Policies

What are the challenges for hydrogen storage and transportation network infrastructure?Source: The article was published on the UNIDO IAP website: Strategies for hydrogen transport infrastructure | Industrial Analytics Platform Hydrogen will need to be transported over varying distances, from points of production to intermediaries and end-users. Today, there is a high co-location of production and demand for GH2 in hydrogen clusters/valleys, which means that GH2 is mostly produced using on-site electrolysers in areas with favourable conditions for producing renewable energy.1 In the future, however, economies of scale and improved safety standards may make it profitable and safe to produce hydrogen in large installations and then distribute it more broadly to different users.2 In addition, by 2050, 3% of the global final energy demand is expected to be traded as hydrogen.3 As both production volumes and transport distances expand to meet increasing global demand, significantly more hydrogen infrastructure will be required to connect GH2 production with demand centres and international markets.The challengeCentralized production of GH2 for domestic use or export requires a hydrogen storage and transportation network infrastructure, including pipelines, ports and terminals, conversion plants and large-scale storage facilities. This infrastructure will be crucial for realizing the potential that GH2 holds for decarbonization (global North) and development (global South). An estimated 55% of cross-border hydrogen transport will be via pipelines4, as they can deliver a continuous flow of gaseous hydrogen (or its derivatives) at relatively high efficiency, while shipping will be used for more flexible distribution over extended distances.5 The necessary infrastructure is, however, almost non-existent at present. Technical challengesTransportation and large-scale conversion/reconversion of hydrogen is currently a complex endeavour, threatening the large-scale adoption and competitiveness of GH2. For example, while hydrogen has two-and-a-half times the energy density of natural gas, it is also three times lighter under equivalent conditions, necessitating higher pressures or volumes in supply. This makes it challenging to repurpose existing infrastructure. Moreover, hydrogen’s considerably lower boiling point (at -253°C compared to -162°C for natural gas) complicates transportation. For shipping, hydrogen must first be converted into denser forms using energy-intense processes, such as liquefaction, or it must be transformed into substances like ammonia or synthetic hydrocarbon fuels.6To construct the relevant transport infrastructure, an estimated spending of USD 200 billion is required by 2030.7 As only about 10% of currently proposed hydrogen investments focus on infrastructure, an investment gap of about 85% exists.Because transportation costs constitute a significant portion of the overall hydrogen costs8, planning, international cooperation and investment mobilization are urgently needed.Government planningDue to the significant lead-times and costs of infrastructure construction, governments need to plan their hydrogen transport networks carefully and integrate them in the wider industrial and energy strategies. Identifying transport routes, solutions and corridors in GH2 road maps will help attract funding by allowing investors to evaluate future market prospects.9Governments, businesses and investors may also consider no-regret options in hydrogen transport infrastructure. Termed “no-regret” due to their likelihood of avoiding resource wastage, these options are generally characterized by adaptability and low risk. These choices remain beneficial and relevant despite uncertain developments in the hydrogen industry, ensuring valuable investments regardless of market shifts.10A no-regret vision also needs to reduce the risk of oversizing the future hydrogen network will most likely be smaller than the current natural gas network – by focusing on indispensable demand. Policymakers can identify robust no-regret corridors for early hydrogen transport based on industrial demand, with industrial clusters presenting some of the clearest opportunities.11 Demand in other sectors, such as heating and road transport, is much less certain due to efficient electrification possibilities. Thus, anchoring infrastructure on industrial hydrogen demand is a risk-minimizing strategy that mitigates the risks of oversizing, asset stranding or project abandonment.12Pipeline (re)constructionOnce “no-regret” areas for hydrogen transport are identified, the conversion of the gas grid to hydrogen can be initiated.13 Repurposing part of the existing fossil fuel pipeline network to transport hydrogen can provide new infrastructure while reducing the stranding of obsolete installations in a relatively quick and cost-effective way.14 It offers an advantageous financing case since required