Follow the Market Forces: A Better Path to a Hydrogen Economy

By Joseph Wiendl, Chief of Staff and CFO on May 24, 2016
Home  / Blog  /  Follow the Market Forces: A Better Path to a Hydrogen Economy

The time has come for hydrogen to become the ubiquitous energy source it could be. Hydrogen has the potential to be a primary source of energy and to unlock enormous economic value for society. In fact, the latent economic value of producing and using hydrogen energy on favorable market terms could be in the trillions of dollars.

However, promises of a “hydrogen economy” have failed to materialize for more than four decades. These false starts have not stopped the efforts to make it happen, mainly because hydrogen’s specific energy—or the energy potential per unit-of-mass—is three-times that of gasoline and diesel, nearly five-times that of coal, and almost six-times that of ethanol. The goal is still worth pursuing.

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NASA on The Commons. Public domain or No restrictions, via Wikimedia Commons.

A seminal look into the future of energy is explored in the acclaimed book, The Third Industrial Revolution, by futurist Jeremy Rifkin. The book treats hydrogen as the third of five pillars for taking civilization to its next transformative leap forward into what he calls the “third industrial revolution.” Rifkin’s thesis of a fully distributed energy system to power everything from mobile devices to cities, positions hydrogen as a vital energy carrier that can move us away from fossil fuels and into renewables. He cites some progress towards that vision, such as a major public/private initiative by the European Union called the Joint Technology Initiative to speed up the production of hydrogen from renewables. What we really need, however, is Rifkin’s vision of hydrogen on steroids so that it can become a source of fuel, and not simply an energy carrier.

Are we any closer to Rifkin’s vision?

Rifkin’s book was written almost eight years ago. His vision at the time held that the third industrial revolution would happen when new energy and new communications technologies converged. He called this the “Internet of Energy,” where distributed communication and energy systems would work together. Unfortunately, the hydrogen component of Rifkin’s puzzle has not yet materialized. Just a couple of weeks ago, for instance, an article appeared titled, “Whatever Happened to the Hydrogen Economy.” It is a title which has, unfortunately, become all too common.

Our progress toward the goal has been slow. After all, hydrogen gas is a challenging molecule. Producing, storing, and distributing hydrogen using traditional methods is difficult and expensive such that a real ROI is unachievable, even when the avoided social costs of carbon are duly considered. This underscores a concept that makes or breaks the adoption of any new technology: market forces.

The problem of value

There are countless papers and opinions about the need to address the many inefficiencies across the full hydrogen supply and consumption chain before we ever see a bonafide hydrogen economy. For any energy source to “power an economy,” or to be a pillar for an industrial revolution in the sense that Rifkin suggests, the value—including all operational considerations—needs to be self-evident. Market forces dictate what the prevailing power sources will be. Hydrocarbons prevailed as the energy source of choice during the twentieth century because of simple market forces; specifically, oil, coal, and gas are highly energetic and have been relatively cost-efficient to extract, store, transport, and consume.

In that context, hydrogen math does not work yet—as Tesla co-founder Elon Musk incisively points out in a January 2016 media interview, “It makes no sense and is extremely silly.” The challenges behind traditional hydrogen across various stages in its path towards market simply make it uncompetitive. Let’s briefly explore each of these challenges.

Challenge #1: Producing hydrogen

Large-scale hydrogen production using traditional methods, such as steam reformation of natural gas, gasification of coal, and electrolysis of water, are cost-prohibitive. Regardless of whether the energy used to produce hydrogen is derived from nuclear, fossil fuels, or renewables, the amount of energy required via these methods to liberate hydrogen from the bonds it forms in water, coal, or gas has historically not justified the relatively small energy that is produced. As a result, hydrogen has been relegated to the role of a mere energy carrier suitable for only specialized applications, rather than being elevated to the mainstream fuel source that we want it to be.

Challenge #2: Storing hydrogen

Then there is the serious problem of storage. Diatomic hydrogen (H2) is a tiny molecule; its volumetric density is very low, lower than that of all of our other combustible gases. Therefore, it is fundamentally hard to get enough combustible gas in one place to be of practical use. Storing hydrogen gas is extremely difficult and requires expensive equipment. It is usually compressed and cooled to extremely low temperatures to reduce its volume (and increase its density) for storage purposes. This results in compressed hydrogen or liquid hydrogen (i.e., maximum compression). Both forms can severely weaken tanks and other storage devices; this process of hydrogen embrittlement further adds to the bottom line costs of taking liquid or gas hydrogen to market.

