Moody’s Says Hydrogen’s Potential As Power Sector Fuel Is Enormous

Hydrogen’s potential as a fuel in the power sector and the broader economy is enormous, although electric and gas utilities are unlikely to be the primary demand growth driver of the hydrogen market over the next decade, Moody’s Investors Service says in a new report.

“Hydrogen's growth potential rests in large part on its green appeal – specifically, its potential role in decarbonizing the economy, particularly the transportation, industrial, gas and power sectors,” the rating agency said in the Aug. 11, 2021 report.

Moody’s said that while hydrogen has enormous potential in power and heating applications, electric and gas utilities are unlikely to be the primary demand growth driver of the hydrogen market over the next decade, either in the U.S. or globally.

“In addition to high costs, there are significant efficiency losses associated with its production, which can range anywhere from around 30% to over 70% based on the technology used, making its production more expensive than the electricity or natural gas used to produce it. However, hydrogen is likely to play an important role in US efforts to eliminate carbon emissions from the power sector by 2035,” the report said.

While the U.S. consumes more than 11 million metric tons of hydrogen per year, its use is practically nonexistent in the power sector, Moody’s said.

At the same time, Moody’s said that hydrogen's potential as a fuel in the power sector and the broader economy is huge.

The report notes that the National Renewable Energy Laboratory (NREL) expects U.S. demand for hydrogen to surge two- to fourfold by 2050, to around 1% to 14% of energy demand. Over the same period, the Department of Energy (DOE) estimates that the hydrogen economy could grow to $750 billion in annual revenue from an estimated $17.5 billion today.

Most of this demand growth is likely to come from the transportation sector, followed by industrial uses (refining, chemical, iron and steel and other), with building heat and power and power generation expected to account for around 19% of the demand by 2050, according to a report coordinated by the Fuel Cell and Hydrogen Energy Association, the rating agency went on to note.

Moody’s points out that hydrogen can already be blended with natural gas for use as a fuel for power generation, albeit with some limitations. Power equipment manufacturers are developing a new generation of gas turbines that can run on 100% hydrogen and there are several pilot projects and at least two larger power plants being developed in the U.S. that will initially burn blends of hydrogen and natural gas, before transitioning to 100% hydrogen, Moody’s said.

“Hydrogen can also be used as an energy carrier for long-term seasonal storage, reducing the need to curtail excess renewable energy production or using nuclear power and providing dispatch flexibility to the grid to help manage peak demand,” the report said.

Moody’s also said that national and state policies and regulations could help increase hydrogen use. It noted that DOE this year unveiled $160 million in federal funding for projects to develop technologies for the production, transport, storage and use of hydrogen. “Wider implementation of carbon instruments, such as allowances and taxes, could help make hydrogen more cost-competitive,” the report said.

Federal and state incentives are also available for the development of carbon capture, utilization and storage technology, an essential component in the production of “blue” hydrogen, which is produced from natural gas, according to Moody’s.

The American Public Power Association (APPA) recently issued a report that provides a perspective on where the emerging hydrogen market is in the U.S. and globally, what is driving the growing interest in hydrogen and what obstacles are preventing hydrogen technology from being able to scale-up.

In a recent blog, Patricia Taylor, Senior Manager, Regulatory Policy and Business Programs at APPA, notes that there are different motivations for the interest in hydrogen in the energy sector these days.