HydrogeninDecarbonizedEnergySystemsThisreportwasauthoredbytheHydrogenCouncilincollaborationwithBaringaPartnersLLP.Theauthorsofthereportconfirmthat:1.Therearenorecommendationsand/oranymeasuresand/ortrajectorieswithinthereportthatcouldbeinterpretedasstandardsorasanyotherformof(suggested)coordinationbetweentheparticipantsofthestudyreferredtowithinthereportthatwouldinfringetheEUcompetitionlaw;and2.Itisnottheirintentionthatanysuchformofcoordinationwillbeadopted.Whilstthecontentsofthereportanditsabstractimplicationsfortheindustrygenerallycanbediscussedoncetheyhavebeenprepared,individualstrategiesremainproprietary,confidential,andtheresponsibilityofeachparticipant.Participantsareremindedthat,aspartoftheinvariablepracticeoftheHydrogenCouncilandtheEUcompetitionlawobligationstowhichmembershipactivitiesaresubject,suchstrategicandconfidentialinformationmustnotbesharedorcoordinated–includingaspartofthisreport.2KeymessagesfromthisreportHydrogenbringssystembenefitsinadditionto57GW$247bndecarbonisinghard-to-abatesectorsElectrolyzercapacityInvestmentin•Resource-richregionsneedtoprioritizeconnectinginTexasby2050hydrogenrenewableresourcestodemandcentresviahydrogenpipelinesinfrastructureinTexas•Resource-poorregionsneedtofocusonmaximising>$14bnthevalueoflimitedrenewablesavailable,andcanusecurtailedpowertomakehydrogenAnnual‘flexibility’benefittosystems•Islandedpowersystemsneedtopayextraattention10–15%toflexibility,whichelectrolyzersandhydrogenidentifiedturbinescanprovide$50bnRenewablehydrogenproductionwilladdflexibilitytoenergysystemsandconsequentlyreducethecosttoConversion,networkanddecarbonizestorageinfrastructurerequiredinTexas•ElectrolyzerscanrespondtomarketpricestohelpAddedvaluetoalleviatesupply-demandcrunchesinsystemsrenewablepowerrelyingonhighlevelsofintermittentwindandsolarprojectsfrom•Hydrogentopowerprovidesresilienceagainstelectrolyzersmostchallengingpartoftheyearwhenrenewableloadislowandenergydemandishigh.It>100ktcomplementstheroleofbatteriesandCCSindoingperdaysoNetworkinfrastructureandsensiblemarketdesignrulesarecriticalenablersfordecarbonisationusinghydrogen•HydrogenandCO2pipelineswillenableproductionHydrogenpipedwhilestorageiskeytounlockingflexibilitybenefits•AllowingelectrolyzerstorespondtopriceswillthroughCentral-WestensureloweroverallenergycostsandlesspriceEuropein2050volatilityMuchoftheadditionalsystembenefitsofhydrogenresideinthepowersystemwhereflexibilityisachallenge:InthreecontrastingenergysystemshydrogenaddsflexibilityandreducescosttothepowersystemNetZeroJapanTexasCWEurope2050systemAnnualpowersystem$6.0bn$2.5bn$5.9bnbenefitofhydrogenHydrogenshareof14%3%1%powergenerationHydrogenshareof57%9%11%flexiblepowercapacitySource:HydrogeninDecarbonizedEnergySystemsstudyHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners3KeymessagesforthreeregionsassessedTexasHydrogencanallowTexastocontinuetobeanenergyexporter,$247bnadoptingbothrenewableandlow-carbonhydrogenproductionInvestmentinHydrogeninfrastructuretotakeadvantageofrelativelylow-costsolar,wind,andnaturalinTexasby2050gasresource,andcarbonsequestrationpotential.$2.5bnGrowthinrenewablehydrogenproductionmeanselectrolyzersAnnualbenefitfromelectrolyzersandandhydrogen-to-powerpeakerscanhelpstabilizethepowerpeakersinTexaspowergridby2050system,requiringproportionallylessbatteriesandnaturalgasfiringtoofferflexibilityforeveryunitofintermittentwindand$5bnsolar.Ifincentivesarestructuredappropriately,thisshouldnotCumulativebenefitofextendinglifeofrequiretemporalcorrelationrules,aspricesaloneshouldnaturalgasinfrastructuretofacilitatepromoteelectrolyzerstorunwhenitisbestforthesystemtodohydrogenso.2.5–3.4MtLow-carbonhydrogenofferssomeinsuranceagainstanydeclineElectrolyzercapacityinEuropeby2050innaturalgasproductionthatcouldarisefromdecarbonization.Repurposingofpipelinesandstorageinfrastructurewillbring$5.9bnbenefitsthroughextendedassetlife,avoidingstrandednetworkAnnualsystemBenefitfromallowinginfrastructure.electrolyzerstooperatefreelyCentral-Thereisaroleforbothrenewableandlowcarbonproductionin2/3WestCentral-WestEurope,acrossscenariosofloworhighgasprices,AdditionalportterminalfootprintEuropethoughtheshareofeachwilldependonwhetherlongtermgasrequiredversustodaytoaccommodatepricesaremoretiedtoLNGimportsorpipelinegas.Toenablefuelimportsrapidscale-upofproductioncapacity,‘noregrets’developmentofstorageandtransportinfrastructureisrequired.$6bnAnnualsystembenefitfrompowerAllowingelectrolyzerstorespondtomarketpowerpriceswillgenerationfromhydrogenandderivedlowersystemcostsversusforcingelectrolyzerstolinktofuelsindividualrenewablepowerassets.Productionrulessuchasadditionalityandtemporalcorrelationintendedtoprevent10–15%marketdistortionsincreasetheoverallcostofthesystembyAdditionalvaluetorenewableprojectsreducingflexibilitywithinthesystemthatcomesfromhydrogen,sellingcurtailedenergytoelectrolyzersforcingothersourcesofflexibilitytooverbuild.JapanHydrogenisabiggerpartofJapan’sdecarbonisationjourneythanelsewhereasindigenousrenewableresourceismorelimited.Thiswillrequireamajorexpansionofportspace–Japanwillneedtwo-thirdsmoreterminalfootprintrelativetotodaytodealwithstoragerequirementsforliquidandgaseoushydrogenandprovideflexibilityintheabsenceofgeologicalstoragepotential.HydrogenandderivativefuelssuchasammoniawillprovideflexibilityrequiredtodecarbonizeJapan’spowersystemalongsidethedevelopmentofrenewablewindandsolar.Japan’slimitedrenewableresourcemeanshydrogenandammoniawillbemoreimportantthanbatteriesinprovidingflexible,dispatchablepower,particularlyinareaslikeTokyo,ChubuandKansai,whererenewableresourceismostscarce.Electrolyzersrunningonexcesspowerfromwindandsolarcouldaddvaluetorenewablesprojects,whilestillproducinghydrogenthatmatchestheimportprice.ThisdomestichydrogenproductionwillplayaminorrolerelativetoimportsbutwillmakemorerenewablepowercapacityviableforJapanHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners4Introduction5ContextforthereportHydrogencreatesstrongerlinksbetweenelectric,gaseousandliquidenergyflowswhichbringbenefitsnotcapturedinlevelizedcostTheworld’senergysystemcontinuestobebasedonfossilfuels,whichareeitherburneddirectly,ortransformedintoelectricity.Asourenergysystemdecarbonizestomeetthesharedgoaloflimitingglobalwarming,thesefuelswillbeincreasinglyreplacedthroughelectrification.However,sectorswhicharedifficulttoelectrifywillcontinuetorequireliquidandgaseousfuels,andthesefuelscanbeproducedusinghydrogen.Tofulfilthisrole,hydrogenfuelsmustbesustainable.Thismeanshydrogenwillbemadefromsolar,windornuclearpowerthroughtheelectrolysisofwater,orfromnaturalgasusingcarboncaptureandsequestrationinfrastructure.Ifnotusedtoprovideflexibleandreliableenergydirectly,hydrogenwillbeprocessedintoliquidfuelsusingrecycledcarbondioxideornitrogen.Thepresenceofhydrogenwillresultinstrongerlinksacrosstheenergysystembyprovidingabridgebetweenelectric,gaseousandliquidenergymediums.Theselinkswillallowareaswithabundantrenewableenergygenerationtomeetenergydemandinthepower,heating,industrialortransportsectorswhererenewableenergyismorelimited.Theywillhoweverthereforeplaceadditionaldemandonthepowersectortoservetheproductionoffuels.Thebenefitsandchallengesprovidedbyhydrogenwillthereforevarydependingonwhetherthesystemisanetexporterorimporterofenergy,andtheextenttowhichitisalreadyconnectedtoothersystemsviaexistingpower,gas,andliquidfuelnetworks.Previousstudies,includingourHydrogenforNetZeroreporthaveassessedthedirectabatementpotentialofhydrogenasalow-carbonfuel.Inthisreportwebuildonthatdirectbenefitbydemonstratingthatirrespectiveofthetypeofsysteminplace,therearequantifiablesystembenefitstointroducinghydrogeninfrastructurethatgobeyondthe‘levelized-cost’valueofusinghydrogen-derivedfuelsversusthenextbestalternative.Wedosobyaccountingforsystemeffectsarisingfromlinkingpower,gas,andliquidsystems,particularlyinprovidingflexibility,securityandresiliencetothewiderenergysystem.Thesebenefitshavehistoricallybeenprovidedbyliquidandgaseousfuelswhichareinherentlymoreflexibleandeasiertomanagethanelectricity.Exhibit1:ConceptualenergyflowstodayversusinadecarbonizedenergysystemOilLiquidFuelsToday’sEnergyGaseousFuelsSystem,littleNaturalGasElectricityinterconnectionRenewablesSolidFuelsbetweenenergyandNuclearvectorsBiomassCoalOilLiquidFuelsNaturalGasLow-carbonhydrogenRenewablesandNuclearGaseousFuelsFutureEnergySystems,hydrogenBiomassElectricityenablesextensiveCoalSolidFuelsinterconnectionHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners6FocusonthreecontrastingsystemsThereportprovidesinsightsonenergysystemevolutionandthebenefitsofhydrogenthroughanalysingthreedifferentregionalenergysystemsEnergysystemshavedifferentunderlyingfundamentalsanddifferentstartingpointsfordecarbonisingwhichinfluencetheirpreferredpathway.Tohighlightboththeevolutionofthesystemasitdecarbonizes,andthebenefitsofhydrogentothesystemonthatjourney,wehaveassessedthreeregionalsystemswithcontrastingfeatures.Bymodellingtheenergysystemofeachregionasasetofzoneswiththeirownresourcepotential,demand,andprice,weshowthateachsystemwillevolvedifferently,butthateachhighlightssystembenefitsthathydrogenbrings.Exhibit2:RationaleforthreeenergysystemsstudiedTexasTexasisresourcerich,grid-islanded,andhasdemandclustersTexasgaspipelinestodaylocatedfarawayfromresourcezonesJapanrenewablesupplytargets●Produces25%ofUSgas1,over40%ofU.S.oil,andhasbuiltanddemandcentres28%ofUSwindcapacity2●Solar,wind,andgasneedstomovefromruralareasto‘Texastriangle’ofdemandintheEastandSouthwhere>70%ofGDPoccurs●EnergyexportsfromTexasandLouisianarepresented$315billionin2022,and83percentofU.S.energyexports4)●CurrentlyPotentialtoexport9Mtofhydrogenandderivedfuelsbylandandsea2Japanisanislandedsystemthatwillrelyheavilyonimportstosupportlimitedsolarandwindresource●88%ofthecountry’sprimaryenergysupplyismetwitheithercoal,gasoroil,andover98%ofallfossilfuelsareimported.Minimalnationalgasgridbuttheworld’slargestLNGimportcapacityJapan●LimitedaccesstoonshorerenewableenergyorIncreasingoffshoregeologicalCO2sequestrationtohelpdecarbonizeheavywindtargetindustryandpowerIncreasingElectricityDemand●Over30%ofthegovernment’s30-45GWoffshorewindtargetisplannedinHokkaido,oneofJapan’sleastenergy138.0intensiveregionCentral-WestEurope(Germany,Benelux,andFrance)ishighlyconnectedandwillrelyonimportsanddomesticresourcestodecarbonize●TodayCentral-WestEuropehas60GWofpowerconnectioncapacity–43%ofaveragedemand3●Theproportionofhydrogenandderivedfuelsimportedthroughfourmajorcorridorswillrisefrom14%in2030to86%by20502CentralWestern●Targetingnetzeropowersystemsby2035-2040,butrelyingDaysof0.1Europeon32%fossilfuelsforenergyneedstodayNaturalGasDaysof●IncreasinglyharmonizedenergyregulationunderEU,butStoragePowerdifferentsystemvisionsamongmemberstatesStorageSource:1)EIA(2021),2)AmericanCleanPowerAssociation(2023),2)GlobalHydrogenTradeFlows(2022)3)BaringaPowerMarketReports(2023)4)US.BureauofLabourStatisticsHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners7IntroductiontoenergysystemanalysisThelong-termevolutionoftheenergysystemismodelledunderascenarioconsistentwiththevisionforhydrogendemandandglobaltradesetoutinourpreviousreportsUnderstandenergysystembenefitsrequiresenergysystemmodelsthatcansimulatehowtheneedsofthewholesystemaremetbothonalongtermandshort-termbasis.Theshapeofsupplyanddemandoverhours,days,weeksandyearsneedtobeaccountedfor,asshouldtheimpactofcontinuingordecommissioningexistinginfrastructure.Wehaveemployedamodellingplatformthatusestoday’ssystemasastartingpointandthendeterminestheoptimalmixofinfrastructuretoservethesystem’sdemand,andthensimulatehowthatsystemmeetsdemandhourtohourovera30+yeartimehorizon.Theanalysiswithinthisreportfocuseson‘transmission’levelsystemwiththeaimofinforminginfrastructuredecisionsatstateormulti-statelevel.‘Distribution’levelquestionsassociatedwithlast-miledeliveryanddeliveringanenergytransitionatthemetroareainfrastructureareequallyimportanttounderstandinselectingtherightdecarbonisationpathway.Theypresentchallenges,suchashowtoscaleupzero-emissionsheavy-good-vehiclerefuelling,whichliquidandgaseousfuelsmaybeabletoaddressmorereadilythanelectrification.Aswithmostmodesofcivicinfrastructureplanning,theyrequireadifferent,tailoredsystemanalysisversuswhatisrequiredtoassesswholeregionsorlargecountries.Exhibit3:ScenarioassumptionsforEnergySystemStudyBasecasescenarioforsystemevolution-ourbasecasescenariobuildsonourpreviousreportsdetailingoverallhydrogendemand,directionsofhydrogentrade(GlobalHydrogenFlows)andourviewoncostofvariouselementsofthehydrogenvaluechaindetailedinourannualHydrogenInsights.Usingreferencescenariosfromthispriorworkasastartingpoint,wesimulatehowthecombinedhydrogen,power,andgassystemwillevolvetomeetexpectedlevelsofhydrogendemandandbroaderenergydemandandemissionstargetsinthewidersystemby2050.Weassumethesystemreachesdeepdecarbonisationbythatpointandthatbothdemandforpowerincreasessteadilythroughelectrificationofheatingandtransport,whilegasdemandpeaksin2030sandthendecreasesto2050.ForCentral-WestEuropewehavealsotestedahighgaspricescenarioinwhichgasflowsfromRussiadonotreturnandconsequentlypricesintoEuropereflectmuchhigherrelianceonLNGfromtheUSandMiddleEast,competingwithcontinuedgasdemandgrowthindevelopingmarkets.Our2050Potential%importedEnergyRenewableEmissionsGaspricebasecasehydrogen(exported)SystemLCOEpriceassumptionsdemandemissionsTexas16Mt(55%)NetZero18-961582.0NetZero$/MWh$/tCO2$/mmbtuCWE33Mt86%NetZero30-842504.3Japan25Mt100%$/MWh$/tCO2$/mmbtu80–1832074.2$/MWh$/tCO2$/mmbtuAdditional‘Highgasprice’testcaseCWE33Mt80%NetZero30-8425010.5$/MWh$/tCO2$/mmbtuAssessingsystembenefits-todeterminesystem-benefits,wecompareourbasecasescenariotoatestscenarioinwhichaparticularassetorbehaviourisrestricted.Theper-unit-energytotalsystemcostofeachscenarioisthencomparedtoderivethesystembenefit.PleaseseeAnnexforfurtherdetailsofassumptionsSource:1)GlobalHydrogenTradeFlows(2022)HydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners8Howenergysystemswillevolveusinghydrogentodecarbonize9TexaswillcontinuetobeanenergyexporterbutwithmuchmorecomingfromsolarandwindviahydrogenExhibit4:Visionforahighlydecarbonizedandexport-ledenergysysteminTexas1Expansionofrenewablegenerationandtransmissioncapacity2Co-locationofelectrolyzerswithrenewablepowersupply3Repurposingofgaspipelineinfrastructureforhydrogenpipelines4Productionfacilitiesforhydrogenderivedliquidfuels5CO2transportandstoragenetworkHydrogenMt16ElectrolyzerGW157Westproductionby20capacityby6021Panhandletechnology15Low-region15North1098carbon4017South8Renewable582011130220502050203505412035Texasisendowedwithsomeoftherichestenergyresourceintheworld.Inadditiontoanabundanceofoilandnaturalgas,itprovidessomeoftheU.S.’slowestcostsolarandwindenergyandgeologysuitedtosequesteringcarbon.ThismeansthatTexascanabateemissionsusinghydrogenfrombothnaturalgasanditsrenewablepowerresource.ThiswillresultinsixkeydevelopmentswithintheenergysystemshowninExhibit4.Firstly,renewabletransmissioncapacityfromwindsourcestodemandcentreswillexpandasthepowersystemrelieslessonthermalgenerationanddemandforelectricityintransportandbuildingsincreases.Over50GWofelectrolyzerscouldbelocatedwithrenewablepowersupplyandwillbeconnectedtodemandandexportcentresvia16Mtofhydrogenpipelinecapacityrepurposedfromnaturalgaspipelines.Naturalgasdemandwilleventuallydecreasebutgaspipelineinfrastructurewillstillbeneededtomoveover3bcf/dgasfromproductionfieldstowhereover$40bnoflow-carbonhydrogenproductioninvestmentcouldbecentredalongtheGulfCoast.Productionfacilitiesforhydrogenderivedliquidfuels(keroseneandammonia)couldmakeupcloseto30%ofallhydrogendemandandcanreplaceexistingrefineriesalongtheGulfCoastasdemandforhydrogenincreasedwhileglobaldemandforpetroleumproductsdeclinesandoilproductionbecomesmoreorientedtowardspetrochemicalproducts.Over$8bnofinvestmentinCO2transportandstoragenetworkscouldenablehydrogenproductionandindustrialprocessesintherefiningbeltandislikelytoexpandtoencompassthermalpowergenerationfromnaturalgas.Source:HydrogenCouncil2021–HydrogenforNet-Zero,HydrogenCouncil2022–GlobalHydrogenFlows1)MeasuredinGWofelectricityinputHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners10Central-WesternEuropewillevolvetomixbothimportedanddomesticallyproducedhydrogenandrenewablesTheCentralWestEurope(CWE)regioncouldneedupto32.5Mtofhydrogenby2050.Itwilldevelopamixofbothrenewableandlow-carbonhydrogenproduction,aswellasamixofbothimportsanddomestic2/1production.AswehavedemonstratedinourpreviousGlobalHydrogenFlowsreport,hydrogen-derivedliquidfuelssuchasammoniaande-kerosenewilllargelybeimportedfromoutsideofEuropewhererenewableenergyischeapertoproduceintomajorportssuchasRotterdam,Antwerp,andHamburg,whereimportterminalprojectsarealreadyindevelopment.RatioofrenewableenergytonaturalgasHydrogengaswillbepipedintotheregionfromfourcorridorsenvisagedbytheEuropeanHydrogenBackboneinitiativeandjustover100ktperdayofpipelinecapacitywillbeneededby2050toenableasprimaryenergytransportofhydrogenimportedintotheregionaswellasbetweenmarketswithintheregion.Thiswillsourcein2050supportexistingconnectivityprovidedbycross-borderpowertransmissioninterconnectorsandallowhydrogenproductiontomoreeasilyaccesslarge-scalesalt-cavernstoragepotentialwhichisconcentratedinGermany.44GWImportswillbeaugmentedbydomesticproductionofbothlow-carbonandrenewablehydrogen.To2030thiswillbedrivenbydomesticpolicyaimedatkickstartingrenewablehydrogenproduction.Beyond2030low-carbonhydrogen,enabledbymaturenaturalgasinfrastructureandtheabilitytosequesterCO2intheNorthSea,couldincreaseitsshareiftheregionprioritisesdeliveringhydrogenatminimumcostandensuressecurityofsupplyofnaturalgasthroughdiversifiedimportsofliquefiednaturalgas.ElectrolyzersBy2050bothimportedrenewablehydrogenanddomesticlow-carbonhydrogencouldhavesimilarsharesofrequiredinCWEbydomesticsupply.Notablygiventhelargeshareofdemandservedbyimports,domesticproductionrequired20501in2050isnotmateriallylargerthan2030targetsforproductionsetbycountrieswithintheregionandamountsto5-6Mtannuallyover2040-2050.Bycontrasttransportandstorageinfrastructurewillbesubstantiallylargerthanwhatiscurrentlyinprogressiongiventheoveralllevelofhydrogenconsumedwithintheregion.Exhibit5–evolutionofCentral-WestEuropeenergysystemPrimaryfuelmixforpower,hydrogenandHDFHydrogenpipelineandpowertransmissiondemandin2050,TWhcorridorsinCWE05001,0001,5002,0002,5003,0003,5004,000NorthSeaCorridorBalticCorridor9581,233727319620813,938GasWindSolarNuclearBiofuelsHydroHydrogenSupply(2030-2050),BaseCaseScenario,SouthEasternCorridorMtofH2equivalentPipeline353.4Powerline16.7303.2SouthWesternCorridor11.0251.43.52050203.4Cross-borderhydrogenpipelinecapacityrequiredby12.72050,GW152040050100150200250100.91.152.60Thisstudy1762030GreyImportLowCarbonCWEGreyCWERenewableImportEUH2Backbone225LowCarbonImportRenewableCWESource:HydrogeninDecarbonizedEnergySystemsstudy,HydrogenCouncil2022–GlobalHydrogenFlows1)MeasuredinGWofelectricityinputHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners11JapanwillneednewimportinfrastructuretodeliverdecarbonizedenergyusinghydrogenandammoniaAsJapandecarbonizes,itwilllargelyreplaceimportedLNGandcoalwithhydrogenandderivedfuelssuchasammoniaalongsidedevelopmentofwindandsolarpotential.Thiswillresultinthreemajorchangestothesystem.First,therewillbeaphaseoutofcoalwithrenewableswithinthepowersystem,followedbyphaseoutofgaswithhydrogenandammonia.Existinggas-firedpowergenerationcapacitywillneedtobere-purposedtotakehydrogenandammoniaforpower.Secondly,morerenewableswillmeanamuchlargertransmissiongridtofacilitatemovingpowerfromrenewablezonesintothecentralprefectures.Finally,LNGimportinfrastructurewillneedtoberepurposedtodevelopammoniaandhydrogenimportinfrastructure.Additionalfootprintwillbeneededtoaccommodateabove-groundliquidhydrogenstorageterminals.HydrogenpipelinesmaybeneededbutinfarlessquantitiesthanregionssuchasCWEandTexasasconsumptionforpowerandindustrialswillbecentredaroundportterminals,asisthecasewithLNGtoday.Exhibit6:EvolutionofJapan’senergysystemJapan’simportterminalfootprint,km273FutureJapaneseEnergySystem+66%44LNG,2023Hydrogen,2050Japan’soptimalpowergenerationmixforachievingNetZeroby2050,TWh9999631,160+16%11012035163114782567038911417518835270263355202020352682050ShippingelectrolyzersHydrogenandAmmoniaSolarRenewablesFossilGenerationBatteryGasDemandNuclearBiomass,HydroandGeothermalCoalandoilWindNuclearSource:HydrogeninDecarbonizedEnergySystemsstudyHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners12Benefitsofhydrogenindecarbonizedenergysystems13Eachsystempresentschallengesinensuringaffordable,reliable,lowcarbonsystems,whichhydrogencanenableWell-developedenergysystemsarethepillarsofwell-developedeconomiesandhighlydecarbonizedsystemswillneedtodisplaythreeover-archingcharacteristicstofunctionwell:theflexibilityrequiredtorespondtoroutinefluctuationsinsupplyanddemand,theresilienceneededtorespondtomoreacuteorextremeshocks,andalevelofaffordabilitythatensurestheeconomyiscompetitive.Withineachofthesepillarsthereareseveralwayshydrogencanhelpaddressmorespecificsystemchallengessuchasresiliencetopriceshocks,counterbalancingtheintermittencyofrenewables,andeffectivelylinkingareasofresourcetoareasofdemand.Exhibit7:ThebenefitsofhydrogeninfrastructureinaddressingsystemchallengesSystemchallengesindecarbonisingBenefitsofhydrogenFlexibility•Powersystemflexibility-Howwillelectrolyzerscanofferasourceofshorttermandseasonaldemand-sideflexibilitytopowersystems,fluctuationscausedbylargeprovidedtheyarefreetorespondamountsofintermittentsolarandeffectivelytomarketpricesignalsandnotwindbedealtwith?isolatedfromthewidersystemthroughregulatoryrules•Regulationofsupplyanddemand-howdosystemscreatetherightHydrogenoffersaformoflong-durationincentivesforrewardingsystemenergystoragewhereitcanbeburnedtoflexibility?producepowerattimeswherethereisaprolongedsupplyshortagethatbatteriesSecurityand•Resilienceinisolatedsystems-howwillnotbeabletocovercost-effectivelyresiliencewillpowersystemsdealwithmoreacutesupply/demandimbalancesHydrogencanbesourcedfromavarietyofcausedbyweatherevents?countrieswithstrongrenewablesupplypotential,reducingriskofenergycartels•Import/exportsecurity-howwillcapableofcontrollingpricesregionswithlargenetenergybalancesmaintainsecurityofsupplyHydrogencanbeproducedfrombothanddemand?renewablepowerandnaturalgas,offeringopportunitiestohedgeagainstshocksto•Priceshocks-Howwillsystemsdealeithergasorpowerpriceswithunexpectedchangesincommodityprices?AmmoniaderivedfromhydrogencanprovideamajorsourceofpowerwhereAffordability•Optimaluseoflimitedresources-thereislowrenewableresourcehowcansystemswithlimitedrenewableresourceskeepthecostHydrogenpipelinescanbeanoptimalofdecarbonizedenergytoameansofmovingenergyacrossaregionasminimum?wellasameansofprolongingthelifetimeofnaturalgasnetworkandstorage•Howdoesthesystemeffectivelyinfrastructurelinkresourcestodemand?•Howdowereducetheriskofstrandedassetsusedtoservefossilfuelsandextendassetlifetime?HydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners14ChallengesarebothuniversalanduniquetodifferentenergysystemsDifferentregionshavedifferentenergysystemcharacteristicswhichdeterminetherangeofchallengestheyfaceindecarbonising.Eachsystemwillneedtobeflexibletorespondtoroutinefluctuationsindemandwhilealsohavingresiliencetomoreextremeshocks.Systemswillalsoneedtocarefullyregulatehowsupplyanddemandparticipateinordertoensurelevelplayingfieldsandavoidadditionalsystemcostscausedbyrestrictingfreedomtooperate.Ontopofthesechallenges,ourthreeregionshighlightdifferentchallengesfacedbydifferentsystems.Central-WestEuropewillneedtoaccommodatebothhighlevelsofdomesticrenewableenergygenerationaswellasaneedtosecureimportedenergyfromlower-costsupplylocations.TexasalsoneedstoaccommodatehighpenetrationofrenewablesasthegridisisolatedfromneighbouringmarketsandthereforerequireshigherlevelsofflexibilitythatinCWEispartiallyprovidedthroughcross-borderinterconnectors.BycontrastJapanwillneedtodecarbonizewithrelativelylowamountsofeconomicallyfeasiblerenewabledevelopmentpotentialandmustfindwaystomaximizetheutilityofitslimitedresources,whilestillprovidingadequatesystemflexibility,security,andresilience.Theseregionsserveasexemplarsbecausetheycontainchallengesthatfeatureacrossallenergysystem,andthesechallengesareapplicabletobothemergingmarketsseekingtogrowsustainably,aswellasdevelopedmarketsaimingtodecarbonizequickly.Inbothcontextstheenergysystemneedstoensureflexibility,security,andaffordabilityincreasinglywithoutusingfossilfuels.Exhibit8:ThreedifferentgeographiesNewEngland;Chile,Australia,GulfSouthKorea,highlightthechallengesandbenefitsChina,Californiaregion,Argentina,NewZealand,ofhydrogeninfrastructurewithintheNorway,SouthAfricasystemIrelandAnalogousregionsPowersystemflexibility✓✓✓FlexibilityRegulationofsupplyand✓✓✓demandResilienceinisolated✓systemsSecurityofimports✓✓Securityofexports✓Securityandresilience✓✓✓ResiliencetopriceshocksOptimaluseoflimited✓resourcesLinkingresourcesto✓✓✓demandAffordabilityExtendinglifeofnetwork✓✓assetsHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners15Systembenefit:renewablehydrogenproductionoffersacriticalsourceofflexibilitytopowergridsthatpromotesdecarbonisationEnergysystemsneedflexibilitytocopewithroutinechangesinsupplyanddemand,otherwisepricesbecomevolatile,therearegreateropportunitiesforrentseeking,andconsumerspaymoreasaresult.Thisisespeciallyimportantinpowersystemsaselectricalenergyismoredifficulttostorethanchemicalenergycontainedinliquidandgaseousfuels.Traditionallyfossil-fuelledpowergenerationhasprovidedvariousflexibilitybenefits,includingshort-termgridbalancing,copingwithdailypeaksandtroughsindemand,aswellasmonthlyorseasonalvariationsindemand.Asfossilfuelsgetphasedout,thisflexibilityneedstocomefromelsewhere,withelectrolyzers,batteries,hydrogen-firedgenerators,pumpedstorage,anddemandresponseallplayingimportantroles.Texasishometoabundantenergyresources,withmuchoftheU.S’sexportedoilandgasmovingthroughtheGulfCoast,andlargeamountsoflandwithlowcommercialvaluesuitableforbothsolarandwindenergy.ThismakesTexasidealforproducingbothrenewableandlowcarbonhydrogenandwiththeadditionoftheInflationReductionAct(IRA)offeringupto$3/kgintaxcredits,bothrenewableandlowcarbonhydrogencouldbeproducedverycompetitively.ThiswillgreatlyhelpenableTexas’spotentialtoproduceupto9MtofhydrogenforexportpotentialidentifiedinourGlobalHydrogenFlowsstudyaswellasmeetingupto7Mtofdomesticdemand.However,theTexaspowersystemislargelyislandedfromtherestoftheU.S.,whichcanleadtoperiodsofveryhighpricesforconsumerswhendemandpeaksduringveryhotorverycoldweather,orwhensupplyshortagesoccurduringperiodoflowsolarandwindoutput.Electrolyzerscanhelpstabilizepricesbyofferingaflexiblesourceofdemand.IftheTexaspowersystemistodecarbonizewithoutneedingtoserveanydemandfromelectrolyzers,thiswillmeanpricespikesupabove$250/MWhonsomedaysandwillresultinseveralweekswherepricesareabove$100/MWh.However,ifTexasweretoproduce16Mtp.a.thenpriceswouldstabilizeconsiderably,aselectrolyzersareincentivizedtoturndownwhenpricesarehighandturnupwhenpricesarelow,insulatingthesystemagainstpriceshocks.Overall,weestimatethisflexibilitywillreducethecostofdecarbonisingtheenergysystembyapprox.$1.3bnannually($23bncumulatively)betweennowand2050.Exhibit9:HydrogenexportpotentialofTexas;electricityprice-durationcurvewithandwithoutelectrolyzers;costofhydrogeninTexasusingIRAImpactoftheIRAonthelevelizedcostofhydrogen,Hydrogenandhydrogenderivedfuelexportpotential,Mt$/kg2.01.81.82015.80.715IRAcredit2.12.111.18.8101.19.457.0(0.1)(0.3)01.72050CostnetofIRARenewablesSMRATR2030ExportDomesticInstalledrenewablecapacityin2050,inapower300Electricityprice-duration$1.3bnsystemwithandwithouthydrogen,GWcurveinHouston,2050annualsystem357352250$/MWhbenefit200OnshoreWind180245150Solar100100OffshoreWind7160With50Hydrogen1170No050100150200250300350400HydrogenDaysofyear,orderedfromhighestpricedaytolowestWithelectrolyzersNoelectrolyzersSource:HydrogeninDecarbonizedEnergySystemsstudy;GlobalHydrogenFlows(2022)Note:1)Includeshydrogentopowerinfrastructure.Addingelectrolyzersalonewillresultinincreaseintotalrenewablegenerationcapacity,thoughinvestmentrequiredperunitofdemandislowerHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners16Systembenefit:AllowingelectrolyzerstorespondtosystempricesisneededtoenablethevalueofflexibilityInEuropeandtheU.S.theregulatoryframeworkisbeingestablishedtodeterminewhatqualifiesasrenewablehydrogen.Thisframeworkmandatesthatelectrolyzerscontractonlywithnewlybuiltrenewableassets(‘additionality’)andmustmatchthegenerationprofileofthoseassetstothehourorless(‘temporalcorrelation’).Thistypeofmarketdistortionaimedatrestrictingelectrolyzergenerationcanreducesystemflexibilitybyremovingsomeofthefreedomelectrolyzershavetorespondtopricesandreducingthepoolofrenewableassetstheycancontractwith.Thispriceresponsecanbebeneficialwhensupplyisshort,forexampleonprolongedovercastperiodswithlowwindwherebatteriesareunavailableandothersourcesofflexiblepoweraremoreexpensive.Ifelectrolysersarelockedintohourly-correlatedpowersupplyagreementswithindividualrenewablegenerationassetsthentheyarenotincentivizedtoturndownwhenthewholesystemismorecarbonintensive,orconverselytoturnupwhengenerationishighinotherpartsofthesystem.Wehaveevaluatedthisflexibilityrestrictionbycomparingscenarioswhereelectrolyzersandtheirrequiredrenewablepowerareeitherseparateorintegratedwithrestofthesystem.InCentral-WestEurope,weestimatethecostofthisrestrictiontobe$2.1bnperannuminascenariowheretheregionproduces7-8Mtofhydrogenby2050,equivalentto$0.30foreverykgofrenewablehydrogenproduced.Thisbenefitarisesfromallowingelectrolyzerstoobtainelectricityoutsideoftherenewableassettheyaredirectlycontractedwithandresultsinlessrenewablepowercapacitybeingrequiredtoservethesamelevelofdemandasthereismoreflexibilitywithinthesystem.Thisvalidatestheapproachofrelaxingtemporalcorrelationwhenpricesarelower(asisnowproposedindraftEUlaw)andensuringadditionalitydoesnotresultinoverbuildofrenewables.TherewillbesimilarbenefitfromintegrationofelectrolyzerswithgridinTexasasitbecomesmoredecarbonized,allowingthemtobenefitfromsystempricesratherthanrenewableLCOEs.SimilarlyinTexas,wherelow-costgas-firedpowergenerationcanbeproducedat<$40/MWh,linkingsubsidiestocarbonintensity(ashasbeendoneintheIRA)willensureelectrolysersdonotfrequentlydispatchatperiodsofhighergridcarbonintensity.Exhibit10:HowelectrolyzersreducerenewablecapacityrequiredincoupledenergysystemCWEPowergenerationcapacityin2050,CWEPowerdemandbyhourinJune2050,GWBaseCaseScenarioGWh1,000933870$2.1bn4509001022822108benefit800632752peryear3607001850inCWE6002750050251270400236-9%018051543190056789101112UncoupledCoupledHourofdayReductioninrenewablecapacityneededtodeliverElectrolyzersturndownduringperiodswheredecarbonizedpowersystemifelectrolyzersareotherflexsourcesarenotavailableefficientlycoupledSolarGasCCSFixeddemandFlexibleHeatPumpBatteryWindGasExportsFlexibleEVElectorlyserHydrogenTurbineBiomassandWasteNuclearBiomassCCSHydroSource:HydrogeninDecarbonizedEnergySystemsstudyHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners17Systembenefit:Pipelinesandstorageprolongassetlifetimeswhilelinkingwind/solartoareasofdemandNetworkinfrastructureneedsinregionalenergysystemspresentoneofthegreatestchallengesoftheenergytransition.Gasandelectricitynetworkswhichhavetakenshapeoverseveraldecadesarenowrequiredtotransforminhalfthattime.Transmissionwireswillremaintheprimarymeansofmovingelectricityfromwhereitisproducedtowhereitisconsumed.Buthydrogenpipelineswillbeneededalongsidethemtomoveenergyfromsolarandwindsitesco-locatedwithelectrolyzerstoareasofdemand.Fordistancesof100sofkm,thisisgenerallylowercostthanmovingthesameenergyintheformoftransmissionwiresandelectrolyzersarethereforebetterlocatednearsupplylocationsratherthandemandlocations.InTexasthiscouldresultin16Mtofpipelinecapacityneededby2050tomoverenewablehydrogenfromareaswithlowLCOEsintotheTexastriangleandgulfcoastbeltoffuelrefineries.Additionallytherecouldbea$3.9bnsystembenefittousingrepurposednaturalgaspipelinesthatwouldotherwisehaveareducedassetlifetime,aswellas$2.0bnpotentialbenefitfromrepurposingexistinggasstorageinfrastructure.Similarly,CWEcouldneednearly20ktperdayofhydrogenpipelinecapacityby2030,andover100ktperdayby2050toimportrenewablehydrogenfromtheNorthSea,SouthernandEasternEurope,andNorthAfrica.Bycontrast,productionoflow-carbonhydrogenfromnaturalgasrequireslessnewpipelineinfrastructure,asgaspipelinescancontinuetobetheusedtomoveenergyfromwellsourcetomethanereformers,whichcanbeinindustrialdemandclusters.Thiswillnecessitatecarbontransportandsequestrationinfrastructurearoundlow-carbonhydrogenhubswhichcanserveotherCCSusecasesinadditiontohydrogenproduction.InTexasandCentral-WestEurope’scase,adequateCO2storagepotentialexistsinshallowseabednear-shoretofacilitatethis.Finally,existingrefinedfuelpipelineinfrastructuremaycontinuetobethebestoptionformovingaviationfuel.TodaytheColonialpipelinecarries3mbarrelsofrefinedoilperdayfromtheGulfCoastrefinerybeltthroughtheSouth-EasttoNewYorkandasaviationfueldecarbonizesthiscantakekerosenederivedfromhydrogenproducedinTexasasadrop-infuelalongsidekerosenederivedfromcrudeoil.Exhibit11:energytransmissioncostsandhydrogenpipelinecapacityinTexasHydrogenpipelinecapacityinCapitalcostofenergytransmissioninfrastructureTexasby2050(Mtp.a.)