Decarbonisation; capturing the value of hydrogen

OPINION | Companies are facing growing societal, environmental and legislative pressures to decarbonise. To make a strong business case and get the most value out of transitioning to lower carbon fuels such as hydrogen, companies should take a strategic approach, say AECOM energy specialists Toby Uppington (above) and Jesse de Vries.

Cutting carbon emissions by transitioning from fossil fuels to lower carbon alternatives is a pressing issue. To remain competitive, organisations must respond, but in a way that maintains short-term business continuity while making the best long-term economic sense.  For many, the solution will be multi-faceted and complex – as the technologies around fuel decarbonisation evolve, there will be more options around electrification and alternative liquid fuels. Yet, all have trade-offs to consider.

A good example is hydrogen. Even though it is currently relatively costly, companies are investing in this alternative fuel as part of a wider energy strategy not only because it helps meet carbon reduction targets but because they have identified the long-term value. By taking a strategic approach, transition then becomes a multi-stage process informed by clear outcomes that meet both business and net-zero carbon goals.

In this article, we look briefly at the hydrogen economy and where the value lies, before sharing four areas our strategic advisory teams consider when advising clients on the best way to capture that value.

Hydrogen: where does the value lie?

Hydrogen is not a new fuel, and energy specialists have long talked about its predicted renaissance as an alternative to fossil fuels. In the past, it was hard to leverage hydrogen’s full potential (as it doesn’t store as much energy as a traditional hydrocarbon per litre and it uses more electrical energy to produce than it provides as a fuel). Advances in technology, coupled with significant improvements in renewable energy generation and decarbonisation incentives, mean that this is no longer the case.  We have reached the stage where hydrogen has a key role to play in meeting net-zero carbon targets.

Here are three examples:

1/One of hydrogen’s most appealing qualities is its ability to act as a store for electricity production or as a direct combustion alternative. Green hydrogen is becoming a very attractive part of the energy mix when coupled with the ever-advancing renewables generation market. As the cost of hydrogen generation continues to plummet, gaps in renewable energy supply due to variable weather conditions can be smoothed out by coupling with hydrogen either for off grid production or as an in-situ energy store to fuel power stations during peak demand cycles.

2/Hydrogen can replace most traditional combustion sources and it is becoming an ever more attractive solution for many industrial processes, such as steel production.

3/As an energy store, hydrogen has a key role to play in the decarbonisation of the transport market as the energy density of hydrogen has significant advantages over the weighty mix of semi-precious metals within batteries. There is an emerging consensus that transport decarbonisation will be best achieved through the electrification of smaller passenger vehicles coupled with hydrogen fuelling of larger logistics and mass transit options.

Capturing the value of hydrogen

Given the complexity of choice and dynamic nature of the market, we consider the following to help our clients get the most value out of hydrogen by examining their long-term business need to identify both risks and opportunities for growth.

1/The most appropriate lower carbon fuel: When formulating a low carbon energy strategy, it is important to think agnostically about the choices available and associated trade-offs. We have been advising governments in Scotland and Wales on the most sustainable ways of developing a hydrogen economy and how to integrate power generation, transport and renewable generation solutions. This involves working with transport authorities to advise on where and how to transition to hydrogen fuelling and the associated impacts to operating standards. It’s about presenting a suite of affordable options, but also quantifying the environmental benefit of making the transition.

2/The cost of change: Whilst hydrogen is currently comparatively expensive, costs are forecast to reduce as generation and distribution technologies improve and the price of fossil fuels (and associated taxes) increase in the coming years. An informed long-term approach that seeks to achieve (or better) price parity against the original fuel used is critical.

3/Understanding the value chain: A strategic advisor will consider all elements of the hydrogen production, distribution and utilisation value chain to develop a transition strategy that aligns to the specific requirements of the business in question. This may include on site generation and production through decentralised electrolysis or delivered liquid hydrogen produced elsewhere.  It may also include the use of hydrogen as an energy store such as for excess solar generation capacity and evaluation of the most appropriate colour of hydrogen to source for the future market conditions.

4/ Mapping the transition: For most, the transition to hydrogen will be a multi-stage process as CAPEX and OPEX budgets are carefully managed to upgrade, replace and invest in infrastructure across several years. For example, we are now supporting a major chemicals company build the facilities to upgrade their existing industrial hydrogen production facilities, replace their distribution fleet and develop a network of fuelling stations. Our experts are informing the business case to balance existing OPEX/lease commitments against the new CAPEX requirements in a sequential manner for best return on investment.

The opportunity to maximise value from the transition to hydrogen is open to all sectors, from oil and gas to transport and beyond. However, ensuring that hydrogen is the right solution and budgeting for a step-by-step integration across the value chain is a critically-important decision that requires an intimate understanding of the choices and delivery solutions available. Transitioning strategically to low carbon energy ensures that decisions made now are sustainable in the long-term.

This article was originally published on Without Limits, AECOM’s thought leadership platform.

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