Authors: Roy van Elteren
The advancing global energy transition faces many challenges when it comes to ensuring a sustainable, reliable, and affordable energy supply. Roy van Elteren, Director – Business Execution, ROSEN Europe, discusses the role future fuels play in the energy transition and some of the hurdles to overcome as we move from talking into doing.
One of the recent reports published by Bloomberg NEF (Energy Transition Investment Trends 2024) indicates a significant increase in investments in energy investment funding, approximately 1.800 Billion USD in 2023 worldwide. The greatest growth is still seen in APAC and EMEA. Although overall investment in hydrogen, for example, is still low compared to renewable energies in general or the electrification of transportation, investment in hydrogen is three times higher than last year. The current push towards sustainability cannot be seen as a stand-alone issue but is influenced by other factors, which experts refer to as the energy trilemma: three factors, namely sustainability, affordability, and security, that impact each other and need to be balanced.
In recent years, the need for a cleaner and safer energy system has triggered an unprecedented response from governments globally. The IEA especially mentions the Inflation Reduction Act in the United States, the Fit for 55 package and Repower EU in the European Union, Japan's Green Transformation program, and initiatives such as South Korea's aim to increase its share of nuclear power. In our call for action, we sometimes forget that it is an energy transition, not an energy revolution, which has an immediate impact. The Energy Transition Outlook (ETO 2023, DNV), for example, indicates that we will need fossil fuels for the next decades as we transition to a low-carbon energy system. Clearly, the energy transition is becoming more imperative. Most energy companies are diversifying their portfolios with renewables and the low-carbon segment, including alternative future fuels such as ammonia, methanol, and hydrogen. Carbon capture utilization and storage (CCUS) is taking center stage to boost future green energy production, while fossil fuels remain in the energy mix for the foreseeable future.
The energy transition will involve using multiple energy sources and solutions, including alternative fuels, gas, ammonia, hydrogen, CCUS, renewables, hydro, wind, solar, and nuclear. Technology development will be instrumental in harvesting the potential of all the needed sources and solutions. The IEA reports that around 50 different types of technologies will need to be invented, scaled, and then deployed in a short period if we are to have any chance of reaching a net-zero economy in the next decades.
Hydrogen is widely considered to be a credible long-term vector for the storage and transportation of intermittently generated renewable energy. Electricity will be generated by a growing number of large-capacity offshore wind parks, that are built at an increasingly longer distance from shore in, for example, the North Sea. This makes the choice for a hydrogen (repurposed) pipeline more favorable compared to a (number of) offshore cable(s), taking into account maximum capacity and therefore cost.
Although we see a significant increase in (offshore) wind power generation, the amount of electricity produced is by far not enough to replace fossil fuel consumption with “cheap” green energy. The medium-term solution for the decarbonization of energy production and hydrogen generation from fossil fuels is the use of CCUS. After the initial focus on hydrogen production a noticeable uptake in CCUS projects and pilots can be seen throughout the industry. The factor of distance also plays an important role in the intercontinental transportation of renewable energies, e.g. when connecting solar generation and long-distance energy demand. Electricity generated by solar and converted to hydrogen can be transported over long distances using ammonia as a carrier.
The exact mix will vary and depend on geographic characteristics and economic developments, as well as the speed at which permissions, the introduction of new energy laws, and investment mechanisms or criteria are implemented; the “how to” comes next.
Watching the news and particularly LinkedIn feeds, it seems that initiatives and pilot projects on hydrogen and CO2 are growing like mushrooms and benefit from the above-mentioned attention and funding schemes. However, looking a bit closer, there are a growing number of items on the slowdown in the hydrogen economy and FID’s for (pilot) projects being postponed. Can we identify some of the hurdles that are causing a slowdown in what, according to recent reports, seems to be a ‘no-brainer’ for the development of these future fuels projects?
