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Harder than people think: hydrogen energy

Hydrogen-fueled cars, buses, trucks, and generators release no greenhouse gases as they work, leading some to tout hydrogen as a clean alternative to fossil fuels. But hydrogen lacks the volumetric energy density of petroleum-based fuels. It’s also energy-intensive to produce, while being difficult and expensive to store and transport. We don’t think the compromises currently required are worthwhile. We believe hydrogen is, in part, a pathway touted by the petro­chem­ical industry because it furthers its existing natural gas businesses.
Big petroleum companies are championing hydrogen because most of it is made from one of their core products, natural gas. Their refineries also need a lot of hydrogen for processes like hydro­c­racking  and removing sulfur.

The DCVC Deep Tech Oppor­tu­ni­ties Report (which debuted this year) summarizes our thinking about the deep tech investment areas we consider the most exciting, important, and conse­quen­tial. It’s a guide to the inspiring work innovators inside and outside the firm’s portfolio are doing to extend human capa­bil­i­ties, save the environment, and make everyone’s lives longer, healthier, and easier. It also covers five tech­nolo­gies that we might categorize as enticing, but unready to advance at the pace required by venture capital.” These are hard problems where we don’t see the required technical insights or market demand on the near horizon, and where funda­men­tally new thinking might be required. What follows is one of them.

A wave of enthusiasm for hydrogen hits every 15 years or so, and we’re in another one right now, thanks to huge new tax credits for green hydrogen” production and investment built into the U.S. Inflation Reduction Act of 2022. But it hasn’t yet proven to be a breakout idea,” argues DCVC managing partner Zachary Bogue. It’s an inferior-performing fuel. But that hasn’t stopped the incumbent petro­chem­ical industry from embracing it, and that should tell you something. Still, we are open to seeing the kind of innovations that would make this idea more promising.”

When H₂ gas is burned, the only outputs are heat and water, which means hydrogen is in some sense clean. But making hydrogen certainly is not. About three-quarters of the world’s H₂ gas is produced through steam reforming of natural gas (creating gray hydrogen”), which releases 10 kilograms of CO₂ for every kilogram of H₂ produced (CH₄ + 2H₂O => CO₂ + 4H₂). Making green” hydrogen involves a different process: separating water into oxygen and hydrogen through elec­trol­ysis, using electricity from renewable sources. (If elec­trol­ysis is powered by clean nuclear energy, the output is called pink” hydrogen — a process that may be at least as viable as using renewables.) But so far, only 1 to 4 percent of hydrogen is produced using elec­trol­ysis — which is no surprise, since it’s two to four times as expensive as steam reforming.

As an energy carrier, meanwhile, even green hydrogen is unim­pres­sive; creating it, packaging it, and moving it often requires more energy than the fuel itself provides. Of course, there’s an argument that clean hydrogen will be a critical alternative to fossil hydro­car­bons as we work to decarbonize big markets such as air travel, shipping, and long-haul trucking. Fuel cells are another example, since they provide power in places where electricity from renewable sources can’t reach, such as spacecraft and submarines. (DCVC backs a startup called Amogy whose ultra-efficient catalyst converts ammonia, NH₃, into hydrogen that can be fed directly into fuel cells.) But if we want to use hydrogen this way, we’ll need to keep working on better ways to produce it. Extracting natural hydrogen from geological sources (“white” or gold” H2) may be an attractive non-polluting solution.

So we’re not saying the new tax credits aren’t important. We’re saying that as a one-to-one substitute for fossil fuels, hydrogen is currently mediocre on every level. Big petroleum companies like Shell and BP are championing the fuel because most of it is made from one of their core products, natural gas. Their refineries also need a lot of hydrogen for processes such as hydro­c­racking — breaking the hydro­car­bons in crude oil into simpler molecules like gasoline and kerosene — and removing sulfur. And there may be another layer to their strategy. As long as today’s big fossil fuel consumers see hydrogen as a real option, they may postpone the switch to cleaner, fossil-free energy sources such as solar, wind, geothermal, and nuclear power.

The Inter­na­tional Energy Agency argues that while there have been false starts for hydrogen in the past, this time could be different,” now that governments, automakers, utilities, oil and gas companies, and munic­i­pal­i­ties all seem to be interested in the technology. Perhaps so. As investors, we’re driven by evidence above all else, and we continue to monitor this area closely.

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