In Search of Cheaper Hydrogen

This article was licensed through Dow Jones Direct. The article was originally published on The Wall Street Journal.

Companies are pouring a lot of money into the idea that hydrogen can help decarbonize the fossil-fuel-based economy. But first, they have to figure out a way to produce that hydrogen more cheaply.

Today, hydrogen is mostly used in the production of fossil fuels and to make ammonia, an ingredient in many fertilizers. But it is also promoted as fuel for heating or transportation or power for industrial processes.

One drawback to hydrogen as a form of green energy, however, is that nearly all of the world's hydrogen is produced in a greenhouse-gas-intensive process: heating natural gas with steam to split it into hydrogen and carbon dioxide. This type of hydrogen is known as gray hydrogen, or sometimes blue hydrogen if the factory has carbon-capture technology.

The main low-carbon alternative for producing hydrogen, dubbed green hydrogen, is made by passing renewable electricity through water using a machine called an electrolyzer to split it into oxygen and hydrogen. The process, which often runs off private access to a wind or solar plant, doesn't cause emissions, but it does guzzle electricity and water.

Even as governments lavish subsidies on low-carbon hydrogen production to bring down costs, some experts doubt that it will ever be cost-effective for all the low-carbon applications that have been proposed. Electrolyzers are constrained by the cost of renewable electricity and when it is available -- in other words, on the weather.

Still, polluting industries and governments are betting on hydrogen. Jefferies estimates that electrolyzer sales will exceed $100 billion this decade. And governments are throwing money at the technology.

The U.S. Inflation Reduction Act introduced a tax incentive of up to $3 per kilogram for new methods of hydrogen production, depending on how polluting they are.

That sweetener could make green hydrogen cheaper than gray hydrogen in the U.S. by 2030, analysts say.But whether the industry can stand on its own depends on how far the flood of money brings down costs.

Electrolyzer makers are vying to come up with new designs. Sunfire GmbH, a German manufacturer, has developed a way of using steam instead of liquid water, tapping heat from industrial processes. The company closed a funding round early this year worth about $192 million, and later received an undisclosed investment from Amazon.com Inc.'s Climate Pledge Fund that will help it scale up production.

Hysata, an electrolyzer startup based in Wollongong, Australia, just rented an 86,000-square-foot factory where it expects to be making commercial-scale systems by 2025.

These companies are among several that claim dramatic improvements in efficiency over existing technology. Current electrolyzers generally convert around 75% of the electricity they use into hydrogen energy.

Other companies, such as Cemvita Factory Inc., are sidestepping the electrolyzers.

Oil wells don't stop producing because they're empty. They stop because the pressure underground subsides. Cemvita wants to capitalize on oil that is still in the ground by taking over old wells and injecting oil-metabolizing microbes into subterranean rock.

The microbes, according to the company, turn the oil into carbon, which would stay underground. The hydrogen gas released, meanwhile, would rise to the surface to be captured.

After lab-testing different combinations of microbes and nutrients, Cemvita said in September it had carried out a successful trial at an old well in Texas.

Cemvita is working toward its first deals with oil-field owners and industrial hydrogen buyers, Mr. Nelson says.

The company has to prove not just that its microbes will work, but also that once the hydrogen comes to the surface it can be moved to where it is needed. As hydrogen is much less dense than natural gas, it has to be condensed or liquefied before it can be shipped, or pumped through existing oil-and-gas pipelines.

"The next challenge is how do you get the hydrogen to market," Mr. Nelson says. "It's a hard molecule to move."