Energy Transition – An evolving journey – New: Energy transition in Asia 2023: Hydrogen
By Sourced Externally
January 8, 2024
Hydrogen is the most abundant chemical element, estimated to account for 75% of the mass of the universe. As summarized below, hydrogen can be produced in a number of ways and from different sources, thereby giving rise to a color-based hydrogen taxonomy.
This chart above highlights that there are 6 different types of hydrogen, including:
Grey hydrogen, which accounts for roughly 95% of the hydrogen produced globally, is mainly used in industrial applications and is produced using fossil fuels, such as natural gas or methane, through steam reforming
Brown hydrogen, which is produced using other fossil fuels such as brown (lignite) coal and which is harmful to the environment, as exorbitant amounts of CO2 are released into the atmosphere
Blue hydrogen, which is produced using the same processing technique employed to make grey hydrogen, but CO2 is not released; instead, it is captured using Carbon Capture and Storage technology. It meets the low-carbon threshold and mitigates the environmental impact to an extent
Green hydrogen, which is generated using renewable energy sources, such as wind and solar. This is the cleanest but also the most expensive energy option
Yellow hydrogen, which is produced using electrolysis; however, achieved only through solar power unlike green hydrogen, which can use solar and wind. It is a subet of green hydrogen
Pink hydrogen, which is produced by splitting water through electrolysis, but it uses nuclear energy as its power source
Put simply, hydrogen has the potential to revolutionize the energy transition. In addition to its abundance, it offers a low-carbon supplement to natural gas for heating and electricity generation; it can be used as fuel for light and heavy vehicles; and it is a cleaner alternative to coke for steel production. While grey and brown hydrogen have been in use for some time, it is green hydrogen (where the electrolysis by which the hydrogen is produced is powered by renewable sources, such as wind, water or solar) that has been dubbed the renewable energy source to watch. DNV projects that one-third of the world’s hydrogen supply will be derived from renewable or low-carbon sources by 2030. Whereas by 2050 green hydrogen will comprise 85% of the global hydrogen supply.
The climate crisis and energy security have become central policy drivers in many jurisdictions across the Asia-Pacific region (APAC). Regulators are coming to the view that clean hydrogen may become one of the levers to reaching their targeted levels of decarbonization, as set out in international treaties, such as the Paris Agreement, and as discussed at COP 27 and COP 28.
Consequently, stakeholders in the region, including industry players, investors, governments and supranational organizations, have begun piloting the potential of hydrogen to drive the green energy transition, creating a hydrogen policy momentum.
While new-age hydrogen plays are not profitable yet, the high price-to-sales ratio can be pegged against strong growth prospects – Bloomberg consensus forecasts that average revenue growth rates for three-year, five-year and ten-year (where available) horizons are expected to achieve 30% to 40% CAGR.
In its 2023 report, Deloitte forecasts that by 2050, the global hydrogen market will reach $1.4 trillion, of which the Asia-Pacific market will comprise $645 billion in 2050 and nearly 55% of the market in 2030 due to the rising demand in China, Japan, Korea, Indonesia and India.
In APAC, the nascent hydrogen industry is concentrated in Australia for upstream activities and in Japan and Korea on the downstream demand side. For instance, in January 2023, Japan’s Agency for Natural Resources and Energy (ANRE) released an interim report that sets out new strategies for boosting investment in hydrogen and ammonia. Australia has also recently announced that it will invest $1.4 billion to increase the development of its renewable hydrogen sector.
Leading companies from these markets are also exploring cross-border investment opportunities. For example, in 2022, South Korea’s SK Energy acquired a $1.5 billion stake in the U.S. hydrogen fuel-cell maker Plug, with plans to roll out in South Korea and the broader Asian market. Elsewhere, the Japan Bank for International Cooperation (JBIC) announced in March 2022 that it was looking to invest up to $108.7 million in a hydrogen investment fund managed by Hy24, a European clean hydrogen infrastructure investment platform.
