Will the Hydrogen Economy Take Off?
July 1, 2003
By Jennifer Alvey
Hydrogen is hot, but whether it really will fly is another story.
Hydrogen. Lighter than air, ubiquitous, and energy dense. Its use as a fuel results only in water and heat emissions, which sure sounds better than the NOX, SO2, mercury, and carbon dioxide emissions from today's power plants. Yet the hoopla surrounding hydrogen is more hype than real, at least for now. Although much has been made of President Bush's proposal to spend $1.7 billion over five years on hydrogen research, currently there are less than two dozen fuel cell vehicle prototypes on the road in the United States. And while stationary fuel cells show increasing promise, there are no existing pilots, or any planned, that approach commercial scale. In fact, none of the experts interviewed by Fortnightly believed that a commercial-scale, hydrogen-fueled power plant would become a reality in the next decade, if ever.
Furthermore, to get from here to there is going to take money-a lot of it. But so far, the utility industry isn't plunking down any serious research and development (R&D) money. There's a long way between the now of fossil-fueled energy and the nirvana of hydrogen-powered vehicles and electricity.
"Utilities are not spending much at all on research relating to the hydrogen economy," says David Walls, a director at Navigant Consulting. The sector, he observes, has been somewhat of a follower so far on hydrogen, waiting to see how the infrastructure and technology to produce, transport, and store hydrogen develops.
Sure, there is money being spent on researching fuel cells. "You'd be hard pressed to find an investor-owned utility not spending something on fuel cells," says Steven Taub, director of distributed energy at Cambridge Energy Research Associates. That "something" is, often, a demonstration project, which likely runs a tab of a couple million dollars annually, according to Taub. Particularly in today's economy, $2 million can seem like a lot to cash-strapped utilities. But compared to the billions being invested in hydrogen R&D by automakers and oil producers, a couple million isn't much.
There are two ways utilities can think about investing in hydrogen R&D, Taub says. One is simply to view the investment like a venture capitalist would-there's no guarantee that the investment will pay off, but if it does, the reward will be high. Or, he says, utilities can view hydrogen investment as a hedge. Automakers in particular, Taub says, view their hydrogen R&D money this way-that they cannot afford to not have a stake in a hydrogen future. "It's fairly cheap insurance-but utilities don't see it that way," Taub observes. Of course, most utilities don't have the $6 billion in quarterly earnings that the GMs of the world do, which makes a $1 billion investment over several years much more palatable.
Automakers, though, differ from utilities in that they are largely agnostic about how the hydrogen gets produced, or what technology ultimately will work to get hydrogen in vehicles. For utilities, the question of how hydrogen is manufactured, stored, transported, and distributed matters very much, according to Taub. "How hydrogen happens determines its impact on utilities."
The question of how to achieve the vision of a hydrogen economy begins with how hydrogen is manufactured today.
Gassing Up
Although a plentiful element throughout the world, hydrogen is "not just floating around," as Taub puts it. Hydrogen is, though, a very common industrial chemical. Nine million tons of it are produced annually as a feedstock for the chemical industry. And while hydrogen is a byproduct of some chemical manufacturing, such as ethylene and chlorine, it is increasingly manufactured purposefully, Taub observers.
Virtually all of the hydrogen that is manufactured as a feedstock is made via natural gas reformation. Steam reformation, as the process is also known, is the most economical method currently available for producing pure hydrogen. There are other methods-electrolysis, heat, chemical, and even biological processes using algae and photosynthesis-but none are as cheap as natural gas reformation. The leading alternative to natural gas is electrolysis, Taub says. But manufacturing hydrogen from electricity is expensive. Taub says that most analysts estimate that hydrogen made by electrolysis is two to three times as expensive as hydrogen made from steam reforming of natural gas.
The current economics of hydrogen likely make natural gas companies the first in the utility sector to benefit from a true shift to a hydrogen economy. "If you're a natural gas utility and have hydrogen economy," Taub says, "more natural gas will be used in either large plants-in which case [gas utilities] may want to get into the business of hydrogen pipelines-or hydrogen dispersed via filling stations or homes." Either way, natural gas use would likely increase dramatically in the first phase of a shift to a hydrogen economy.
Gas utilities, in particular, may benefit the earliest from a move to a hydrogen economy. Dan Rastler, technical leader of distributed power at the Electric Power Research Institute (EPRI), says, "If we're talking about fueling lots of vehicles, we have to have central hydrogen production and distribution." And gas utilities, which already know how to distribute gas to most any residence in the country, could be prime candidates to lead the way on hydrogen distribution.
