Economics > Energy > The potential of Power-to-X for a successful energy transition
Power-to-X can be a cornerstone of a Carbon-Free Future
Green hydrogen and e-fuels have great potential but can renewable energy capacity be expanded quick enough?
Posted September 14, 2022
Key Takeaways
- As both politics and energy-intensive businesses are looking for energy alternatives to achieve their climate goals and energy security, Power-to-X is arising as an attractive option.
- The technology is still in its infancy facing efficiency issues and investment hurdles that could slow down its rise as a climate-friendly energy alternative.
- Freeing up renewable energy capacity for the sole use of Power-to-X will be one of the biggest challenges with that energy being needed to replace fossil fuels in many other processes.
When I started the initial research for this article my interest was driven by the curiosity how and if the European Union would be able to meet its ambitious goals towards carbon neutrality. The Fraunhofer Institute for Energy Economics and Energy System Technologies had just published a new data source that presented a data-driven opportunity to analyze one potential source to achieve those goals – the supply of green hydrogen and e-fuels generated by Power-to-X. If highly industrialized countries like Germany want to keep their economy running with renewable energies, they will have to depend on partnerships all over the world to secure those renewable capacities.
Today, talking about renewable energy and alternative fuels has become a matter of national security after the Russian invasion of Ukraine. It seemed like public discourse had moved on from climate change – especially in the EU – and focused on the prospect of independency from fossil fuel and gas deliveries from the Russian regime. It became clear that if EU member states don’t want to shift their supply to other regimes like Qatar or Venezuela, innovative and profitable processes to generate renewable energy have to be developed and rolled out quickly.
The expansion of renewable energies such as photovoltaic, wind or hydro has greatly benefited from the increased awareness by policy makers and the public following the Paris Climate Agreement at COP 21 to limit global warming and come up with a path towards a zero-emission world. Ever since, climate change has not only taken a prominent spot in international politics but an equally important position for businesses as they try to find alternative energy sources for their production processes, transportation etc.
In some industries, a dominant strategy has emerged such as electric vehicles that will eventually replace the combustion engine. However, for other energy-intensive industries that are currently heavily relying on natural gas and hydrogen, other forms of renewable energies will have to lead the transformation process towards a carbon-neutral future. The process Power-to-X with its end products green hydrogen and e-fuels has attracted more and more attention as an interesting technology that many companies are looking into to replace their fossil energy sources. This article focuses on the available capacity of renewable energies as one critical aspect when we want to evaluate the opportunities and challenges of a global Power-to-X industry and, thus, a global carbon-free energy supply in the future.
What is Power-to-X and what are its challenges
Power-to-X is a process that can result in a variety of potential outputs which then can then be used as energy source. Siemens Energy, one of the technological leaders describes Power-to-X as methods for converting electrical energy into liquid or gaseous chemical energy sources through electrolysis and further synthesis processes.[1] In the graph to the left, those methods are shown as simplified processes with a list of the potential outputs. In order to be climate-friendly, renewable energies have to be used for the energy-intensive electrolysis that splits the H2 from the O to produce green hydrogen. Through synthesis and further inputs like CO2, the hydrogen can be transformed into other products like e-Methanol.[2]
One of the biggest advantages of hydrogen and other e-fuels is that they can be stored and transported using existing infrastructure, making them a viable option for exports. With these characteristics they would be able to replace fossil fuels without significant adjustments of current industrial processes.[3] However, at this time, the challenges of this technology loom much larger over the future and industrial utilization of green hydrogen and e-fuels.
Technology is one of those challenges and especially the efficiency of the electrolysis which currently uses a lot of the scarce renewable energy. The second challenge are – as so often – the costs and required investments into the development and expansion that will require both public and private efforts to increase capacity quickly. Government regulation is another concern, even though recent events suggest that governments have recognized the urgency and are developing strategies to incentivize research and investments. Bureaucracy can still function as a major obstacle as the current debate in the European Commission over the definition of green hydrogen and its renewable energy source demonstrates.[4] Streamlining decision-making processes and reforming existing regulations to facilitate the production of green hydrogen will be essential to increase its capacity. The fourth challenge that is related to all three other challenges is the quick expansion of renewable energies that would enable the production of green hydrogen and e-fuels on an industrial scale.
The supply of renewable energies for the electrolysis will be analysed in this article from two angles. In the first step, we will discuss the countries that could play a large role in the development of a Power-to-X industry. The World Energy Council determined in 2019 that there is a “geographic gap between producers and consumers” that will require a global supply chain to deliver hydrogen and e-fuels to industrialized countries – especially in Europe – that do not have the capacity for their own production.[5]
The second point is a question over the allocation of available and new renewable energy. Will wind farms and photovoltaic plants solely be assigned to the generation of energy for the electrolysis or will these processes only be fed with excess energy that is not used by households or other industries in periods of low electricity usage. This is an important aspect because it is essential for the efficiency of the electrolysis and, thus, the costs and amount of hydrogen that can be produced.