China has also been ramping up its activity in the hydrogen sector. The recently released 14th Five-Year Plan (2021-2025) specifically highlights hydrogen as a sector that China intends to advance. Beijing plans include the rapid development of several world-leading hydrogen companies and growing the city’s hydrogen market to at least CNY100 billion ($15.4 billion) over the course of the next two years. In March 2022, China issued the Medium and Long-Term Plan for the Development of Hydrogen Energy Industry (2021-2035). Under this initiative, China aims to establish (i) a system for the development of its hydrogen energy industry by 2025; (ii) a hydrogen energy industry technology innovation system by 2030; and (iii) a clean energy hydrogen production and supply system by 2030. Additionally, China’s state-owned oil and gas giant Sinopec completed the construction of the world’s largest facility for the generation of hydrogen from renewable sources. The factory began its production in June 2023, with an initial annual output of 10,000 tons.
These developments are drawing interest from both overseas investors and local players as China represents a potentially huge market for hydrogen. The China Hydrogen Alliance (CHA), a state-supported industry body, predicts that the output value of China’s hydrogen energy industry will reach CNY1 trillion ($152.6 billion) by 2025. CHA also forecasts that by 2030, China’s demand for hydrogen will reach 35 million tons, accounting for at least 5% of China’s energy system.
In ASEAN, new hydrogen initiatives have been announced by Singapore and other nations in the region are also beginning to see hydrogen’s potential. For example, national energy companies Pertamina and Petronas are taking steps to explore opportunities in the hydrogen space in Indonesia and Malaysia respectively. Elsewhere, the Japanese have been spearheading a number of hydrogen initiatives. For example, Japanese firm Chiyoda has collaborated with Brunei to test methylcyclohexane (MCH) as a hydrogen carrier, with the goal of supplying Japanese refineries. In partnership with Malaysia’s Petronas, Japanese petroleum company ENEOS has launched a renewable hydrogen-to-MCH project. Moreover, Malaysian companies have joined forces with Japan’s Mitsubishi Heavy Industry and PLN to develop hydrogen generation and low-carbon ammonia facilities, while Thailand’s EGAT partnered up with Japan’s MOL, Mitsubishi and Chiyoda on clean hydrogen and ammonia production. Lastly, in June 2022, TotalEnergies and Adani announced the investment of $5 billion into the development of a hydrogen and derivatives business in India.
For the most part, the development of a viable market for hydrogen in APAC is subject to the same challenges that are seen elsewhere, including in North America and Europe. According to a DBS report, key challenges among these are:
The high production costs of primary renewable energy sources
Poor storage and transportation infrastructure
Limited regulatory frameworks
Limited production expertise
Limited demand from existing industrial markets
Within emerging Asia, in particular, where the existing regulatory and physical infrastructure for conventional and renewable power is still some way short of where it needs to be to meet current and proposed demand, the impact of these factors is even more acute.
Although regulators in many Asian jurisdictions have brought hydrogen within the scope of existing laws (for example, those applicable to natural gas, renewable energy or hazardous chemicals), in the long term, hydrogen-specific legislation will need to be developed and implemented. As such, alongside the use of existing laws, Asian regulators are drafting a comprehensive regulatory framework that will govern the production, storage, transportation, distribution and associated infrastructure of hydrogen. The regulators’ overarching objective is to facilitate the development and functionality of the domestic hydrogen market, as well as cross-border trade. To this end, some regulators hope to implement public support mechanisms and incentives and develop a workable definition of clean hydrogen, which is necessary for the establishment of a licensing regime. Some jurisdictions are also considering the launch of certification tools that provide guarantees of origin and trace the types of hydrogen produced.
What we can expect
Given the compelling case for a significant increase in the use of hydrogen in the near- to mid-term, we expect new legislation across multiple jurisdictions with respect to the production, storage, transportation and use of hydrogen.
Increased demand should also drive more investment and M&A opportunities in businesses that are developing hydrogen-related products and technologies.
Subsidies and other government incentives designed to promote the development and use of hydrogen should result in a new array of lending products.