If vehicles in America started using hydrogen as fuel, the demand for hydrogen would leap by billions of cubic meters annually, Taub says. If natural gas reformation were the method used to make hydrogen fuel for all 228 million vehicles on the road in the United States today, Taub predicts that natural gas consumption would jump 60 percent.
Of course, the supply of natural gas is limited. Using natural gas to create a hydrogen economy could certainly shorten the lifespan of known gas reserves-and in the short run, that would provide quite an incentive for natural gas suppliers to push for the hydrogen economy.
Right now, it makes little economic sense to use hydrogen to burn in turbines rather than natural gas, observes Rich Scheer, vice president of Energetics Inc., who was one of the main contributors to the national hydrogen vision document, published in 2002 by the Department of Energy (DOE). He predicts that the cost curves between the price of natural gas and hydrogen won't cross for at least 15 years. But should the current upward price pressure on natural gas continue, that may change. "If we assume natural gas prices stay the same, it's going to be a while before hydrogen is as cheap as natural gas is now. But if there's a big shortage of natural gas and prices increase, then we could see [a shift to hydrogen] sooner," says Scheer.
In addition to supplying the natural gas to make hydrogen, natural gas companies could well develop a role in transporting or storing hydrogen. Figuring out how to store hydrogen is one of the three biggest hurdles to get across to make the hydrogen economy a reality, according to Scheer. "Storage is the most onerous, difficult technical question facing the hydrogen economy," he says. "It may be the toughest problem to solve."
The pressure to reduce power plant emissions may pave the way for hydrogen to enter the power stream, albeit through a bit of a back door. Small amounts of hydrogen, when mixed with natural gas during combustion, can lower NOX emissions. For utilities in non-attainment areas, a hydrogren/natural gas mix can lower NOX emissions enough to come into compliance without the need to install selective catalytic reduction equipment, which is more expensive than using hydrogen as part of the fuel mix, according to Navigant's Walls.
Megawatts Are Megawatts
If the upward pressure on natural gas prices continues, electrolysis could become a rival to natural gas reformation for hydrogen production, or indeed could become the next step in the transformation to a hydrogen economy. And should that occur, Taub says, electric utilities stand to benefit in the same manner as gas utilities would from a hydrogen economy.
A core question to ask, before thinking about using electricity to produce hydrogen, is whether there is enough cheap excess generating capacity to do so, Rastler says. He sees hydrogen production as most likely to be powered by natural gas reformation and off-peak power electrolysis.
Fundamentally, using electrolysis for hydrogen production translates into more power down the same wires-in other words, more demand for megawatts.
Electric utilities could become hydrogen production facilities, and possibly get into the business of storing and transporting hydrogen too, according to Taub. Regardless of whether there is central production of hydrogen, or whether electrolysis is performed on a more distributed basis, electric utilities stand to benefit from the increased demand for megawatts if electrolysis becomes the method of choice for producing hydrogen.
The Holy Grail of Hydrogen
Scheer calls the development of durable, reliable, and affordable fuel cells one of the top three barriers to moving to a hydrogen economy. While he is not one who thinks that a hydrogen economy cannot exist without fuel cells-"we could burn hydrogen in turbines and engines"-he concedes that a true hydrogen economy without fuel cells would be tough to envision. "It's not likely to have the Holy Grail of a hydrogen economy with hydrogen replacing everything else, unless you've got fuel cells," Scheer posits.
While there is no fixed dividing line between fuel cell developers in the power and automotive industry-indeed, many of the manufacturers and players are the same entities-Scheer says that there has been a lot more effort in the transportation sector to make viable fuel cells. It's perhaps ironic, since automotive fuel cell targets are much tougher and stiffer for vehicles than for power plants.
To be viable in the marketplace, automotive fuel cells must be able to produce power at an equivalent of $25/kW to compete with the internal combustion engine. To be competitive in the power sector, Scheer says, fuel cells must produce power at a rate of $500 to $1,000/kW. The conclusion is obvious, Scheer says: "Fuel cells are going to be in the power production area much quicker than in transportation."
Indeed, most experts say that development of stationary hydrogen power is much further advanced than it is for vehicles. The real question, Rastler says, is whether fuel cell manufacturers can get their cost down. If they can, he predicts that fuel cells will blossom and transition to larger markets from their current niches. Rastler notes that Japan, in particular, has a fairly aggressive fuel cell program, and has invested a large amount in fuel cell development for both stationary and transportation markets.