CAPEX investments are 65–94% lower than for new, purpose-built hydrogen pipelines15, although the expected lifetime of a repurposed pipeline will likely be shorter than a new one. Another consideration, given the technical obstacles presented by a 100% hydrogen grid, is that synthetic methane can often be transported in unmodified pipelines.16Nevertheless, constructing dedicated infrastructure will be inevitable to link emerging demand and supply areas. Installing new purpose-built hydrogen pipelines parallel to old gas pipelines can result in costs savings and shorter timelines by leveraging the established right-of-way, siting permits and existing laid groundwork.17Hydrogen carriers for shippingSeaborne transportation will enable flexible long-distance hydrogen trade, using three main carriers (see figure below): liquefied hydrogen (LH2), ammonia (NH3), and Liquid Organic Hydrogen Carriers (LOHC). As the market grows, all carriers are expected to see significant cost reductions, particularly LOHC.18 Selecting the best carrier depends on operational factors and costs: LH2 is suitable for high-purity hydrogen when on-site reconversion isn’t feasible, ammonia is cost-effective for small-scale multimodal transport when some infrastructure already exists, while LOHC offers safety and cost-reduction potential. The choice should be tailored to specific supply routes, considering individual circumstances.19 Energy available along the conversion and transport chain in hydrogen equivalent terms, 2030Source: IEA (2022). Global Hydrogen Review 2022. Note: The final use will influence the choice of shipping option, as energy losses vary between the different hydrogen carriers. Note: LH2 = liquefied hydrogen; NH3 = ammonia; LOHC = liquid organic hydrogen carrier. Numbers show the remaining energy content of hydrogen along the supply chain relative to a starting value of 100, assuming that all energy needs of the steps would be covered by the hydrogen or hydrogen-derived fuel. The Haber-Bosch synthesis process includes energy consumption in the air separation unit. Boil-off losses from shipping are based on a distance of 8 000 km. For LH2, dashed areas represent energy being recovered by using the boil-off gases as shipping fuel, corresponding to the upper range numbers. For NH3 and LOHC, the dashed area represents the energy requirements for one-way shipping, which are included in the lower range numbers.The ultimate dominance of a specific technology depends on factors such as market uptake speed, potential for cost reduction, and the ability to provide a safe and user-friendly solution. This entails significant uncertainty for the future path of long-distance GH2 distribution and trade because infrastructure such as terminals and converters are different for each associated carrier, incurring a risk of technological lock-in and stranded assets.Conclusion International coordination will be imperative, as it was for propelling the global liquid natural gas (LNG) market, to provide a clear path forward and prevent delays in infrastructure roll-out, which would hamper GH2 adoption and climate mitigation. Smart planning, clear regulation and meaningful support are therefore all required to mobilize investment in GH2 infrastructure for low-carbon growth in the global South, and decarbonization in the North. This opinion piece is a snapshot of the GH2 policy toolkit for developing countries being developed by UNIDO, IRENA and IDOS.Jan Sievernich is Project Associate with the Climate and Technology Partnership Division (CTP) of the United Nations Industrial Development Organization (UNIDO).Smeeta Fokeer is Industrial Development Officer at the Climate and Technology Partnership Division (CTP) of the United Nations Industrial Development Organization (UNIDO).Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).   IEA (2022) Global Hydrogen Review 2022.  OECD (2022) Innovation and Industrial Policies for Green Hydrogen.  IRENA (2022), Global hydrogen trade to meet the 1.5°C climate goal: Part II – Technology review of hydrogen carriers, International Renewable Energy Agency, Abu Dhabi.  IRENA (2022), Global hydrogen trade to meet the 1.5°C climate goal: Part II – Technology review of hydrogen carriers, International Renewable Energy Agency, Abu Dhabi.  IEA (2022). Global Hydrogen Review 2022.  IRENA (2022), Global hydrogen trade to meet the 1.5°C climate goal: Part II – Technology review of hydrogen carriers, International Renewable Energy Agency, Abu Dhabi.  Hydrogen Council (2022). Hydrogen Insights 2022.  Roland Berger (2021). Hydrogen transportation – The key to unlocking the clean hydrogen economy.  IRENA (2022), Global hydrogen trade to meet the 1.5°C climate goal: Part I – Trade outlook for 2050 and way forward, International Renewable Energy Agency, Abu Dhabi.  Agora Energiewende and AFRY Management Consulting (2021). No-regret hydrogen: Charting early steps for H₂ infrastructure in Europe.  