THE OPPORTUNITY HIDDEN INSIDE THE ENERGY CRISIS
© Christoffer Riemer , https://creativecommons.org/licenses/by/3.0
Higher energy prices will mean more renewables, not less
The effects of Russia’s invasion of Ukraine are so appalling that it can seem tasteless to talk about beneficial side effects. However, just as the Second World War led to huge advances in technology, the spike in energy prices could greatly accelerate the shift to green energy. That might seem an odd claim when the immediate reaction of many countries has been to increase the production of coal, but any coal supporters are unlikely to be cheering for long.
Black day for coal
The fact is that more coal is available today, while additional renewable energy takes more time to bring online. However, with the cost of renewable energy falling year-by-year, there is far more money to be made from renewables. According to The Economist magazine, current energy prices mean a new solar farm, even in not-so-sunny Germany, can pay back its investment in just three years. Any investor is going to look at hydrocarbons and see easy money for the next couple of years, but far greater long-term returns from renewables.
That is not merely a prediction. In 2022, global investment in wind and solar grew by 37% to $490 billion, and overtook investments in oil and gas for the first time ever. Given that investment today means production tomorrow, The International Energy Agency (IEA) has recently increased its forecasts for renewables by 30% over the next five years, its largest ever increase. Its latest report says that, globally, solar photo-voltaic (PV), will soon become the leading energy source. Meanwhile Rystad Energy, a respected energy research company, has brought forward its forecast of peak CO2 emissions from power generation to 2023, and global CO2 emissions to 2025 – approximately five years earlier than previously forecast.
Percentage share of power capacity by technology: IEA 2022; License: CC BY 4.0
Even China is climbing onboard
Opponents of renewables will also lose their favourite argument: “Why waste money on renewables when China is building all these coal-powered power stations?” The fact is that renewables are now cheaper in most of China than coal. China is committed to installing 1200 GW (Gigawatts) of renewable capacity by 2030, but is likely to meet the target by 2025 – that is more clean generating capacity than Germany’s total electricity production.
Globally, 2400 GW of renewable energy is expected to come on stream over the next five years – that is about the same as China’s total generating capacity (2500 GW).
Door to green hydrogen swings open
That growth in clean energy generation also has huge implications for green hydrogen, whose cost, and therefore commercial viability, is largely dependent on the price of the electricity used to electrolyse water.
According to the IEA, global renewable capacity dedicated to producing hydrogen will increase by a factor of 100 over the next five years, with 50 GW of wind and PV capacity focused solely on hydrogen production. If you are thinking that capacity should be used for generating electricity for direct use, remember that green hydrogen is effectively stored electricity for use at a different time, or in a different application. It also enables countries with limited infrastructure to leap-frog electricity distribution, just as some African countries leap-frogged issues with banking infrastructure by going to M-PESA, a mobile phone payment system launched before most countries in Europe had one.
The big complaint about renewables is that they are intermittent and unpredictable: they over-produce on sunny/windy days and under-produce on cloudy/still days. Green hydrogen means that electricity can be stored whenever there is a surplus and re-used either when renewable electricity is in short supply, or where it is hard to apply.
The ”when” of hydrogen will be a case of generating electricity at times of peak demand. The “where” will be applications such as heavy trucks, where the weight of the vehicle means there is no practical way of using electricity in batteries.
Green hydrogen is the friend of the battery
So is the transport sector in competition with the electricity generation sector for green hydrogen? Not at all. The quicker production of green hydrogen can be scaled up, the quicker the costs will come down. A production cost of $2 per kg has long been forecast for 2030 (see previous blog calculating that $2 per kg gives a pre-tax hydrogen price equivalent to 60p per litre of petrol), but current developments could bring that date forward. The quicker the electricity generation sector adopts hydrogen, the quicker the transport sector can follow suit.
As advocates of hydrogen vehicles, we do not compete with battery electric powertrains – we extend electrification to the parts batteries cannot reach.