Things to Watch: Hydrogen

as customers and sources of demand. We also look at methods of hydrogen production across different regions and whether nuclear or pink hydrogen may become a more viable option in the air ahead, and we assess the global policies that could help drive hydrogen production in twenty twenty four, in particular in the US, where the long awaited guidance on

the IRA has now been released. To access this research note titled Hydrogen ten Things to Watch for twenty twenty four, B and EF subscribers can find it at BNF dot com and at BNF go on the Bloomberg terminal. If you like this podcast, make sure to subscribe, and if you want to share with others, well, you can send it to them, or you can give us a review on Apple podcasts or Spotify. But right now, let's speak

with Kathy about the year ahead for hydrogen. Kathy, thank you very much for joining today to talk to us about the year ahead for hydrogen.

which is very time delimited. Right, We're going to talk a little bit about the year behind us and then about the year ahead and resist the temptation to look too far into the future. So with that in mind, let's talk a little bit about this hydrogen predictions. We did them last year. We do tend to give ourselves a bit of a scorecard. How well did you do versus well what you thought would happen in twenty twenty three.

complexity and uncertainty the whole industry's facing right now. So this is actually one thing that we're closely watching for twenty twenty four as well to see whether there could be any policies coming out to actually lift the sector and give positivity to the sectors into twenty twenty four.

of last year. So it tells sort of the challenge the whole industry is facing right now. There's not much demand and much less keating the financial milestone. So the IRA guide like coming out actually right before Christmas last year, was actually very good news for the whole industries. So the US actually offers one of the most generous subsidy for clean hydrogen production, as high as three dollar packge

of hydrogen. The highest subsidy actually lies for hydrogen with very low emission standard of less than point forty five kg of CO two, so those hydrogen could get the highest level of subsidies. So the IRA actually comes out

much trigger than most have hoped. So it requires project to meet a few criterias to be able to qualify for the subsidies, one of them being the hydrogen having to couple with new build or additional renewable resources, so it cannot draw power from existing power such as nuclear. The second one is that there should be hourly matching

between hydrogen production and the renewable generation. So this is also really hard to hit because a lot of the renewable generation are intermittent and electualizer are actually not ready to take those intermittent power. So in order to match the renewable generation and hydro production, you need the technology to be ready. We also probably need a portfolio of

renewable to support electualizers. You probably need solar and wind and battery storage on signed to support electualizer production, which will obviously raise the cost of clean hydrogen production. So a lot of people are actually quite worried about a Republican presidency and whether that would revoke the IRA subsidy

for US. We don't think that would be the case because the IRA subsidy on hydrogen actually has by parties and support, and then we think even with a Republicans presidency, the subsidy would actually survive.

clean hydrogen in mid twenty twenty three. Illinois has introduced similar subsidies of one dollar package credit as well, but it's more strict so it's only limited to hard to abate sector users. Pennsylvania has also released a text credit of around point eight dollars package of clean hydrogen purchased from the regional Clean Hydrogen HOB which recently got the

founding from the federal government. So we expect more stays actually to launch more subsidies because currently only on the federal level, although the government has announced a one point six billion incentive package for supporting the demand of clean hydrogen in twenty twenty three, there was very little detail of how the government is actually going to implement that, so we'll still need to wait and see, you know, how the federal government will do this, but with the

lack of certainties on how the federal government will implement that, we think there will be more states actually going ahead and launching their own subsidies to incentivize more demand on the local level, especially the states which got the regional Hydrogen hob funding for the production side.

This was an area of the world that were early proponents of hydrogen and actually looked at applications when it came to cars and fuel cells since that was a part of their early strategy. Do you see a bit of a pivot to some of the other applications that parts of the world have looked at, And what is happening in Asia and how is their year head look for hydrogen.