Agora Energiewende and AFRY Management Consulting (2021). No-regret hydrogen: Charting early steps for H₂ infrastructure in Europe.  IRENA (2022), Global hydrogen trade to meet the 1.5°C climate goal: Part I – Trade outlook for 2050 and way forward, International Renewable Energy Agency, Abu Dhabi.  Agora Energiewende and AFRY Management Consulting (2021). No-regret hydrogen: Charting early steps for H₂ infrastructure in Europe.  Agora Energiewende and AFRY Management Consulting (2021). No-regret hydrogen: Charting early steps for H₂ infrastructure in Europe.  IRENA (2022), Global hydrogen trade to meet the 1.5°C climate goal: Part II – Technology review of hydrogen carriers, International Renewable Energy Agency, Abu Dhabi.  IEA (2022). Global Hydrogen Review 2022.  IEA (2022). Global Hydrogen Review 2022.  Roland Berger (2021). Hydrogen transportation – The key to unlocking the clean hydrogen economy.  Roland Berger (2021). Hydrogen transportation – The key to unlocking the clean hydrogen economy. Image:  Nathan Jennings via Unsplash

 Public policy can be a key driver of green hydrogen (GH2) investment.Source: Mobilizing investment in green hydrogen | Industrial Analytics PlatformDespite its enormous decarbonization potential and recent international efforts, the green hydrogen (GH2) sector is still in the take-off phase, with only about 10 GW in total electrolyser capacity expected to be installed globally in 20231 (see figures below). Most GH2 projects under construction, or in the pre-commercial phase with limited electrolyser capacity—typically less than 50 MW.2 There is also limited market demand for GH2. Due to its high production costs, GH2 cannot yet economically compete with grey hydrogen (produced with fossil fuels), especially in the hard-to-abate steel and cement sectors.3 The absence of a market generates a vicious circle. Low demand deters investment, constraining the GH2 value chain’s efforts to achieve economies of scale, which means prices fail to reach a competitive level. The next figure showcases this price gap, and forecasts how the levelized cost of hydrogen may change for various energy sources between 2019 and 2050.To achieve a breakeven of prices between grey and green hydrogen, an estimated investment gap of about 50 billion US$ needs to be bridged.4  The absence of bankable off-take propositions further contributes to the perception of GH2 projects as risky, and the industry struggles to attract substantial investments. Another major impediment to GH2 investment is the lack of clear, comprehensive regulatory frameworks. This gridlock between investors, developers, policymakers and off-takers must be resolved to kick-start the GH2 value chain.To break this vicious cycle, governments need to address regulatory uncertainty and compensate for the current cost gap, thereby creating a conducive market climate for a GH2 investment take-off. Market & regulatory conditionsLong-term government strategies (e.g. national hydrogen road maps) and concrete commitments regarding GH2’s role in the energy transition can help to create investment security.5 They build the confidence of all stakeholders that there will be a future market for GH2 and related technologies.Permitting for renewable energy generation is a fundamental bottleneck for GH2 adoption, as complex and time-consuming processes can hinder the construction of necessary GH2 facilities and infrastructure.6 Governments can address this issue by streamlining and accelerating these procedures on local and national levels, while ensuring the relevant authorities have the required capacities to process permits for renewable energy and GH2 production sites in a timely manner. Closing the cost gapGreen public procurement is an established policy option to help scale up the value chain through public sector investment.7 Governments can act as a stable initial driver of the demand for final or intermediate green goods produced with GH2. This may particularly promote the creation of a green steel and cement market, as these materials are heavily used in buildings, bridges, railways and other public infrastructure projects.8 In addition to buying directly, governments can offer financial incentives (e.g. subsidies, price premiums or tax rebates) to other end users for the purchase of goods produced with GH2.Acquiring funding for GH2 projects is a particular challenge in developing countries. Foreign investors often take a cautious approach, driven by risk factors such as policy uncertainty, economic instability and low credit ratings. Governments can help to instil investor confidence by offering sovereign guarantees, shifting the risk burden to the public sector if primary obligors default on payments.9 These guarantees can also cover risks that are under government control, such as contractual deviations and tax treatment alterations10. Uncertain prospects in the market for GH2 bring