Canada’s hydrogen strategy advances, challenges remain
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This week, we dived into Canada’s burgeoning clean hydrogen market. Subsidies are on offer and exports are on the way, but like elsewhere, the market needs clearer guidelines. Also below, Canada and Germany are set to allocate CAN$600 million ($438 million) to clean hydrogen and German utility RWE starts a 14 MW electrolyzer with two technologies.
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Canada’s hydrogen strategy advances, challenges remain
Canada’s clean hydrogen strategy is developing with new projects and increased government support, but familiar challenges plague the industry.
Canada unveiled its clean hydrogen strategy in 2020 and in a May 2024 Progress Report the government highlighted a slew of developments, including the introduction of investment tax credits for hydrogen production, clean technology and manufacturing methods, and carbon capture, utilization, and storage (CCUS).
Some 80 low-carbon hydrogen projects have been announced, representing an expression of interest of over CAN$100 billion ($73 billion) in potential investment, as well as the establishment of 13 low-carbon hydrogen production facilities. Projects are also underway to boost demand across the energy spectrum.
“Hydrogen continues to have a role to play in meeting global energy needs in the context of energy security, energy transition and the broader climate imperative. This provides significant investment and export opportunities across Canada,” says Michael MacDonald, Natural Resources Canada spokesperson.
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In March, the government finalized an export accord with Germany, together committing around CAN$600 million to establish a transatlantic hydrogen corridor.
However, since the original strategy was announced four years ago, developers and producers alike have struggled with a slow roll out of government subsidies, few final investment decisions (FIDs), insufficient infrastructure, and uneven definitions of what constitutes clean hydrogen.
Hydrogen developments in Canada since 2020 – Production, end-use, hubs and strategies
Slow start
The slow start is not unique to Canada. As in Europe and the United States, the Canadian government has taken time to clarify the quantity of hydrogen subsidies, as well as the eligibility criteria, leading to some frustration within the clean hydrogen industry.
“The fact that we have taken so long to legislate an ITC (investment tax credit), and there's no clear application process, is hard,” says Ivette Vera-Perez President and CEO of Canadian Hydrogen Association.
“You cannot say that it's only late in Canada. It’s everywhere.”
The Clean Hydrogen Investment Tax Credit (CHITC) was first introduced in the 2022 Fall Economic Statement, though was not passed into law until June of this year.
The CHITC was passed with the Clean Technology ITC, CCUS ITC, and the Clean Technology Manufacturing ITC. Together they represent CAN$93 billion in federal incentives by 2034-35, and will play an essential role in attracting investment, supporting Canadian innovation, and creating jobs, the government says.
The accord with Germany was originally signed in 2022, with a commitment to, among other things, begin exporting clean Canadian hydrogen to Europe by 2025.
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While progress has been made, it’s unlikely exports will be ready to begin by next year.
“I have been in Germany with our members, and we have made a lot of progress,” says Vera-Perez.
A functioning export industry by next year was unrealistic for such a nascent industry, she says, but the goal has motored project proponents and the whole industry so it can be ready as soon as possible.
“There has been a lot of enthusiasm and optimism in the sector as a whole and occasionally there are those who think we will be developed much quicker. We must be realistic. We need to recognize that we are building a new industry, and that takes time,” she says.
Export markets
Canada is a net exporter of electricity, generating just 2% of global production while being one of the top exporters, sending some 9% of its power abroad.
Exporting hydrogen, however, poses its own challenges.
“It's a good policy, but there are a lot of difficult factors; the liquefaction process associated with hydrogen, a lack of availability of ammonia carriers, and then the costs associated with re-gasifying on the other side,” says Kyle Hayes, Partner at Foley & Lardner who serves as Co-Chair of the firm’s Hydrogen Practice.
Other uncertainties include how to stimulate demand and find the off-takers for the subsidized gas produced.
“The lack of a robust universe of off-takers, creates a snowball effect in that … it generally means a lack of financing, and therefore it somewhat limits the universe of viable producers to strategics, who do not necessarily want to dip their toes in the water alone, and so you reach this impasse,” says Hayes.
New and developing technology also means some methods for hydrogen production aren’t included in the ITC, a loophole that could, potentially, sink certain innovations.
Aurora Hydrogen, which has signed Memorandums of Understanding (MoU) in Edmonton, Alberta, is working on methane pyrolysis and microwave technology.
The method is considerably more efficient and, as such, a much more economical method of clean hydrogen production than electrolysis or steam methane reforming (SMR), according to Aurora Hydrogen CEO Andrew Gillis.
The technology has a patent in Canada and the United States, and the company in July received CAN$3 million from the government to scale production, and another CAN$1 million from the not-for-profit NGIF Accelerator.
However, methane pyrolysis is not included in the ITC, Gillis says.
“There is a lot of emerging technology that we think is going to be really important, but the regulators haven't necessarily caught up to that yet,” says Gillis.
Uneven development
Canada, the second largest country in the world by landmass but with a population that is half the size of Britain, has seen an uneven distribution of hydrogen projects between Nova Scotia, on the Atlantic coast, and British Colombia (BC), on the Pacific Coast and almost 6,000 km away.
Some of the greatest advances in clean hydrogen production have been seen in BC and Quebec, each of which receive around 90% from hydroelectricity, while heavily-forested Quebec has also begun work on production from biomass.
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Alberta, an oil- and gas-rich province, has taken steps toward the production of hydrogen via SMR, much of which is being funneled toward the massive agriculture sector for fertilizer production.
Regional use of clean hydrogen is low-hanging fruit for decarbonizing hard to abate industries, according to President and CEO of Source3 X Ayaz Khokhar, with larger scale projects contingent on developing infrastructure and transport such as by Canadian National Railways on west coast export projects.