and Europe is actually lagging behind for a lot. The only trees that have implemented subsidy for hydrogens are India and Australia, but they're tiny compared to the US are A subsidies. The upcoming one that we're actually pretty excited

for is the potential subsidies in Japan. So Japan has introduced a contract for different mechanisms similar to the one that EU is implementing for clean molecule supply, including clean hydrogen, so that would benefit both domestic supplier and overseas suppliers. This will basically subsidize the cost difference between the cost of importing clean hydrogen and the cost of producing or

using great HydroD domestically or fossil fuel. This is actually quite a lot of money that the Japanese government is putting into this mechanism, but it solely depends on whether the government could actually raise that much money because this pool of money is actually going to come from the transition bonds that the government will be issuing. So depending on whether there will be anybody buying transition bonds, it would actually determine how much money will be available for

this pool of CFD subsidies. And then the other countries that we are pretty optimistic about on hydrogen import is South Korea. So similar to Japan, South Korea is actually also thinking to import clean hydrogen or clean ammonia, mostly

for domestic power generation and a bit of transport. South Korea is interesting because it's actually one of the few countries in the world that implemented a usage manday, so it's basically a mandate for the power sector for the utilities to use a portion of clean hydrogen or clean

ammonia derived power from now to twenty thirty. So by twenty thirty, the goal is for South Korea to consume at least eight hundred thousand towns of clean hydrogen or equivalent for power generations, so that it's quite a lot of demand that they actually mandated for domestic utilities. South Korea is a big steel manufacturing hub. They also have plans to use hydrogen in the industrial particularly steel manufacturings.

So overall for Asia, we think South Korea and Japan are the two markets that we're most excited about for twenty twenty four.

they implemented to support hydrogen. But one thing that we actually looking out for for twenty twenty four is the clean hydrogen definition because right now in Europe they actually hasn't really clarified any regulations around sort of the production of clean hydrogen and blue hydrogen in particularly as well

as pink hydrogen. So a lot of people kind of planning those kind of projects in Europe are worried that those project might not get any support in you at the end, So in twenty twenty four, we actually would expect you to publish clear definition on how the emission from producing low carbon hydrogen should be measured. So, for example, right now EU has adopted a emission criteria of three point three akg of COE to equivalent per kg of hydrogen as the benchmark or criteria of low carbon hydrogen.

But EU hasn't really clarified like how those emissions should be measured, whether leakage would be accounted. So those are the things that the industry is actually looking out for in twenty twenty four for the EU to actually clarify

the emission accounting methodology for clean hydrogen. And then another thing on EU is that in addition to the EU level, which already have run the first round of hydrogen auction in late twenty twenty three and it is expected to run another round of auction in twenty twenty four, a lot of people are actually looking out for sort of the member country level subsidies. For example, like Germany is expected to launch its carbon contract with different schemes. Friends

is also running its own hydrogen auctions. So in addition to the EU level a lot of people are looking at for the member country level subsidies and auctions in twenty twenty four.

of CCS, which is largely coupled with colon gas. Is it going to be green hydrogen produced from renewables, or are we going to see a resurgence in the use of nuclear which is referred to often as pink hydrogen. What does it look like and what does that mix look like from a technology standpoint in the year ahead.

that actually have support on carbon capture. For example, the US have the forty five Q subsidies on the carbon capture and utilization and storage as well, so a lot of those blue hydrogen projects are concentrated in the US the UK as well. UK. Actually blue hydrogen would we expect it would be the biggest source of clean hydrogen by twenty thirty in year really depends on, as I mentioned earlier, how the emission accounting methodology will comes down to.

For example, the emission accounting for clean hydrogen will account for the upstream meat and leakage and all the other upstream emission associated with blue hydrogen that would make blue hydrogen really difficult to meet the emission criteria under the EU Centard. And then in terms of pink hydrogen, it's interesting because there's not a lot of countries in the world that have the nuclear required to produce pink hydrogen.

So the few countries that have that could produce pink hydrogen include the US friends for example in Europe and in China, and South Korea is actually pretty cue with the new presidency to explore pink hydrogen as well in Asia.

