Energy Transition Runs into Cost Concerns

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Researched by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--U.S. President Joe Biden veered off script during his annual address to Congress by saying fossil fuels will be necessary over the short-term, though the energy transition is accelerating and prices--particularly for some key minerals--are coming down. But for some technologies, that might not be enough.

"We're still going to need oil and gas for a while," the president said during his annual State of the Union address.

Those comments emerged the same day that British energy giant BP plc (NYSE:BP) (London, England) said it was lowering its own expectations about the progress of the energy transition. The company turned in a record profit of $28 billion for 2022, largely on the back of higher commodity prices, and sharply scaled back its push away from oil.

"We need lower carbon energy, but we also need secure energy, and we need affordable energy," said Bernard Looney, the chief executive officer of BP. "And that's what governments and society around the world are asking for."

Affordability is a lingering concern in the pivot away from fossil fuels. Renewable power capacity in the U.S. is expected to increase from 22% of the energy mix in 2022 to 26% in 2024, supported in part by the addition of 63 gigawatts (GW) of utility-scale solar power and 13 GW of wind capacity, the U.S. Energy Department estimates.

Wind, solar, nuclear and hydro power are largely established industries, though the Biden administration is working to ensure much of the manufacturing base is centered in the U.S. market.

Elsewhere, however, the emerging technologies that are expected to play a vital role in the energy transition are either scarce or cost-prohibitive. Cost is among the criticisms lobbed at biomethane, a so-called renewable source of natural gas derived from the decomposition of organic matter from farms and landfills.

But perhaps no niche technology is getting more scrutiny than hydrogen. A powerful energy carrier and the most abundant element in the universe, hydrogen is increasingly touted as an essential part of the pursuit of a net-zero emissions economy.

Most of the hydrogen produced today is processed using a "grey" method that breaks up natural gas, in the form of methane, into the elemental components of hydrogen and carbon, with carbon emitted as a pollutant.

"Blue" hydrogen production involves similar processes, but includes carbon sequestration technology to capture emissions. "Green" hydrogen is an emerging method that uses an electric current from renewable energy to split water into the elemental components of hydrogen and oxygen, with almost zero carbon emissions.

One issue of concern is renewable resources. Those resources may be better used on the grid, critics argue. A report last year from the British House of Commons found that substituting hydrogen for natural gas used to heat homes would require a massive amount of investments to reconfigure boilers and other infrastructure.

"It seems likely that any future use of hydrogen will be limited rather than universal," lawmakers said.

That could change, however. The U.S. Department of Energy last year unveiled an incentive, backed by $400 million in federal funding, that could reduce the cost of hydrogen by 80% over the next decade.

Additional measures outlined in the Inflation Reduction Act offer similar support, and the federal government is busy reviewing several proposals for U.S.-based hydrogen hubs. Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), meanwhile, recently awarded a preliminary contract to Technip Energies N.V. (Paris, France) to help develop a blue hydrogen hub in Baytown, Texas.

Hydrogen technology is expensive. Research from Norwegian consultant group Rystad Energy (Oslo, Norway) finds the cost for some types of electrolyzers spiked by 30% during the two-year period ending in 2022. Some of the materials needed--iridium and platinum--are not only scarce, but expensive as well.

Rystad finds that costs could decline as improved technology relies less and less on key raw materials--but, like lithium in electric batteries and oil at OPEC, much of the progress depends on a select few countries.

"This demonstrates how the energy transition will not be predictable, with many betting that green hydrogen will take a similar path to [solar] photovoltaics, which saw investment costs drop by around 80% between 2010 and 2020," said Selena Remmen, a supply chain analyst at Rystad.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).