Beyond Carnaval: The Broken Promises of Green Hydrogen
Concise reflections, digests, and highlights of the week's significant news within Brazil's investment and innovation landscape.
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IN TODAY'S BEYOND CARNAVAL:
The Hype Around Green Hydrogen
Technological and Economic Challenges of Green Hydrogen
How Society Loses With The Hype
Yet another subject we're no experts. Who would have thought, huh? However, as business people, we have to take a look at it and poke holes into the thesis. Not to make the case that it would be uninvestable. You know that's easy. We wrote about how pessimism is an ugly addiction:
What we're doing at I'm No Economist is to be as down to earth as we can and inform the agents of the market - be it investors, executives, or founders - of what is out there.
We want to ask the right questions. You know they're almost as important as the answers themselves. So here you go: why is hydrogen such a hype for the energy sector?
The Hype Around Green Hydrogen
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It's been at least half a decade since I've heard about green hydrogen as an energy source. I was allocated to this project for energy efficiency for an oil & gas company to make energy transition smart. Since then, things have not improved for green hydrogen production, storage, transportation, or application.
Because I was actively looking for companies working on R&D for green hydrogen, I've seen the state of the art globally. So I always get deeply unimpressed by news such as this ~$6Bn investment in green hydrogen R&D.
Green hydrogen is said to be the fuel of the future. It's a promising clean, sustainable energy source that could decarbonize multiple sectors. Produced by electrolysis using renewable energy, it emits no greenhouse gasses.
Brazil, because of its abundant renewable resources, is seen as an ideal candidate to lead this hydrogen revolution. However, this vision is currently more aspirational than practical. The global hype around green hydrogen often overlooks significant barriers that need addressing before it can be a viable large-scale solution.
To comprehend the complexities involved, it's crucial to understand the current state of green hydrogen technology, its economic implications, and the infrastructural demands. This section will dissect the allure of green hydrogen and why it might be premature to consider it a cornerstone of Brazil's energy strategy.
Technological and Economic Challenges of Green Hydrogen
Despite its promising potential, green hydrogen faces formidable technological and economic hurdles. The production process is energy-intensive and costly, requiring advancements in electrolysis technology and a substantial decrease in renewable energy prices.
The primary hurdle for green hydrogen is the cost of production. Electrolysis, the process of splitting water into hydrogen and oxygen using electricity, is energy-intensive and expensive.
The process of making green hydrogen primarily involves water electrolysis using renewable energy sources. According to T. Molinka, 2019:
"[...] this technique can produce clean hydrogen by utilizing electricity from renewable energy sources without the emission of carbon dioxide, in contrast to the industrial steam reforming of fossil fuels."
The catch: currently, the cost of producing green hydrogen ranges from $6 to $7.50 per kilogram, sometimes reaching $12 per Kg. This compared to about $1.50 per kilogram for hydrogen produced from natural gas (gray hydrogen) without carbon capture. Yep, that's an average of 4-6x more expensive. That alone is a major barrier to widespread adoption.
The International Energy Agency (IEA) says that for green hydrogen to become cost-competitive with fossil fuel-based hydrogen, the cost of electrolyzers needs to fall dramatically, and the price of renewable electricity must decrease substantially.
In this study from 2018, the IEA projected that scaling up production and technological advancements could reduce electrolyzer costs by 70% by 2030, which could lower green hydrogen production costs to about $2 to $2.50 per kilogram.
Furthermore, the transportation and storage of hydrogen are additional challenges due to its low energy density and the need for specialized infrastructure. To store hydrogen, it must be either compressed to high pressures (700 bar) or liquefied at extremely low temperatures (-253°C), both of which require energy-intensive processes and specialized equipment.
For Brazil, these obstacles are even more flagrant due to economic constraints, political instability, and the need for significant investment in new tech and infrastructure. A 150-year+ problem. Reading history lately?
How Society Loses With The Hype
When public policy excessively promotes green hydrogen, it diverts funding from more established and immediately beneficial renewable energy sources like solar, wind, nuclear, and biomass. These sources could deliver more immediate environmental benefits and energy security.
Governments might focus on developing green hydrogen infrastructure, which is still nascent and expensive, instead of enhancing existing renewable energy infrastructures that are already cost-competitive and scalable.
It's great we've been trying to do this. Iberdrola, a Spanish energy group, is investing ~$6Mn in Brazil to advance with green hydrogen production. However, it's still in its very early stages. Not to mention the failed attempts of greenwashing we've already done pouring money into projects that never got off of the whiteboard like this in Piauí, and an older one in Rio Grande do Norte. I couldn't find any progress in green hydrogen for either project - I hope to be wrong that the combined ~$22Bn projected to be invested wasn't misallocated.
The point we're trying to make is that the technological and infrastructural readiness of green hydrogen is years away from being fully realized. Prioritizing it can delay the deployment of more readily available clean energy solutions that can have an immediate impact on reducing carbon emissions.
Capital invested in green hydrogen could otherwise support the scaling up of solar, wind, nuclear, and biomass projects. These projects have lower costs, shorter implementation times, and immediate returns on investment, contributing faster to 2030 decarbonization goals - goals that we're far from reaching, by the way.
While green hydrogen holds promise for a sustainable future (and should receive the right amount of prioritization), the current emphasis on its development might be premature given the technological, economic, and infrastructural challenges it faces.
Let's be smart.
Even though he's about 3 years late, in a candid reflection, Supreme Court Justice Luiz Fux criticized the excessive judicial activism in Brazil. He argued that the judiciary should not take on roles meant for the legislative and executive branches, stressing the importance of political bodies resolving their own conflicts to maintain the credibility of the courts.
On June 26, 2024, the Brazilian stock index Ibovespa saw fluctuations driven by domestic and global market influences. Key sectors affected included finance, technology, and commodities, reflecting investor reactions to economic data and corporate earnings reports. Yep, USD x BRL is R$5,51.
Amidst that pessimistic market sentiment, investors are seeking resilient assets. Recommendations include companies with strong fundamentals, undervalued stocks, and sectors expected to weather economic downturns, emphasizing caution and strategic buying in a bearish market environment.
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