So those are only you know a few countries that could produce clean hydrogen using nuclear and then in the EU, it really depends whether again sort of the new emission accounting methodologies that is counted in the US with the IRA guideline, it actually required, as I mentioned earlier, additional new build renewal boat to be coupled with the clean hydrogen for it to qualify for the subsidies, which would make it really difficult for pink hydrogen, which would most

likely use existing instead of no built nuclear as a power source, would make it really difficult for it to get them IRA subsidies. So you know, it really depends on the policy regulation and emission accounting methodology under those different countries whether this source of hydrogen will be qualified for any subsidies going forward.

demand by twenty thirty. There's also the few EU maritime initiatives. Similar to the aviation one, it mandates a shipping sector to de carbonise following a fixed emission intensity target from now to twenty fifty. So this carbon intensity target will require the shipping companies to redeal fuel emission by two percent by twenty twenty five, which would rise dramatically to

eighty percent by twenty fifty. And then in addition to the few EU maritime initiative, we also have the EUETS, which included the shipping sector into the ETS scheme last year, so the shipping sector would have to pay carbon price starting from this year and then full carbon price starting

from twenty twenty six. A lot of shipping companies are actually under a lot of pressure to decarbonise, they are looking for green fields globally trying to be compliant, so that would actually drive a lot of demand as we are already seen from the shipping and aviation sector. Just

to give you a couple of examples. For example, in the aviation sector, Airfrance and Kelm and Delta signed eight seven year sustainable aviation fuel off tack with a US based synthetic fueld producer d G Fuels to make aviation

fuel using hydrogen. Merz, which is one of the biggest European shipping company, also signed a binding off taic contract with the Chinese developer Goldwin for a five hundred thousand towns of methinode off take which will be using around one hundred thousand towns of green hydrogen for those methino productions.

So this is actually one of the largest green methinoe off take that we've seen so far, and this give a lot of hopes to the whole industry, especially to the countries with very cheap renewables and abundant biomass resources such as China and potentially South America as well as the Nordic country to actually step up to produce green fields for the shipping sectors.

around three point six gigawatt. But in terms of like the exact amount whether in twenty twenty four would actually achieve that double, it really depends on a lot of different factors. We think there's a lot of certainties around the exact shipment in the year had because there are a couple of factors that could affect it, for example, policies and also macroeconomic environments. And also sort of the

technical issue is a big one. The issue that the technology like electrialized has been around for over fifty years as a technology to be used in multiple sectors to produce hydrogen on site, but those are mostly small scales. In order to deploy those technology in a megawat scale, you need to have technology improvement. And then we're actually, we don't think the industry now is ready for this yet.

We've heard a lot of manufacturer having technical issues, so we think this is something that industry have to fix for the technology to be deployed in a larger scale. So one of the key technical issues is the compatibility with renewable power because in the past, electualizer is used to getting stable power input from the greed, but now if we want to couple that with renewable electricity, the power input will be intermittent and that's something that the manufacturer has to figure out.

of a couple of factors. For example, the rising equipment costs, rising electricity costs, additional grid connection cost you know, alongside with a couple of other factors that push up the cost by at least six to seven dollars package So this is pretty significant. We think that the auction plan in twenty twenty four are likely to be affected by

higher costs as well. There are a couple of auctions that we are closely watching al four, such as the second EU Hydrogen Bank auction that will supposedly happen in spring twenty twenty four. The UK and Idland would also have its second hydrogen auction. Friends in Germany, as I mentioned before, would also have its hydrogen tender Japan as well, as I mentioned earlier, would have its CFD schemed launched this summer as well. So there are a lot of

auctions that we're watching alpha in twenty twenty four. I think it remains an outstanding question whether this kind of higher cost will be applied to all the markets in the world. It really depends on sort of the subsidy and auction mechanism design as well. For example, in the EU, you wear some sectors face quotas or mandates to buy clean hydrogen. This would create demand and also willingness to

pay for the green premiums amount the buyers. In that case, then the bidding price in Europe might be lower than the UK because the buyers are willing to pay to count the cost. As I mentioned, some other countries that have a different bidding mechanism might see a lower bidding

costs as well. This happened in the Denmark auction in late twenty twenty three, and then also the Indian auction that we've seen results just came out in Gen twenty twenty four also saw a pretty low bidding price, like some bidders actually bid zero in the auction, which is quite interesting. So we think in those countries where the lowest bidder would get the subsidy first, in such a mechanism, the bidders would tend to underbid to be able to

get into the auction. So in that case, the overall bidding price might be lower than we expect, whereas in countries like Japan as well as the UK, where the government just subsidized the cost difference between gray a green hydrogen, the prize difference would actually be quite high.

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