Funding and investment decisions
The current push in energy transition investment is significantly fueled by the funding mechanisms on country or regional (e.g., European) level. Although the focus is on the technical feasibility of introducing future fuels, the biggest challenge might be the speed of (local) political decisions and law-making to allow the industry to take the next steps in building the production of renewable power and future fuels. The political environment with short election cycles creates an unpredictable mid to long-term investment outlook. In recent years, we have experienced a slowdown in, for example, hydrogen (pilot) projects reaching FID and a lack of investment in hydrogen production technology. We should also acknowledge that hydrogen alone is not the silver bullet but will play a crucial part in the larger energy puzzle.
Paying for Carbon Capture
Next to that, we currently see a focus shift from hydrogen to CO2 as the missing piece of the hydrogen puzzle and ammonia as an H2 carrier. Since there is not yet enough green electricity to generate “cheap” or affordable green hydrogen, the focus is on producing H2 from hydrocarbons to create a market. This is leading to a need for CCUS, with major European projects underway in the UK (Teesside, Humberside, HyNet), Netherlands (Porthos, Aramis), and Norway (Northern lights), for example. These costly projects will increase the cost of energy supply in the short term, but expanding the supply of potentially renewable and low-carbon fuels in our global energy supply system is essential to deliver a reliable and affordable transition to climate neutrality.
Asset Life Extension
A clear area for savings in terms of affordability is in the transport of hydrogen and the potential of repurposing. One of the leading infographics produced by the European Hydrogen Backbone indicates that more than 50% of hydrogen pipelines in Europe are being repurposed from existing natural gas pipelines, which might even be as high as 80% in some countries such as the UK. Currently, several pilots and tests have already been carried out with gas containing different percentages of hydrogen being moved by pipelines. The savings could be considerable, as the cost to repurpose pipelines is expected to be only 10-35% of new construction costs. (Inter)national energy companies are positioned to pave the way, enabling the distribution of hydrogen and CO2. As well as companies converting their pipelines, there is also a need for companies to advise them and make an impact by de-risking the processes needed to prepare for a low-carbon future.
Asset management knowledge
Traditional oil and gas companies have the opportunity to support the repurposing of existing assets with their oil and gas experience and expertise. While long-term planning is familiar to the industry, with assets built to last 50 years or more, the scale and scope of change needed is enormous. It will therefore be necessary to develop new (experience-based) knowledge about future fuels. At the same time, the energy industry needs to focus on maintaining critical knowledge of the existing infrastructure as it ages. In addition, hard-earned knowledge needs to be transferred to new technologies. For example, cables that lie on the seabed and enter an offshore wind turbine tower will experience some comparable wear and tear phenomenon as subsea systems connected to offshore oil and gas platforms.
Alongside the need to retain knowledge as an important component of assuring a safe transition to a low or zero-carbon energy supply, the efficient use of asset data is an area where gains can be made. The power of data analytics and AI can be used to better predict pipeline conditions and support the selection of suitable routes to transport future fuels. Regarding the repurposing of infrastructure, the quality and availability of data are crucial to the safe and economical reuse of existing assets for a sustainable future.
Public acceptance
As mentioned, accelerating the energy transition incorporating future fuels is only possible if all stakeholders work together. Societal responses to inflation and the cost of living crisis have created a public debate that could delay the energy transition as the focus shifts to short-term priorities. On the other hand, it is possible that public sentiment could favor energy independence through renewables and nuclear and the acceptance of (initially) higher energy prices as a strategic means to secure energy independence. This will certainly play a role in the public acceptance of the transition to more renewable power.
Does this mean that our efforts in future fuels as a means to fight the climate crisis are a losing game? Most probably not, given the sheer investment budgets flying around and the way governments have committed to climate change targets, with resulting energy transition ambitions. The energy transition is anything but an energy revolution, as our global expanding thirst for energy and living standards are outgrowing the availability of renewable energy by far. This evolution needs the “Old” and the “New” to work together, as it needs all stakeholders to work together, from production to consumption. The idea of putting siloed focus on one modality or energy carrier is causing inefficiencies in the energy value chain; we need it all and in a balanced way to get anywhere near the goals we as a society have set ourselves battling climate change.
Enabling technology and innovation across industry sectors will most likely be the problem moving forward. The willingness and readiness to think and act beyond our “own” needs in energy independence and energy sectors will be one of the key pieces of the puzzle to reach the ambitious but needed goals in addressing climate change.
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