The following analysis will assess the geographic location of renewable energies that could be used for Power-to-X and follow the question if those countries will have the necessary capacity considering that they will have incentives to use the energy to work towards their own future of a carbon free economy.
What are chances of Power-to-X to become a central tool to mitigate climate change?
The Fraunhofer Institute for Energy Economics and Energy System Technologies (Fraunhofer IEE) has developed an interactive map that allows for country-specific location analysis of different production methods of Power-to-X. Driven by the awareness that many European countries will have to rely on imports of green hydrogen and synthetic fuels, the objective of this project is to enable European governments and other stakeholders to determine the potential of different locations for the future supply of Power-to-X coming from outside of Europe.
The study is based on a surface analysis that assess the potential of areas where renewable energy could be used for the production of hydrogen and other power-to-liquids (PtL). The locations are determined through exclusion criteria that would impede future production on that side. The full catalogue of geographic, technological, ecological and socio-economic criteria can be found on the project’s website (PtX-Atlas – https://devkopsys.de/ptx-atlas/#flaechenpotenzialanalyse). First results derived from the map show that geography has an effect on the preferred technology for renewable energy generation. The upper half of
Chart 1 distinguishes between absolute available photovoltaic, wind and hybrid locations, whereas the bottom half displays the share of coastal and inland locations as a share of the total available spots by region. The Fraunhofer team identified more than 800,000 locations in North America where either photovoltaic, wind or a mix of both could generate energy for the production of hydrogen and e-fuels. This makes it by far the most promising region, followed with some distance by Central Asia (incl. Russia), Oceania (incl. Australia) and South America. Whereas the locations in North America allow for a very balanced energy mix, other regions are more dominated by one available
technology. In Central Asia, more than 94 percent of potential locations would be used for wind farms. The Oceania region, dominated by Australia, has a predominant availability of photovoltaic sides. The same accounts not surprisingly for Africa and the Middle East. The long coasts and vast land make the countries of South America an ideal region for a hybrid approach. The differentiation of inland and coastal waters could be a factor when it comes to the accessibility of the hydrogen and e-fuels for exports, but this differentiation will likely play a minor role in the development of production sides.
A second important observation is that even though potential locations for PtX production sites are spread across the world, 80 percent of those areas are located in only 10 countries. Chart 2 shows that these 10 countries present an interesting compilation of established exporters of fossil energy sources, such as the United Sates, Australia, Russia, Canada and Saudi Arabia – and other countries that could become more important players thanks to their geographic location with long coasts or an extraordinary amount of sunshine, like Argentina, Egypt or Chile. Even though the U.S. have absolute the highest number of potential locations that could accommodate renewables to power the electrolysis, it is questionable if the U.S. would become a major exporter of power-to-X outputs. Considering the size of its domestic industry, the U.S. would likely use a lot of its products for the home market. However, the existing infrastructure that is currently facilitating the export of LNG to European terminals could later be used to transport green hydrogen as well.
Analyzing their data collection, the authors of the study emphasize that the development of a sizable green hydrogen and e-fuels production using renewable energy does not need to be in competition with using that energy to replace fossil
fuels because the potential is substantial. It is rather the dynamic of developing that potential in time that could create the competition between using the available energy for either Power-to-X production or the domestic energy grid. Aside from the renewable energy potential, the study considers other requirements like water availability for the electrolysis and socio-economic factors. Based on those factors, the study finds that the United States, Australia, Canada, Argentina and Chile show great potential to become important future suppliers of Power-to-X.[6] The political situation and the investment environment in countries like Russia, Egypt or Libya certainly plays an important role in this assessment as well. The case of Mexico is interesting because it has great potential for renewable energies and, as we will see below, has added renewable energy capacity more recently. However, the government under President Lopez Obrador has started to take control of the energy sector under the pretext of energy security. Part of that strategy sees a public push for the development of new fossil fuel-powered plants and an actively blocking the approval of permits for renewable energy projects.[7]
Building the required capacity for Power-to-X
With this even smaller group of potential candidates for an industrial Power-to-X production left, and even bigger question looms. Will those countries have enough capacity to provide the renewable energy required to produce hydrogen and other e-fuels. When taking a closer look at the list of countries, two factors should make the reader cautious if not pessimistic about the outlook for a quick expansion of Power-to-X.