The ‘Power-to-X’ company in July signed an MoU to collaborate on the Skeena Clean Hydrogen Hub in BC which will produce up to 50,000 tons of low-emission hydrogen, ammonia, e-fuels, or sustainable aviation fuels, a year.
Provincial approaches could be viewed as existing in three categories, including jurisdictions that just talk about it, or pay lip service to the industry, those involved in structuring and policy work, and those busy with implementation, says Khokhar.
The key to working within such a changing political environment was the ability to pivot rapidly if a province or region is not ready for the fuel you are producing, Khokhar says.
“While we are focused on hydrogen production from renewable energy sources in Canada, our implementation strategy is to keep pace with market acceptance and uptake," he says.
"In short to medium term, our focus is on various applications, including derivatives and e-fuels, with long term goal of hydrogen use in its own form."
By Paul Day
Other major news in hydrogen...
Canada and Germany have pledged a combined CAN$600 million ($438 million) to support clean hydrogen trade between the two countries, with funds to be allocated via a competitive auction process expected by the end of the year, Canada’s government said in a statement end of July.
The auction process will be run following a European Commission review of the proposed parameters, it said.
The initiative will give Germany access to competitively priced clean energy products produced by Canada, the government said.
Germany and Canada signed a Memorandum of Understanding (MoU) establishing a Canada-Germany energy partnership in 2021, followed by a Joint Declaration of Intent to establish a Canada-Germany Hydrogen Alliance in 2022.
The agreements aim to support the start of exports of clean hydrogen and its derivatives from Canada to Germany by 2025.
“To keep building on our strong friendship and partnership, (this) announcement will ensure Germany has access to Canadian clean hydrogen to power their economy, in turn creating jobs and driving economic growth here in Atlantic Canada,” Minister of Energy and Natural Resources Jonathan Wilkinson said.
A renewable-powered, 14 MW electrolyzer has begun hydrogen production as part of an investment by German utility RWE in Lingen, Lower Saxony, RWE said in a statement.
The plant began operation in ‘the summer of 2024’ and is able to generate up to 270 kg of clean hydrogen an hour from renewable electricity and electrolysis, the utility said.
RWE invested a ‘sum in the mid eight-figure range’ to build the pilot which will also receive a further 8 million euros ($8.8 million) from a funding commitment by the government of Lower Saxony.
The pilot plant is testing two electrolyzer technologies, with manufacturer Sunfire installing a pressurized alkaline electrolyzer with a capacity of 10 MW, and engineering company Linde adding another 4 MW with a proton exchange membrane (PEM) electrolyzer from ITM Power, RWE said.
The alkaline electrolyzer is made up of groups of four modules to create two stacks almost 10 meters long and weighing around 15 tons, while the PEM electrolyzer is divided into two 2-MW cubes, it said.
In the long term, the plant will feed hydrogen into a public network or mixed with natural gas for fuel for a gas-fired power station that is on the Emsland site. The transport sector will also be served by the station, it said.
“By 2030, RWE will have created two gigawatts of electrolyzer capacity of its own in order to generate green hydrogen. In Lingen, we aim to gain operational experience with the industrial use of the two technologies that will account for several hundred megawatts in the context of (the large-scale plant) GET H2, for example,” said Sopna Sury, Chair and Chief Operating Officer Hydrogen, RWE Generation.
European personnel transfer company Windcat has contracted Hong Kong group Anglo-Eastern to manage six hydrogen-powered Elevation Series Commissioning Service Operation Vessels (CSOVs), Anglo-Eastern said in a statement in August.
The ship management company’s technical consulting arm, AETS, has already overseen the construction of six of Windcat’s CSOVs which will now enter into Anglo-Eastern’s management, the company said.
The first Windcat vessel is expected to be delivered by 2025.
“Anglo-Eastern is grateful for the trust placed in us by Windcat to be a part of this innovative project developing the next generation of hydrogen-powered offshore vessels,” said, Bjorn Hojgaard, CEO of Anglo-Eastern.
CSOVs are specialized 87-meter by 20-meter vessels which can remain alongside offshore wind farms for up to 30 days to provide accommodation for up to 90 technicians in hotel-style facilities.
Imported clean hydrogen is likely to be considerably more expensive than originally expected, according to a new scientific paper published in the International Journal of Hydrogen Energy.
The study, ‘Revisiting the cost analysis of importing liquefied green hydrogen’, notes that previous studies have often oversimplified the estimation of hydrogen import costs with optimistic assumptions, raising doubts about their reliability.
“This study comprehensively assesses costs incurred from green hydrogen production to liquefaction and transportation,” the South Korean-led study said in its introduction.
“The cost analysis includes detailed design considerations for hydrogen liquefaction and re-conditioning plants, alongside thermodynamic simulations to estimate the boil-off gas rate of liquid hydrogen during transport.”
The study focused on a case of importing liquified clean hydrogen from Australia to South Korea.
The levelized cost of hydrogen (LCOH) from Australia to South Korea is around $30.2/kg as of 2023, with projections suggesting a decrease to around $18.3/kg by 2050, assuming technological advances, the study said.
The analysis showed the renewable electricity price in Australia and hydrogen's boil-off rate during shipping were key factors to influence the LCOH.
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1moGood summary of H2 activity and challenges, but scant attention to the real long term barriers to market development including inefficiency compared to alternatives, poor economics of which many of the variables are nearly impossible to change (in terms of cost) such as energy inputs etc. existing contracts are locked in at rates far to high to work without heavy subsidies. There will be uses for H2 but not some of the ones being pursued. And lastly transport will contribute to poor economics with losses, expense and the sheer number of vessels required compared to LNG for example. Not advocating for LNG, but H2 has a big mountain to climb. It would be far smarter to focus on what it can do rather than trying fit a square peg in a round hole.