68 operating public hydrogen fueling stations and 28 in the works.
Currently, only Toyota and Hyundai offer hydrogen-fuel cars in the U.S. Honda discontinued its Clarity Fuel Cell sedan in 2021.
However, BMW has its iX5 hydrogen concept vehicle. And in February, Honda unveiled a plug-in hydrogen CR-V that will be available in California later in 2024.
Honda's market experience with hydrogen fuel-cell vehicles began in 2002. That's when it introduced the world's first zero-emission fuel cell electric vehicle, the Honda FCX.
Honda recently expanded its fuel-cell effort to U.S. data centers. The auto company linked eight of its automotive fuel-cell systems to create a backup on-site generator near Los Angeles. It plans to begin sales as early as 2025. That will be after the rollout this year of a new fuel-cell vehicle for the U.S. market.
Honda has developed fuel cells through a joint venture with General Motors.
Trucking Is A Different Question
The market for hydrogen-powered personal vehicles remains stunted. The larger question for now is whether hydrogen can win out over EV trucks in the commercial heavy-duty trucking industry.
"The battle is not solved," Corbeau said, adding that it may come down to how fast the total cost of ownership is going to drop along with the convenience of how many refilling stations there are.
"The energy transition is going to have a cost. The fact that people are saying everything is going to be cheaper, I am not quite sure," Corbeau said.
Please follow Kit Norton on X, formerly known as Twitter, @KitNorton for more coverage.
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