Red lights for green hydrogen

If Donald Trump is re-elected as the president of the United States, it might pour cold water on Namibia’s aspirations of becoming a green hydrogen hub.Roman Grynberg, a professor of economics at the University of Namibia's (UNAM) faculty of economic and management sciences, has flagged Trump’s possible re-election in the maiden issue of Green Hydrogen Monitor, the Institute of Public Policy Research’s (IPPR) publication dedicated to reviewing developments in Namibia’s green hydrogen field.Grynberg notes Trump’s public statements that climate change is a hoax, and says his re-election could bring the international community’s commitment to decarbonisation by 2050 to an end.According to Reuters, Trump is the undisputed frontrunner for the Republican presidential nomination in this year’s election.The Trump factorTrump has made several ambiguous, inconsistent statements on climate change over the years, among them this tweet in 2014: “NBC News just called it the great freeze - coldest weather in years. Is our country still spending money on the GLOBAL WARMING HOAX?” In a CBS interview in 2018, Trump said: "I don't think there's a hoax. I do think there's probably a difference. But I don't know that it's man-made ... I don't wanna give trillions and trillions of dollars."Trump took the US out of the Paris Accords, a legally binding international treaty on climate change, in June 2017 when he first became president, Grynberg notes.“Moreover, he would almost certainly cancel the Biden administration’s Inflation Reduction Act, which at present provides US industry with a subsidy of US$3/kg for green hydrogen for 10 years, up to a maximum of US$100 billion,” he adds.Grynberg stresses that the green hydrogen industry is dependent entirely upon subsidies from the developed countries which claim that they are committed to decarbonisation and fighting climate change. European UnionThe European Union (EU) has implemented carbon border tax measures (CBTM), which will be of global significance as they will impose border taxes on commodities coming from countries exporting carbon-intensive products to the bloc, Grynberg says. Prospective exporters to the EU will therefore have to conform to the union’s carbon standards or pay a border tax. This will apply to various commodities, which initially include cement, iron and steel, aluminium, fertilizers, electricity and hydrogen, Grynberg explains.“It will, in effect, mean that producers wishing to trade with the EU will have to conform to given standards or impose national carbon tax measures which can be deducted from the CBTM liability. “The political risk is the willingness of EU states to continue to bear what will certainly be the cost of decarbonisation when new and more apparently immediate needs arise. The political shift to the far right in the EU elections may well signal a decline in support for measures to combat global warming,” according to Grynberg.CostGreen hydrogen produced from renewable sources, i.e. solar and wind power, currently costs between US$5 to US$6 per kilogramme, or between N$90 to N$108 at current exchange rates. This is up to five times the market price of gas-powered ‘grey’ or ‘black’ hydrogen, Grynberg says.A peer-reviewed study by five engineers from Oxford University in the United Kingdom (UK), published in April this year, concluded that the lowest-cost location for a green hydrogen project in Namibia is Lüderitz. The Oxford team estimated that the cost of ammonia, a product derived from hydrogen production, is currently €5.4/kg or about N$105 at current exchange rates.The €11-billion Hyphen Hydrogen Energy project, which will be based at Lüderitz, is expected to be up and running by 2026/27. The expected 2030 price of green hydrogen, as estimated in the recent 2023 NamPower/Rotterdam Port joint pre-feasibility study, is around €3.25 or about N$63. “However, this is a pre-feasibility study, and so the estimates are made with a margin of error of ±50%. Thus, the price estimates in the Nampower study may well be close to the estimates of the engineers from Oxford University,” Grynberg states. “However, Namibian officials have preferred to believe the McKinsey estimates of US$1/kg (N$18/kg) in 2030 or the International Energy Agency (IEA) estimated price of US$2.5/kg in 2030,” he adds.HyphenGrynberg refers to Hyphen CEO Marco Raffinetti’s statement about the commercial viability of the Lüderitz project. “We believe Hyphen will be one of only ten GW scale projects globally in production by 2030. For a time, it will be a seller’s market, and therefore, regardless of Hyphen’s LCOH (levelised cost of hydrogen), we are confident that the market price would be substantially higher, and therefore the project will be viable.”Grynberg points out that the price of green hydrogen is highly subsidised in the UA, the EU and Japan.“The EU, in order to facilitate decarbonisation and transformation of their economies away from dependence on fossil fuels, in particular from Russia, has publicly supported the development of green hydrogen and the project in Namibia. “Thus, a price of €5 (N$97) is entirely plausible when the price of grey hydrogen, i.e., generated from fossil fuels, is as low as US$1/kg (N$18). However, it has been suggested by the consulting firm McKinsey and the International Renewable Energy Agency (IRENA) that the price of green hydrogen is expected to continue to fall to these levels by 2030 because of two principal factors – the decreasing cost of solar and wind-generated electricity and the decreasing cost of desalination of seawater, which is necessary before the generation of hydrogen from pure water,” he says.The cost of the Hyphen project is approximately the same as Namibia’s current gross domestic product (GDP).