Challenge #3: Transporting hydrogen

The challenges and costs of hydrogen transportation are an extension of the challenges and costs of hydrogen storage. The hydrogen economy vision, as originally conceived back in the 1970s, required a completely new infrastructure to take hydrogen gas to market. The sheer complexity and cost of building and operating the hydrogen infrastructure required to compress, store, and transport sufficient hydrogen mass to address market demand—and the assumption that the huge infrastructure for other fuels would eventually be rendered obsolete—was flawed. The vision ignored the realities of market forces, which heavily favored the incumbent infrastructure.

Solving for relative market value

President George W. Bush made a bold hydrogen prediction in his 2003 State of the Union address, “With a new national commitment, our scientists and engineers will overcome obstacles to taking these cars from laboratory to showroom, so that the first car driven by a child born today could be powered by hydrogen and [be] pollution free.” The decade that followed brought tremendous progress towards this goal. Specifically, there have been two major shifts that have improved the relative value of hydrogen.

First, the relative economic value of hydrocarbons is eroding. As easy-to-access sources of oil and natural gas deplete, methods such as fracking and deep drilling drive up the cost of these fuels when measured by direct costs, social costs, or both. The social costs of carbon, including those of hydrocarbon extraction, have become much better understood. Importantly, these extraction techniques add to the hidden environmental costs of continuing life as usual—such as the pollution of aquifers by chemical by-products and the global warming caused by emissions after combustion. On both the economic and environmental fronts, traditional energy sources are becoming less attractive.

This brings us to the second shift that improves the relative value of hydrogen: efficiency of use. In the past decade, hydrogen use has seen unprecedented innovation. Take fuel cell technology for example. Positive advances in the productivity of fuel cells have most, if not all, of the major automotive manufacturers set to launch hydrogen fuel cell electric vehicles. Just a couple of weeks ago, Toyota put a stake in the ground for hydrogen power when the Toyota Mirai, the world’s first hydrogen fuel cell car, hit the market in California. Interestingly, hydrogen-powered cells are not just grounded. Last month, discount airline EasyJet announced plans for a hybrid airplane based on hydrogen.

Amazing, right? However, for such hydrogen fuel cells to provide lasting value in the market, similar breakthroughs are needed to solve the three market challenges I explained above. As bold as Toyota’s move is, the same article indicates that they are “Hoping that there will be enough infrastructure to support its hydrogen-powered car.”

Needless to say, “hope” and the reality of market forces need to meet each other halfway. Otherwise, regulations and artificial subsidies will always be required to power these cars and planes, and hydrogen energy will not become mainstream because the market forces are not sufficient to drive adoption.

Unlocking the value of hydrogen as a fuel to let the market drive adoption

At Joi Scientific, our mission is to unlock the huge economic, environmental, and social value of hydrogen. This value (which likely measures in the trillions of dollars worldwide) could materialize by bringing to market a cost-competitive and clean method of hydrogen production that leverages much of our existing liquid fuel storage and transportation infrastructure.

We call our solution Hydrogen 2.0, and it aims to improve the relative market value of hydrogen on all three fronts: production, storage, and distribution. To this end, we focus our efforts on making hydrogen available as a source of clean energy at a price point that can compete with traditional and alternative fuels. This requires a method for producing hydrogen efficiently, on-demand, right where it is needed, so as to eliminate or minimize costly infrastructure requirements. By doing all of the above, we believe Hydrogen 2.0 will align first- and second-order market forces, and lower the barriers to widespread adoption. Our goal is to unlock the huge economic potential envisioned by the many advocates of hydrogen and usher in a new era akin to Rifkin’s concept of a Third Industrial Revolution.

Hydrogen 2.0 holds the potential to unlock a new fuel for humanity that can help us make economic, environmental, and social progress without the painful compromises of traditional energy sources. Click here to learn more.

 

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Stay in the know.

As the Hydrogen 2.0 ecosystem gains momentum, we’ll be sharing our views and insights on the new Hydrogen 2.0 Economy. We also update our blog every week with insightful and current knowledge in this growing energy field.

 
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