But there's little realistic hope that a commercial scale, hydrogen-fueled fuel cell is on the horizon in the next decade. Walls flatly says "we won't see a commercial-scale [hydrogen power] plant in the next 10 years."
Coal Without the Carbon Is Hydrogen
While environmental benefits give the hydrogen economy some luster, the biggest reason for the president's push is energy security. If the United States is looking to reduce its dependence on imported fuel, then coal cannot be counted out. As Scheer notes, coal is our most abundant source of hydrogen, after water. Once the carbon is removed from coal, what is left is hydrogen. "We would be well advised to keep coal in the portfolio, and figure out how to make hydrogen from coal in an economic way," Scheer says.
Yet, the only way coal can really play in a hydrogen economy, Scheer says, is if the CO2 produced by burning coal can be sequestered.
One way that might be accomplished is by pumping CO2 into natural gas wells, to improve their production. Scheer says that is already happening in some North Sea wells. Part of the incentive to sequester carbon there is the Kyoto Protocol, which places increasingly stiff limits on CO2 emission levels in countries that adhere to the treaty. The United States, of course, is not part of Kyoto, but that doesn't mean that CO2 emissions levels will never be part of the regulatory landscape here. Even the most ardent opponents to limiting CO2 levels concede that some form of CO2 limits are a question of when, not if.
The environmental pressure to reduce carbon emissions may well prove helpful toward moving the country toward a hydrogen economy. As Scheer says, "It's a natural progression, to go from syngas production to the next step [of producing pure hydrogen]."
The Nuclear Phoenix
The driving force in President Bush's push toward a U.S. hydrogen economy is fuel security. Environmental considerations could make nuclear plant production of hydrogen attractive, says Scheer. "There's a lot of interest in nuclear, because of global warming issues," he explains.
Although some environmentalists are on the fence, or flatly opposed, to using nuclear energy to produce hydrogen, the fact is that most currently available power sources for electrolysis-coal-, oil-, and gas-fired generation, or biomass-produce CO2. Renewables like wind and photovoltaics, of course, do not, but they cannot produce baseload power economically in most markets, let alone be inexpensive enough to compete with reformed natural gas as a primary means to produce hydrogen.
Nuclear is a proven electricity technology, and more than one nuclear utility-Entergy and Exelon, for example-are said to be looking into the role of nuclear to produce hydrogen fuel. And, the DOE is expanding its research efforts regarding nuclear power's use in manufacturing hydrogen. As Walls points out, hydrogen production "could become a big opportunity for nuclear."
But don't get too giddy about nuclear's future in the hydrogen economy just yet. For one thing, the technology to produce hydrogen using nuclear power is still highly experimental, and largely still to be developed. Indeed, Taub says that most of the proposals that contemplate using nuclear power to manufacture hydrogen would require new, high-temperature nuclear plants-none of which have been proposed, let alone approved and licensed, in this country so far.
And, despite the DOE's initial win on using Yucca mountain as the nation's nuclear waste repository, there are many hurdles left to clear. As Scheer observes, "We still don't have the back end of the fuel cycle fixed."
Rastler says the most plausible scenario for the utility industry to manufacture hydrogen is to use natural gas reformation and electrolysis using off-peak power initially, with an eventual move to coal gasification, and then to nuclear. "Nuclear will come back as part of the supply mix," he predicts.
Getting to Green
You might think that a push by the Bush administration toward a hydrogen economy, with its no-emissions benefits, would make environmentalists happy-finally-with the energy industry.
But if you think so, you would be mistaken.
A big part of the reason is that the environmentalists' vision of a hydrogen economy-one that uses only renewable sources of electricity to manufacture hydrogen-isn't exactly top of the funding list of hydrogen research.
It's not that renewable-fueled electricity cannot be used to produce hydrogen. Obviously, it can. The problem is that renewables are largely not economically viable for producing baseload generation, let alone as a feedstock for converting water to hydrogen fuel. "Biomass and wind are proven technologies," Scheer points out, "but they're not cost-effective for making hydrogen."
The one place right now that might be able to make a go of a true renewable hydrogen economy is Iceland. The country already uses geothermal and hydroelectric power as the primary electricity sources-72 percent-for the island nation. Those renewable sources of electricity are fairly cheap, since the capital investment in the power plants was made 20 years ago, and obviously there are no fuel costs.