$/km/MW4000Barsarerepresentativeofthe2000capitalcostrangeforvarying0pipelinecapacity6871031830499313929916RefinedoilMtpaMethanolNaturalgasRetrofitH2AmmoniaNewH2OffshoreH2500kVHVDC$3.9bnp.a.systembenefittousingrepurposednaturalgaspipelinesthatwouldotherwisehaveareduceassetlifetime,aswellas$2.0bnp.a.benefitfromrepurposingexistinggasstorageinfrastructureSource:HydrogeninDecarbonizedEnergySystemsstudyHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners18Systembenefit:Hydrogentopoweraddssystemresiliencethrough‘peakers’inhigh-renewablesystemsMosthighlydecarbonizedsystemswillhavehighlevelsofintermittentsolarandwindgenerationprovidingthebulkofthesystems’emissions-freeenergy.Inadditiontocopingwithmoreregularperiodsoftightsupply-demandbalances,thesesystemswillalsoneedflexibilitytocopewithinfrequentbutprolongedperiodswherethesupply-demandbalanceiseventighter.Atypicalexampleisaprolongedperiodofhighpressurewithhighcloudcoverwherebothwindandsolararelowbutenergydemandishigh,likelyinsummerinhotterclimatessuchasTexas,orinwintersinthenorthernhalfofEurope.Whilebatteries,electrolyzers,andpumpedstoragehaveamajorroletoplayindealingwithperiodslastinghours,theywillnotadequatelycoversuchperiodsiflastingseveraldaysorweeks.Conversely,usingCCStoenablecontinuedgas-firedgenerationwillbeusefulforservingmorepredictableseasonalchangesinsupply-demand,astheircapital-intensivenaturemakesthemmoresuitedtorunningwithhigherutilisation,stoppingonlyduringperiodsofrenewableover-supply.Geothermalpowerproductioncanalsoprovidedispatchablepowerbuttypicallyonlywhereheatsourcesareaccessibleatlowcost.Biomassalsooffersdispatchablegenerationbutonlyprovidedfeedstockissustainable.Asaresult,thereisaroleforhydrogen-to-power‘peakers’similartothatplayedbyopen-cycle-gas-turbinesandgasenginestoday.ThisformofgenerationhaslowercapitalcostsversusCCS-CCGTsbutcanrunforweeksifneededto.Thiseffectivelyuseshydrogenasaformoflong-durationenergystorage.Weestimatethatinordertoreachdeepdecarbonisation,systemssuchasTexasandCWEwillneed11GWand18GWofthishydrogentopowercapacity,respectively.Itislikelytorunbetween5and15%ofthetime,whenthesystemisatitsmoststrained.Beyondtheseregions,hydrogencanbeexpectedtoplaythisroleinanysystemwithoutverylargeamountsofinterconnectingorhydroornuclearpowerthatreduceintermittencyofsupply.Suchprolongedflexibilityisverychallengingtoprovidethroughothernon-chemicalformsofenergystorage.Exhibit12:FlexiblepowersupplyinTexasandCWEFlexibleGenerationinTexasin2050,inapowerSourcesofpowerbyweekinCWEin2050,HighGassystemwithandwithouthydrogen,TWhPriceSensitivity,TWh186.2Batteries10Battery6.00.1GasCCS9H2TurbineH2peakers8NaturalGaswithCCSandBiomass180.2Unabatedgas777.36MayJunJulAugSepOct27.65449.732CounterfactualBaseCase10MarAprNovDecJanFeb$1.2bnp.a.systembenefitto2050inTexas$3.8bnp.a.systembenefitinCWESource:HydrogeninDecarbonizedEnergySystemsstudyHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners19Systembenefit:ImportedhydrogeniskeytoprovidingreliabledispatchablepowerwherelessrenewablesareavailableSystemswithlimitedrenewableresourcepotentialsuchasJapanwillneedtoimporthydrogentoproducepower,asthereislittlealternativegiventhelackofCO2sequestrationpotential.Therefore,incontrasttoTexasandCWEwherehydrogen-to-poweractsaslow-utilisation‘peaking’capacity,hydrogen-to-powercanplayamorecentralroleinJapanesepowersystem,particularlyinregionssuchasTokyo,ChubuandKansaiwherethereislessrenewableresource.In2050over16%ofJapan’sgenerationcapacitycouldcomefromhydrogenorderivedfuelssuchasammonia,complementingwindandsolarastheprimaryleverofdecarbonisation.Ouranalysisshowsthatthiswillresultinonlymodestincreasesinthecostofenergyintheseregionsgoingfrom2030to2050,whilepricesinotherregionsmayactuallyfallthroughpursuingdecarbonisationviacombinationofdomesticrenewablepowersupportedbyhydrogenandammoniatopowergeneration.TheoverallbenefittotheJapaneseenergysystemofusinghydrogeninthiswaywillbeworthjustover$5bnp.a.versusascenarioinwhichJapanoptsnottodecarbonizebutoffsetsitsemissionselsewhere.Atthisstageitistooearlytotellwhetherthiswillbelargelyenabledthroughhydrogenorderivedfuelssuchasammoniaorsyntheticmethane,andutilitiesandOEMsarepursuingthedevelopmentofeachoftheseoptions.Exhibit13:Japan’spowermixandimpactonpowerpricesbyregionVariablerenewablesversusflexibleImpactonpowerpricesproductionbyregionin20501$/MWh,real2022TWh20302050RenewableKansai6%56%38%8412%84shortfall,Chubu9%53%39%hydrogenTokyo17%34%8511%94consumers49%-11%8979Hokuriku40%39%21%868%93Shikoku24%57%19%82-6%77Tohoku48%40%12%88-16%74Chugoku14%81%4%85-9%77Renewablerich,Hokkaido88%3%88-23%68excesssupply9%Kyushu33%66%1%81-6%76WindSolarHydrogen/ammonia2$5.1bnp.a.systembenefitfrombothnewbuildandrepurposedturbinecapacityforhydrogenandammonia1)Nuclearandgeothermalgenerationhavebeenomittedfromthisviewforclarityastheyprovidebaseloadgenerationandconsequentlyhavelowerimpactonflexibilityrequirements2)SyntheticmethanehasnotbeenmodelledinthisstudybutwouldprovidesimilarflexibilitybenefitifusedandsourcedatsimilarcosttohydrogenorammoniaHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners20Systembenefit:hydrogencanimprovethebusinesscaseforrenewableswheretheyareexpensiveCurtailmentofpoweroccursbothwhensupplyisinexcessofdemand,andPricesinHokkaidoin2050,fromhighesttowhentransmissionlineshavereachedtheirpeakexportcapacity,causinglowesthour($/MWh)powergenerationtobewasted.Curtailmentofsolarandwindpowerisforecasttobeupto30%inparticularlyislandedgridsorwheretransmissiongridcongestionisanissue.Therenewable-richregionsofHokkaido,KyushuandTohokuexperienceprolongedperiodsofcurtailmentinadecarbonizedsystem.Thisistrueeveninasystemwhichhasbeenoptimizedtoreducecurtailmentthroughthedeploymentofbatteries,andimplementationofthegovernment’sgridexpansionplans.InHokkaido,poweriscurtailedforoveraquarteroftheyearin2050