Hydrogen has the potential to revolutionise sustainable energy transitions. However, progress towards a sustainable ‘hydrogen economy’ has reached somewhat of an impasse.
Both investment to increase the supply of hydrogen, and demand for the energy it produces, are lacking. And without significant investment to create demand, or high levels of demand to drive investment, progress will remain stunted.
The key to unlocking this deadlock could be ‘hydrogen valleys’ – or ‘hydrogen clusters’, as they are also known. The term “hydrogen valley” describes a geographic area that offers the opportunity to develop a localised hydrogen supply chain from production, to distribution, to utilisation. In these valleys, several hydrogen applications are combined together into an integrated ecosystem that consumes a significant amount of hydrogen, improving the economics behind the project.
While several valleys around Europe and in the UK have been identified and launched across the UK and Europe, there is still a way to go. Many of these projects are in the planning stages and as such, require significant levels of support from a financial, technical, and managerial point of view, before becoming functional.
Peaks and troughs
Hydrogen valleys play a critical role in the energy transition journey. They provide the opportunity to accelerate the decarbonisation of a wide range of industries. Furthermore, in addition to the environmental benefits valleys can bring on a global scale, they also offer significant environmental, social and economic benefits for local communities by attracting greater investment to the area once successfully launched.
The success of the initial valleys in providing a reliable, cheaper carbon alternative, and the prosperity they bring local areas, will promote a wider uptake of these valleys. This wider uptake will increase demand, substantially lowering investment risks and therefore driving a larger number of investors to the project. In turn, this greater investment can also support the development of technology projects from pilot stage to fully commercial solutions, thus pushing costs down in the long run.
So what’s the delay?
The main hurdle preventing the development and running of successful hydrogen valleys comes down to the complexity of the projects. Due to its versatility, hydrogen can offer support to a huge number of different industries. However, this flexibility also means there is huge variance in the make up and results of each valley, including the technologies used for production, the logistics of the state of the molecule (e.g. gas, liquid etc), the infrastructure used for its transport, and how it is ultimately used – e.g. industry, mobility, residential heating etc.
While this flexibility can bring great benefits in the long-term, the high number of variables at play means there can be no one-size-fits-all approach, making the creation of valleys even more complex. As a result, thorough planning is needed for each individual project to ensure the successful development of these valleys.
While these challenges are not unique to hydrogen projects, they make the pioneering projects less attractive for investors, and push many businesses to opt for more straightforward energy options, hindering demand. The identification of opportunities for hydrogen consumption and production is the starting point of the creation of a hydrogen valley.
Hydrogen enabled decarbonisation opportunities are primarily associated with hard-to abate sectors (e.g. steel or glass) or heavy duty transport combined with availability of resources for production of the molecule (for green hydrogen) or storage (for blue hydrogen).
Once the right opportunities have been identified, achieving critical mass in terms of volumes is crucial for the economic feasibility of the valley. For example, the development of a dedicated pipeline for hydrogen transportation may be reasonable, but only once a target demand level is secured to make the distribution much more competitive compared to alternatives, e.g. by truck.
Given the high levels of variance between projects, the complexity of the issue, and the understanding of the consumption and production required, detailed planning and business modelling are critical to the success of a hydrogen valley’s creation. Demand estimation, technical sizing, supply chain configuration and economic assessment all require expertise across numerous sectors, and the involvement of all stakeholders. Importantly, the hydrogen valley is an interconnected ecosystem, and all evaluations, whether economic or technical, must consider the ecosystem as a whole to understand the feasibility of the project. Sensitivity analysis can be used to identify the most effective levels impacting the profitability, as well as helping to illuminate any funding gaps which need to be filled.
All the required information also requires the involvement of numerous stakeholders throughout the development. Inevitably, this also leads to variance and complexity due to the heterogeneity of involved parties. Reliable project management, rigorous coordination of activities, and knowledge sharing are all key factors for the success from the outset. Using an independent party can provide the most effective overview in this role, removing obstacles to facilitate the efficient and effective set up of the valley.
Making the most of it
Once launched, the number of stakeholders involved is likely to increase as the creation of a hydrogen hub may stimulate additional demand for applications in mobility, industrial or residential sectors. Therefore, a phase of scouting for additional opportunities is critical to capture the greatest value that may arise.
Furthermore, an understanding of the regulations and funding available is essential to support the launch of a hydrogen valley. A critical factor in their development is the presence of broader, long-term, national low carbon strategies.
As such, investors and interested parties may need support in submitting the right type of applications to access public funding. In addition, institutional investors who are drawn to the potential returns that the hydrogen economy could bring may require guidance in identifying, assessing and shortlisting the most attractive opportunities to be added to their portfolios.
A first step
Overall, a hydrogen economy is within our grasp. It’s exciting. The environmental, social and economic benefits these projects can bring communities on a local and global scale cannot be overplayed. The challenge is overcoming the complexity of these projects, integrating the huge number of stakeholders to overcome challenges and build a sustainable valley.
By identifying the right partners to help progress these, first-movers in the space can make substantial progress to demonstrating the levels of potential demand and generating the necessary investment to set up and run the valleys successfully. And thus, we will be one step closer to a true hydrogen economy.