“Green hydrogen is, as many commentators observe, ‘not for the faint-hearted’. It is currently a marginal industry which is nowhere near as profitable as oil or gas, for example,” Grynberg says.FundingGovernment has taken a 24% stake in the Hyphen project, while the initial risk leading up to full feasibility study has been covered by grants from the Dutch, German and other governments.Government is expected to provide an unknown level of loan guarantees for the project, according to the NamPower study.According to Grynberg, this will depend on a bankable feasibility study by Hyphen. “Should there be no other joint venturers and the government proves to be the final guarantor, it will be very difficult for any banking consortium to fund a project equivalent to the nation’s GDP,” he says. Government sources have indicated that government intends obtaining such large loans from the international money market by leveraging its future oil revenues, The NamPower study states that the most significant risk to the Hyphen project is not being able to make a business case and procure enough off-take agreements from buyers in Europe and Asia. “No bank or group of banks will fund such a large project without legal proof that there are buyers for the final product at a known price. That means Hyphen and the government will have to provide evidence of legal memoranda for the purchase of the ammonia/hydrogen produced at Lüderitz. “Given that hydrogen is a commodity, the main factors will be the price of the product and whether it can be sold in markets like Rotterdam. If the price is uncompetitive, then the project will simply fail,” Grynberg states.He notes that Namibia can get out of its 24% stake in the project once the studies are completed and if it is found to be sub-economic.SizeHyphen plans to develop a facility with a 10 GW electrolyser capacity by 2030, utilizing a modular system of 40 or more electrolysers. This approach is intended to achieve the economies of scale needed to significantly reduce the cost of green hydrogen production.Grynberg points out that the world’s largest electrolyser has just recently been commissioned in Xinjiang, China, by Sinopec at 260 MW, roughly one-fortieth the size of the expected Lüderitz facility. “There have been some serious performance issues noted with Chinese electrolysers, with the Sinopec electrolysers operating at less than a third of their installed capacity. It is expected that the Chinese manufacturers of electrolysers will be able to seriously undercut European and US manufacturers and dominate the global market as they have with solar panels,” he says.Grynberg notes that it would require the use of one-quarter of China’s expected electrolyser production capacity of 40 GW by 2030 to achieve Hyphen’s expected level of production.White hydrogenGrynberg says a significant technical risk to the Hyphen project is whether 'white' or geological hydrogen will prove to be commercially extractable and sufficiently impactful to undermine the cost efficiency of manufactured hydrogen, regardless of whether it is black, brown, grey, blue or green.White hydrogen has been discovered in various locations, including Mali, Australia, Brazil, France and the US. In Mali, it is estimated that there are between 46 and 250 million tonnes of natural hydrogen, equivalent to several years of global supply at current demand. While the Malian deposit has not been commercialised, it is producing electricity for the local village of Bourakébougou. The Australian company Gold Hydrogen has found hydrogen in South Australia, with an estimated volume of 1.3 million tonnes.A global 'gold rush' for white hydrogen is widely anticipated, which could potentially undercut green hydrogen, Grynberg says. Australian firms are expecting to sell white hydrogen for US$1/kg, challenging the position of green hydrogen producers. The US Geological Survey recently announced an estimated five trillion tonnes of hydrogen in the earth. While only a small proportion will be commercially viable, it is projected to be enough to last for hundreds of years, Grynberg points out.HypeAnother technical risk to Hypen, according to Grynberg, is not just capacity issues, “but whether, in fact, hydrogen is being overly hyped as the silver bullet for global warming”. “It is entirely plausible that other technologies will prove to be far more cost-efficient in terms of providing the energy that society requires for environmental sustainability,” he says. “The energy efficiency of producing hydrogen is often much lower than using electricity directly to drive a motor, and betting on one new technology while the world is still exploring options for addressing decarbonisation is particularly risky. “It should be recalled that the EU made the decision to implement green hydrogen decarbonisation two or three years ago. At the time of the EU’s decision, white hydrogen was barely recognised as a potential low-cost substitute. White hydrogen may well prove to be a major disruptor of the EU and US march to relatively high-cost green hydrogen,” Grynberg says.

Red lights for green hydrogen

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Red lights for green hydrogen

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