substantial financial risk for the guarantor; any guarantee should therefore be preceded by a thorough assessment of the specific business case. Alternatively, development banks or other donors could step in to act as guarantors for private loans. The Ministry of Finance of a prospective producer country may also issue a “letter of support" document to the project stakeholders, providing enough commitment to comfort them while avoiding the legal robustness of a formal guarantee.11The more regulatory clarity and longevity a state can provide, the more transparent and efficient the interactions between its institutions and private businesses will be – which in turn attracts (foreign) investment. Value chain integration & ecosystem developmentRead the guidelinesA value chain approach is vital for successful interdependent GH2 projects. Public initiatives can create GH2 industrial clusters in optimal geographical locations, concentrating on mobility and industry, with national or international infrastructure support. Identifying suitable cluster development locations, where multiple end users share production and transport, reduces associated costs and risks.12 Government authorities can facilitate consortia of multiple companies along the GH2 value chain, devising solutions for early cluster development.The current absence of an established GH2 financing ecosystem means that projects rely heavily on public funding, often lacking awareness of available alternatives. At the same time, prospective GH2 investors face multiple financing streams with bureaucratic barriers. Establishing centralized digital public matchmaking platforms can reduce this burden and streamline the allocation process.13Until GH2 finance mechanisms and business plans mature, projects like commercial-scale GH2 export and import infrastructure could benefit from public–private partnerships involving direct public investment and multi-stage competitions for contract awards. A modular approach, starting by funding smaller projects to reassure financiers, is an effective way to mitigate risk.14Underlying all of these efforts, governments need to harmonize international standards and eliminate unnecessary regulatory barriers to trade. This is especially important for GH2 transportation, which requires clear regulations for tariffs, safety standards and double taxation. Additionally, a globally agreed definition of GH2 and a standard certification regime will ensure the market recognizes its “green” value.15 Final remarksPublic policy holds a pivotal role in facilitating the large-scale investments that are essential for launching the GH2 economy. They can foster market creation, alleviate regulatory hurdles and shape an ecosystem conducive to private and institutional investments along the entire GH2 value chain. Establishing long-term signals to boost investor confidence, incentivizing investment by reducing risks, stimulating domestic commercial demand for GH2, and harmonizing standards are key strategies to overcome challenges and ensure the successful transition to a GH2-driven future. While global coordination remains essential, it is incumbent on national governments to lead the way in creating a favourable domestic market and investment conditions for the GH2 economy.This opinion piece is a snapshot of the GH2 policy toolkit for developing countries being developed by UNIDO, IRENA and IDOS.Smeeta Fokeer is Industrial Development Officer at the Climate and Technology Partnership Division (CTP) of the United Nations Industrial Development Organization (UNIDO).Jan Sievernich is Project Associate with the Climate and Technology Partnership Division (CTP) of the United Nations Industrial Development Organization (UNIDO).Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).  For comparison, the coal power capacity of Germany alone stands at 37.5 GW.  World Bank (2022). Blended finance can catalyze renewable energy investments in low-income countries. https://blogs.worldbank.org/ppps/blended-finance-can-catalyze-renewable-energy-investments-low-income-countries  KPMG (2022). The hydrogen trajectory.  Hydrogen Council (2021). Hydrogen Insights Report 2021.  European Investment Bank (2021). Unlocking the hydrogen economy — stimulating investment across the hydrogen value chain. Investor perspectives on risks, challenges and the role of the public sector.  IEA (2019). The Future of Hydrogen: Seizing today’s opportunities. Report prepared by the IEA for the G20, Japan.  Blaker, A. (2021) Financing the Clean Hydrogen Revolution. Hydrogen Council.  IRENA (2022), Green hydrogen for industry: A guide to policy making, International Renewable Energy Agency, Abu Dhabi.  IRENA (2020), Renewable energy finance: Sovereign guarantees (Renewable Energy Finance Brief 01, January 2020), International Renewable Energy Agency, Abu Dhabi.  Griffiths et al. (2021). Industrial decarbonization via hydrogen: A critical and systematic review of developments, socio-technical systems and policy options.  IRENA (2020), Renewable energy finance: Sovereign guarantees (Renewable Energy Finance Brief 01, January 2020), International Renewable Energy Agency, Abu Dhabi.  UNIDO (2023) Green Hydrogen Industrial Cluster Guidelines.  IRENA (2022), Green hydrogen for industry: A guide to policy making, International Renewable Energy Agency, Abu Dhabi.    IEA (2019). The Future of Hydrogen: Seizing today’s opportunities. Report prepared by the IEA for the G20, Japan.  World Bank (2022). Green Hydrogen: A key investment for the energy transition.  (Image: Nicholas Doherty via Unsplash)

