Hydrogen has fallen far short of global expectations as an emerging form of renewable energy. What can be done to revive its prospects across the APAC region?

In 2024, APAC added 104,500 tonnes of new green hydrogen production capacity, doubling total regionwide capacity from the previous year, according to the Energy Institute’s Statistical Review of World Energy. Production capacity is not the same as production, however. By the latter measure, green hydrogen continues to struggle – of the 97mn tonnes of hydrogen produced globally in 2023, for example, less than 1 per cent was green hydrogen, with the remainder being blue hydrogen, which is mostly produced using natural gas and creates more emissions.

 

 

Over the past decade, green hydrogen has fallen far short of expectations. In 2017, Japan became the first country in the world to develop a national hydrogen strategy. By 2022 some 26 other countries had followed, including South Korea, Australia and Malaysia, among others in APAC. Only 36 green hydrogen projects, which use electrolysis powered by renewable energy to separate hydrogen from oxygen in water, are currently operational in the region; the majority are in China, India and Japan, with one in Taiwan, one in Indonesia and five in Australia. Meanwhile, planned projects are being cancelled at an increasing rate.

There is still some hope that the current mix of constraints can be overcome and prospects for green hydrogen revived worldwide – and particularly in APAC. “The region is home to strong renewable energy resources, favourable labour and land economics, and strategic proximity to key import markets like Japan, [South] Korea and Singapore,” says Michele Azalbert, Chief Hydrogen Officer at Gentari, a clean energy solutions company established by PETRONAS, the Malaysian global oil and gas company. This gives it significant potential in the short to medium term. Meanwhile, India is emerging as a competitive supply source, both for domestic use and exports, driven by integrated renewable and hydrogen projects supported by large-scale tenders. The government has set a target of producing 5mn tonnes of green hydrogen annually by 2030, underpinned by 125GW of renewable energy capacity.

 

Creating demand

 

The challenges facing green hydrogen are many and varied but, of late, more attention has been paid to stimulating demand. The 2024 Hydrogen Report from the Asia Pacific Energy Research Council (APERC) noted that “the creation of end-use demand continues to be the biggest hurdle [to clean hydrogen]”. A paper from Harvard’s Kennedy School made much the same argument. Without stimulating demand, existing production is likely to go unused, depressing prices and discouraging further investment in production. Indeed, many projects over the past two to three years were cancelled (some of them mid-construction) because investors determined that it was better to cut their losses than to complete projects for which demand was unlikely to materialise, at least without significant subsidies.

 

“Without stimulating demand, existing production is likely to go unused, depressing prices and discouraging further investment in production”

 

Long-term offtake contracts are one of the main ways to create “bankable demand”, says Azalbert. These contracts can take many forms, and include provisions for pricing, risk allocation, credit worthiness and changes in regulatory environments. As of late 2023, however, only 13 per cent of the global “contracted” volume of 7.9mn tonnes was binding. The remaining volume was either pre-contractual or some other type of non-binding agreement, according to Bloomberg New Energy Finance’s Hydrogen Offtake Agreement Database. Very few of the binding offtake contracts are in APAC countries, suggesting more efforts need to be made in the region.

 

 

Fostering certainty

 

All forms of renewable energy face regulatory uncertainty, but perhaps none more so than green hydrogen. A number of issues are holding back greater use of green hydrogen. They include: changing standards for what constitutes zero or low-carbon hydrogen; policy support measures such as subsidies that are implemented and then withdrawn; and targeted infrastructure projects that are planned but never get started or are plagued by cost and time overruns.

Japan and South Korea are two regional leaders in APAC that have been addressing this uncertainty. Japan’s 2024 Hydrogen Society Promotion Act, for example, introduced certification schemes for business plans that meet specified requirements for joint development between producers and users, supply timelines and commitments for infrastructure development, among other measures. South Korea’s most recent plan, meanwhile, establishes “well to gate” standards for calculating whether hydrogen qualifies as green, including indirect emissions from electricity generation and transportation.

It is also worth noting that India has introduced a robust offtake framework to stimulate domestic demand – particularly in the fertiliser and refinery sectors – while laying the foundation for export growth. Under the National Green Hydrogen Mission, capacity allocations of around 862,000 tonnes per annum have already been awarded to 19 companies, signalling strong early traction and providing investors with greater long-term visibility.

 

 

Towards a green hydrogen economy

 

For green hydrogen to flourish in APAC, policies such as those in Japan and South Korea will need to be agreed and adopted at the regional level. To date, cooperation has been lacking, but it is “equally important” as national policy frameworks, says Azalbert. “Harmonising policies across jurisdiction facilitates cross-border trade,” she says. That means not only within APAC but between APAC and Europe and North America. Inter and intra-regional trade have been highlighted as a key means of promoting greater use of green hydrogen, matching supply and demand.

Policy sequencing often involves trial and error, which can delay or derail adoption of new technologies. The recognition that the demand-side was initially neglected, and is now receiving greater attention, is a favourable development, as is any move towards creating a predictable, long-term policy environment for investors on the demand and supply sides. While the risks will never be fully eliminated, they can be lessened and, in doing so, may make green hydrogen a viable, long-term source of renewable energy.

 

Source from Financial Times