.electrolyzerscanexploittheseperiodsoflowpowerpricetoproducehydrogenwhichiscompetitivewithglobalimports.Upto25GWcapacityrunningoncurtailed/spilledenergycouldbeeconomicallyviable.Usingthiscurtailedpowercanserve2–5%ofhydrogendemandinJapanwhileadding10–15%tothevalueofrenewableassetsbyprovidinganoutletforotherwisecurtailedrenewableenergy.Exhibit14:BenefitofusingcurtailedrenewableelectricitytoproducehydrogeninJapan203020402050Viableelectrolyzer2516Capacity,GW4%ofhydrogendemand4.2%4.7%$5bn2.9%metdomestically79551cumulative920benefittoTotalValueCreation,Million$2050electrolyzerrevenueVs6%16%Electrolysers10%Renewablepower94%84%Renewables90%revenueSource:HydrogeninDecarbonizedEnergySystemsstudyHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners21Enablinginfrastructure22Fourtypesofenablinginfrastructurearecritical13kt/day-2030Networkinfrastructureisneededtomakeanyenergysystemworkeffectively:pipelines,ports,cavernsandbunkerswillall59kt/day-2040providetheflexibilityandresiliencethesystemneedstofunction.CWEpipelinecapacityHistoricallythesenetworksandcriticalinfrastructurehave2030-50tendedtoevolveunevenly.Intheearlydaysofnaturalgas,pipelineslinkingRussiatoWesternEuropeappearedgradually,underpinnedbyverylargeofftakecontractsbetweenproducersandusers.Similarly,todayTexasexperiencesoccasionalbutseverepowerpricespikesasaresultofunevenreinforcementofthepowergridincertainareaswhichpreventtransmissionbetweengeneratorsanddemandcentre.Networkprojectsalsocoverlargerareasandconsequentlycanrequiremoreextensivepermittingandapproval,takinglongertorealizethangenerationprojectsasaresult.Forhydrogenthismeanscarefulpolicyandplanningfocusarerequired,aswellasappropriateriskmanagementbygovernmentstoacceleratethedevelopmentofcriticalenablinginfrastructurethatcancarrymoreinvestmenthurdlesforprivatecapitalifnotmanagedandsupportedbypublicpolicy.127kt/day-2050FourtypesofenablinginfrastructureforadoptinghydrogenintodecarbonisingsystemsHydrogenpipelinesareessentialtoconnectlow-costsupplywithprovendemand.Theywillalsoreducepricevolatilityandextendthelifetimeofexistingnaturalgasinfrastructurebyconnectinglower-priceregionstohigher-priceregions,similartohowpowerandgasinterconnectorsfunctiontodaySeasonalhydrogenstorageusingsaltcavernswillbalanceseasonalvariationinsupplyanddemandinthesamewaygasstoragedoestodayandisessentialtoloweringLCOHsandallowingelectrolyzerstobenefitpowersystemsbyallowingthemtooperatemoreflexiblyinresponsetocheappowerpricesCO2transportandsequestrationisneededtofacilitatelow-carbonhydrogenproductionandwillrequireeconomiesofscalethroughpoolinghydrogenproductionwithotherCCSusecasesinordertoachieveexpectedcostreductionsthrougheconomiesofscalePortterminalsandbunkeringwillprovidestoragerequiredtodealwithinterruptionsanddelaystoshippingroutesandwilltypicallyprovide1–2weeksofstoragecoverageforammonia,liquidfuelssuchase-kerosene,andliquidhydrogenHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners23Enablinginfrastructure:hydrogenpipelineswillbeessentialforconnectingcompetitivesupplytodemandPipelinesareessentialtoenablinghydrogentogrowwithinthepowersystem.Aspreviouslyshown,regionssuchasCWEandTexasmayneedtomovehundredsofktperdaythroughpipelinesastheyarefundamentallylowercostmeanofmovingenergythantransmissionlinesandthereforetheprimarymeansoflinkingrenewableresourcestohydrogendemand,inadditiontoprovidingsystembenefitsthroughextendingthelifeofgasnetworkinfrastructure.Aswellasreducingoverallcostofhydrogen,pipelineswillbeessentialforminimisingpricevolatilitybetweenmarkets,makingforafairer,morepoliticallysecuretransition.InCWE,pipelineswillensurepricesacrossGermany,France,andtheBeneluxcountrieswillremainrelativelyalignedsaveformoreseverepriceeventscausedbymoresevereweather.Ifregionsrelymoreonrenewablehydrogen,asinour‘Highgasprice’testcaseforCWE,moreweatherdependencewillmeansomeseasonalpricevariationislikelyevenwithanoptimalamountofpipelinecapacityasbuildingenoughpipelinestocompletelyremovepricedifferenceswouldresultinlowassetutilisationandpotentiallyhighpipelineusagechargesasaresult.4.8Interstatepipelinecapacity$2/DifferencebetweensummerkgandwinterspotpriceforMtconnectingTexassupplytohydrogenin2050inCWEU.S.demandExhibit15:HydrogenpipelinecapacityandspotpriceinCWEundertwoscenariosCWEPipelineCapacity–BasecasescenarioPipelineCapacity–Highgaspricecase127kt/day111kt/dayPipelineswillensurepricesIfrelyingmoreonrenewableacrossGermany,France,andhydrogen,allowingforsometheBeneluxcountrieswillseasonalvariationinpricingremainrelativelyalignedsaveismoreoptimal,throughformoreseverepriceeventspipelineswillpreventthisbeingsevereHydrogenPriceEvolutionin2050–BasecasescenarioHydrogenPriceEvolutionin2050-‘Highergasprice’case(Indexed,Jan2050=1)(Indexed,Jan2050=1)1.51.5France1.01.0Germany0.50.50.00.0JanFebMarAprMayJunJulAugSepOctNovDecJanFebMarAprMayJunJulAugSepOctNovDecSource:HydrogeninDecarbonizedEnergySystemsstudyHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners24Enablinginfrastructure:hydrogenstoragewillenableintegrationofrenewablehydrogen,itistheunderlyingsourceofflexibilityDifferenthydrogenconsumerswillcarrydifferentprofiles:transportconsumptionvariesconsiderablywithindayandovertheweekbutremainsreasonablyflatovertheyear,whileheatingishighlyseasonalandindustryvariesbetweenseasonal(e.g.,fertilizersdeliveringintimeforfarmingseason)andnon-seasonal(e.g.,24/7manufacturingprocesses).Systemsneedtocaterforthiswhilepotentiallydealingwithintermittentproductionofrenewablehydrogencausedbyintermittentsolarandwindresource.Thismeansoverallpeakhydrogendemandinagivenyearcouldbe1.6xofaveragedemandandthesystemwillneedacombinationofstorageandproductionflexibilitytocaterforthis.Peakswilloccuratdifferenttimesofyearindifferentsystems.IncolderclimatessuchasCWE,storagewillfillupduringsummer/autumnandbedrawndownduringthewinterinresponsetohigherdemandandlowersolaroutput.Seasonalstorageisthereforeacriticalenablerofhydrogenintheenergysystemwheredomesticproductionoccurs,withCWEandTexaseachpotentiallyneeding2Mtworthofstoragecapacityby2050throughdevelopingsaltcavernstorageandrepurposingnaturalgasstorage.Europecurrentlyhasenoughworkingsaltcaverncapacitytoprovide1.5MtofstoragewhileTexascanmeetapproximately50%ofitsstoragerequirementsinthisway.Therefore,thedevelopmentofnewstoragesites,aswellastherepurposingofdepletedgasfieldswillbeneededlongtermtomeetdemandinourscenarios.Equally,theneedtopayforstoragetomitigateintermittencyofrenewablesourcesmayleadtodifferentpatternsofconsumptionamongindustrialusersofhydrogen(e.g.,steelandfertilizerproduction)aswellasrewardingrenewablehydrogenproducerswhocanreducetheirintermittencythroughcombiningoroversizingrenewablepowerpurchaseagreementsthatservetheirplant.ImportdependentsystemssuchasJapanmayneedlesscapacityifexportingcountriesprovidesomeofthestoragerequirementsbutwillpayahigherpriceforliquidorcompressedhydrogenstorageifundergroundresourcesarenotavailable.Thismayimpactwhichenergycarrierischosenasimport,asammoniaandotherderivedliquidfuelssuchaskerosenewillbeeasiertostoreforlongerdurationsthanhydrogengas.Exhibit16:Demandshape,storagecapacity,andstoragebalanceinCWEAnnualdemandandsupplyprofilesinCWE(Jan1st=100)301.6xdaysPeakdemandoverEstimatedlevelofstoragebaselinedemandforcoveragerequiredforahydrogenin2050renewablehydrogensystemRequiredundergroundhydrogenstoragecapacityEnergyStoredbyweekin2050,CWE(kt)(Mt)7502.06002.04503001.51501.00.90JanFebMarAprMayJunJulAugSepOctNovDec0.50.30.0204020502030CWETexasSource:HydrogeninDecarbonizedEnergySystemsstudy;GasInfrastructureEurope;U.S.EIAFieldStorageDataHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners25Enablinginfrastructure:CCSinfrastructurewillenablelowcarbonhydrogenandcanbepooledwithbroaderCCSclusterLow-carbonhydrogenusingCCSisneededtomakethetransitiontohydrogenmoreeconomically50attractive,particularlywhereCO2sequestrationpotentialishighandnaturalgasischeap(asinTexas)Mtorrenewablehydrogenwillbeexpensive(asinCWE).CO2storagecapacityHowever,aswithotherpipelinenetworks,buildingoutCO2networkswithmultipleusersdeliveringwillbeneededforlow10sofMtvolumep.a.eachwillberequiredtoreachexpectedeconomiesofscale.ThiswillmeanestablishingCCSclusterstopoolCO2supplywithinindustrialclustersthatgobeyondlow-carboncarbonhydrogenhydrogenproduction,capturingemissionsfromothermajoremitterssuchasrefineries,crackers,productioninTexascementplants,methanolplants,andpowergenerators.$9Usually,largeremittersareclusteredtogetherintoregionswithstrongexistinggasandpowerbnnetworkinfrastructure.RegionsfaceadecisioninhowtolinktheseclusterstoCO2sequestrationpotentialanddevelopingstorageoffshoreisgenerallymoreexpensivethanonshore.However,forRequiredinvestmentinTexasandCWE,sequesteringcarbonundertheseabedmaybecompetitiveversusundergroundduetoCO2capture,transportrelativeshallownessofrespectiveseabedandproximitytoemissionsclustersversussuitableland-andstorageinTexasbasedalternatives.Elsewhere,mostoftheestimatedcapacityisonshoreindeepsalineformationsanddepletedoilandgasfieldsandassuchotherclusterswillrequireland-basedCO2pipelinestolinkemissionsclusterstostorage.RegionssuchastheU.S.Midwest,aswellasheavilyindustrializedpartsofChinaandRussiawilllikelyrelyonland-basedsequestration.Exhibit17:CCStransportandstoragecurrentinfrastructure,costsandvisioninTexasConceptualevolutionofCCSinfrastructureinTexasversustodayEconomyofscaleinCO2transportandstorageCostrangesforCCSvaluechaincomponentscosts($/tCO2)($/tCO2)2118403530252061531051218430ShipInjectionandMonitoringCompressionPipelineTransportStorageTransportStorage&transportTransportgeologicaland2Mtperyear50MtperyeardehydrationstorageverificationSource:HydrogeninDecarbonizedEnergySystemsstudyHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners26Appendixofassumptions27AnnexofassumptionsTechnologycostsPowerinfrastructurecostsarebasedonBaringaintelligenceoneachregionandaresummarizedbelow.Otherwise,technologycostsassumedareconsistentwithourpreviousassessmentofinfrastructurecostsdetailedinPathtohydrogencompetitiveness:AcostperspectiveandupdatedannuallythroughourHydrogenInsightsreports.BaseCaseLCOEassumptionsSolarOnshoreWindOffshorewind($/MWh)(2030→2050)Texas-Panhandle29→2428→18n/aTexas-South33→2734→2496→77Germany54→3352→4072→41France50→3054→4084→43Japan-Hokkaido114→8893→83176→151Japan-Kyushu105→80111→105183→173Low-carbonhydrogenisassumedtobeproducedusingautothermalreformationwithacapturerateof90%whileelectrolyzerefficiencyimprovesandcapitalcostdeclinesovertime.Saltcavernsareassumedforstorageandassessmentofpipelinebuildisbasedonseveralstandarddiametersofpipetocaptureincreasingeconomiesofscale.CommoditypricingCarbonandgaspricingisinJapanandTexasareconsistentwiththeNetZerocaseforourGlobalHydrogenFlows.InEurope,gaspricesforthebasecaseandhighgaspricesensitivityaredevelopedusingtheIEA’sSustainableDevelopmentScenarioandEIA’sLowOil&GasSupplyScenariorespectively,whilecarbonpricesarebasedontheIEA’sNetZeroScenario.BaseCaseGasandcarbonpriceGasPriceCarbonPriceassumptions(2030→2050)($/mmbtu)($/tCO2)CWE91→250Texas4.0→4.369→158Japan2.3→2.0115→207CWE,highgaspricesensitivity5.6→4.291→2508.8→10.5SubsidiesTheimpactofProductionTaxCreditsandtheInflationReductionActisincorporatedintohydrogen,renewablepower,andCCSinfrastructureinTexas.OurestimationofIRAsubsidyavailabletoATRofgasassumesnegligibleupstreamemissionsandacarboncapturerateof95%.Subsidiesareassumedtoexpirein2032.BothProductiontaxCreditsandInvestmentTaxCreditsforrenewablepowergenerationareaccountedforinadditiontotaxcreditsavailableforhydrogenproductionandareassumedtobestackable.CreditsavailableforCCSunderthe45QarenotconsideredstackablewithIRAsubsidies.HydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners28AnnexofassumptionsEnergysystemconstraintsIneachsystemhydrogenandpowerinfrastructureareco-optimized.Powertransmissioncapacityisfixedwithfuturecapacityadditionsbasedonlatestdevelopmentplansfortransmissionsystemoperators.Asystemreservecapacitymarginalignedwithgridoperatorguidelinesisusedineachregion.EstimationofbenefitsTodeterminesystem-benefits,wecompareourbasecasescenariotoatestscenarioinwhichaparticularassetorbehaviourisrestricted.Theper-unit-energytotalsystemcostofeachscenarioisthencomparedtoderivethesystembenefit.ForJapan,intheabsenceofaviabledecarbonizedpowersystemwithouthydrogenwehaveestimatedthesystemcostofanun-decarbonizedsystemusingaglobalcarbonpriceof$275/tbasedonIEA’sSDSscenariofor2050Allcostsareinreal2022U.S.dollarsandconversionsfromenergyunitstomassforhydrogenhaveassumedlowerheatingvalues.HydrogendemandandtradeflowsForthebasecasescenario,hydrogendemandinheating,industryandtransportandimportandexportflowsforeachregionalignwiththeGlobalHydrogenFlowsreferencescenario.ThehighgaspricetestcaseforCWEalignswiththe‘RenewableWorld’scenariofromthesamereport.Hydrogendemandinpowersectorisanoptimizedoutputofthisanalysis.HydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners29EndofreportHydrogeninDecarbonizedEnergySystemsHydrogenCouncil,BaringaPartners30
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