A HYDROGEN ECONOMY: OPPORTUNITIES FOR DEVELOPING COUNTRIESProduced from renewable energy sources, green hydrogen (GH2), also known as renewable hydrogen, is the fuel of the future. It is clean, storable and portable, and can be blended into existing energy networks and integrated with current infrastructure. Green hydrogen and low-carbon hydrogen[1] are key to decarbonization of hard-to-abate industries such as steel production, cement, chemicals and heavy transport, which together account for 30 per cent of global CO2 emissions. In short, hydrogen can help countries around the world achieve their climate goals.

VIENNA, 21 November 2022 – During the fiftieth session of the United Nations Industrial Development Organization’s Industrial Development Board (IDB), guest speakers addressed representatives of Member States at a special event, Industrial Policy for the Energy Transition.The session focused on two key questions: First, how can industrial policy be used as a tool to maximize the gains from the energy transition and minimize the risks? And second, what sorts of industrial policy cooperation and coordination across countries are necessary to achieve global targets?In his introductory remarks, UNIDO Director General, Gerd Müller, who had just returned from the COP27 in Sharm El-Sheikh, declared that a just and clean energy transition is an imperative for addressing climate change. He also stressed the need to decouple economic growth from greenhouse gas emissions, indicating that to achieve this “we need to use all relevant technologies”.Müller said that a massive investment in renewable energy is required to drive sustainable industrial development and highlighted the potential of green hydrogen as the future fuel. While countries in Africa, Latin America and Asia have great opportunities to develop green hydrogen production, UNIDO’s key message is “value creation must be kept in the producing countries for investment in industrialization”. He added, “We must create green hydrogen trade corridors and fair value chains between the developing market economies and the industrialized countries.”Rafael Grossi, Director General of the International Atomic Energy Agency (IAEA), described the interlinkages between energy planning and industrial policy, with a focus on the role of nuclear energy and what it means for international development. He said, “We need to create the necessary tools in action so that the [energy] transition is virtuous. Nuclear energy accounts for twenty-five percent of the clean energy produced today worldwide.” He noted the importance of capacity building and instruments to help countries prepare for various technologies.  Christina Duarte, Special Adviser on Africa to the United Nations Secretary-General, highlighted that energy access is essential to accelerate economic transformation and industrialization in Africa. She emphasized opportunities for the development of continent-wide value chains, particularly in view of the critical mineral assets that the continent sits on and that are essential for the energy transition. She added that “it would be impossible for Africa to compete in international markets without affordable and accessible energy”.The keynote speaker, Jeffrey D. Sachs, Director, Centre for Sustainable Development at Columbia University, assessed the interplay of industrial policy and energy systems in time of transition. He argued that roadmaps are the most important tool that countries should have, adding that currently there is a lack of clarity on how countries plan to reach net zero. Sachs stressed that “governments need to plan with a 25-year horizon and they need to plan with their neighbours”.In the subsequent discussion, ambassadorial-level officials from the regional groups, including Europe, Latin America, Africa and Asia, contributed their ideas about the major challenges and opportunities from the energy transition for industrial development.Rana Ghoneim, UNIDO’s chief of the Energy Systems and Industrial Decarbonization Unit, who moderated the discussion, concluded by emphasizing the need for integrated policymaking to tackle our climate and development challenges. She also called on Member States to share lessons learned and best practices from their own transition.