In April, Iceland saw the opening of a Shell-branded fuel cell station in Reykjavik. The Icelandic government says it hopes the opening of the station, which is expected to fuel about 4 percent of the bus fleet operating in Reykjavik once the fleet is converted to fuel cell power, will mark the start of Iceland's move to a purely hydrogen economy.
But here in the United States, renewable electricity sources are not as economic as fossil-fueled power. At least, not yet. ICF Consulting, among others, predicts that renewable energy may soon become competitive with fossil-fueled electricity in some U.S. markets.
If the goal of implementing a hydrogen economy is to reduce emissions, Taub says hydrogen might lose out. "It's much cheaper and faster to just put up wind turbines, turn off the coal plants, and skip the hydrogen part."
Walls concurs. "You wouldn't use a wind farm to make hydrogen, then ship it to a power plant [as feedstock]. It is much more economical to put wind electricity directly onto the grid." And, he points out, "We need a lot of different bridging technologies to get to a hydrogen economy."
Yet even if the economics of moving to the hydrogen economy can be solved, there is still the major issue of consumer acceptance. Consumers will not buy into a product they perceive as fundamentally and unacceptably risky.
Since at least the Hindenburg, hydrogen has had a bad rap as a dangerous fuel. What gets lost in the mists of history is the fact that 35 of the 37 Hindenburg deaths resulted from passengers jumping to the ground to flee the fire. The hydrogen that filled the zeppelin burned above and away from the passengers; those who rode the aircraft down to the ground survived. Interestingly, the two passengers who did not jump but who did perish in the Hindenburg disaster died of burns from diesel-a fuel used today worldwide without much concern about its safety by millions of truck and car drivers.
Over 65 years later, the association between the ill-fated Hindenburg and too-risky hydrogen flammability remains, despite the fact that most Americans spend time every day in close proximity to potentially explosive gasoline as they drive to work, their children's school, or the grocery.
Need proof? A recent Wall Street Journal article1 points out that hydrogen-fueling stations in California used by major automakers experimenting with hydrogen vehicles are behind chain-link fences and/or cement walls. Indeed, the Journal reports that one station is "in the back corner of a city-bus yard where the air is heavy with diesel fumes. One reason for the location: No one was eager to put it in a public place, given concerns about hydrogen's flammability."
Just because most of the research money and media focus is on developing hydrogen for vehicles doesn't mean that utilities won't feel the pressure to get on the hydrogen bandwagon. The most optimistic prediction for hydrogen vehicles puts them seven years away. But many metropolitan areas are in severe non-attainment status for meeting their 2005 clean air goals, and they are using reductions in power plant emissions, rather than curbs on vehicle emissions, to meet those goals.
For example, the Washington, D.C., area, which has some of the nation's dirtiest air and is a severe non-attainment area, recently submitted a plan to the Environmental Protection Agency to achieve compliance with the Clean Air Act.2 Despite the fact that diesel trucks and increased numbers of sport-utility vehicles in the region are belching out more exhaust than predicted, and that all types of vehicles in the area are being driven longer distances, the area's improvement plan did not propose any incentives or penalties to get polluting vehicles off the road. Instead, the region's planners relied in part on changes in federal rules that will ratchet down power plant emissions in the area.
So it's not inconceivable that utilities in the future could be forced to adopt cleaner hydrogen technology, because its development is further along than hydrogen-fueled vehicles-and because it's relatively easier to force a few hundred power producers into a course of action than it is to force more than 200 million consumers into one.
But will environmental pressures be enough to move the industry toward the hydrogen economy? Even though a move to a hydrogen economy promises to remove at least some of the environmental burden under which most utilities operate, that promise appears pretty distant at the moment.
And without more research money from somewhere, there's little chance that hydrogen will overtake fossil fuels as the primary power source in the United States.
The $1.7 billion in federal research money over five years proposed by President Bush, plus the couple billion in private research money, pales when compared with the $6 billion in subsidies that the Congressional Research Service says the fossil fuel and nuclear industries got in 2002. Six billion a year on existing fuels versus maybe $380 million annually for hydrogen R&D? With numbers like that, it may be a long while before the hydrogen economy threatens to alter much decision-making on the part of utilities.
Endnotes
- Jeffrey Ball, "Green Dream: Hydrogen Fuel May Be Clean, but Getting it Here Looks Messy," Wall Street Journal, March 7, 2003, A1.
- Katherine Shaver, "Area Clean Air Plan Skirts Traffic Issue," Washington Post, May 29, 2003, A10.
Jennifer Alvey is associate editor of Public Utilities Fortnightly.
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