Chart 3 shows the expansion of renewable energies has significantly picked up over the last two decades. Wind electricity generation has seen steady growth driven by the United States with a capacity that is currently exceeding the energy generation of solar panels by a factor of 2.5. But the dynamic of photovoltaic developments has picked up more recently as more countries are expanding their capacity. Between 2015 and 2020, electricity generated by photovoltaic plants has grown by 400% whereas windmills could add 75% more capacity over the same period. The United States are the most important producer of renewable energies and will most likely continue to add capacity with the recent passing of the Inflation reduction bill and the related investments into renewable energies. The positive trend in Chart 3 shows that there is an obvious dynamic in the market for renewable energies that could eventually create enough energy for Power-to-X.
However, Chart 4 (below) shows a concerning trend that could stall the development of Power-to-X capacities. As previously mentioned, renewable energies are primarily used for electricity generation where they are supposed to replace fossil energy sources. Data from the International Energy Agency (IEA) shows
that the progress is slower than many people would probably like to see, and renewable energies even seem to be in the retreat in some countries.[8] Both Canada and Chile have a historically high share of renewable energies because of their significant hydroelectric power but neither of the countries has been able to significantly increase the share of renewables in total energy consumption. There seems to be a slightly positive trend more recently that supports the capacity expansion seen in Chart 3, but the change of the renewable energy share shown at the bottom half displays an extensive volatility. The underlying issue is that countries are adding renewable energy capacity, but they are consuming more energy at the same time. And that additional consumption is often covered by readily available fossil fuels. In the case of Chile, for example, data from the IEA shows that final oil consumption has increased by almost 40% between 2009 and 2019.[9] This creates an obvious conflict around the usage of available renewable energy resources. Should they primarily be used to replace fossil fuels in the more common form of electricity supply or should some capacity exclusively be used to produce green hydrogen and e-fuels. Answering this question will remain a major challenge for the foreseeable future.
First business cases are emerging
If the previous analysis has created more scepticism about how Power-to-X will be able to support the energy transformation, the presentation of some projects might cause more optimism that change is possible. A number of established businesses from the energy sector have set up a division for this important sector but the global development is still in its early stages. However, a number of notable cooperation have emerged that hint to a full-cycle approach that connects the producer with the end user and eliminates the uncertainty that suppliers would otherwise face rolling out a new product.
Chile has been an early front runner to attract foreign investments and positions itself as a future supplier of e-fuels. Energy minister Juan Carlos Jobet explained that the country’s renewable energy sector could produce 70 times as much as the population consumes.[10] The long coasts of Chile provide the ideal conditions for offshore wind parks and locations like the Atacama desert are home to the largest solar-energy plants in the world. Thus, it does not come as a surprise that companies from oversees are financing projects to study the future feasibility of e-fuels for their own demand. Porsche has announced a pilot project in Chile that will start producing e-Fuels in 2022 with a potential future capacity of up to 550 million litres. Its cooperating partners include Siemens Energy, as well as the Chilean energy firm AME and Enel from Italy.[11]
Covestro, a German company active in the chemical sector announced that it wants to use green hydrogen and ammonia for its energy-intensive chemical processes that will be delivered from Australia. The partner, Fortescue Future Industries, is a division of the established mining company Fortescue Metals Group, pointing to the opportunities that some established players see in this upcoming sector. Both
companies highlighted the important contribution that green hydrogen will play for the “decarbonization of some of the most energy-intensive industries around the world.”[12]
These two examples show that private businesses are willing to invest in green energy and are taking steps towards a carbon-free future. However, as this analysis has emphasized, those business level projects will only make a dent in the far larger challenge that the decarbonization of whole economies is. If the expansion of renewable energies and other forms of energy that depend on it is fast enough to meet the ambitious goals set forward by both businesses and governments to reduce their carbon emissions is more than questionable at this time. Recently, Canada and Germany have established a hydrogen alliance that will see green hydrogen produced with the help of windmills along Canada’s Atlantic coast transported across the Atlantic to supply the economy in Germany.[13] More of those high-level agreements will be necessary to push the development of necessary capacities and make Power-to-X a viable energy source alternative.
Summary
In order to achieve net zero carbon emissions by the mid of this century, many energy-intensive industries will have to find innovative ways to replace fossil energy sources. Because they are unable to rely on the volatile supply of renewable energies nor are able to store it in the amount necessary for their smooth operations, they will have to utilize other sources of climate friendly energy. Power-to-X is the most promising technology that currently receives a lot of attention by both businesses and politics. This article has laid out the geographical abundance of potential locations to produce green hydrogen and e-fuels using renewable energy. However, the challenges are looming larger over the potential that is currently discussed. This article has highlighted the challenge of necessary renewable energy supply for the production process. It is not only questionable if the expansion of required capacities will happen fast enough bit if those capacities could actually be used for Power-to-X. Other remaining challenges that are equally important but that have not received further attention in this article are technological advances to make the electrolysis and synthesis more efficient. Another important factor are the costs of production and the costs to build new plants. Only if governments and business move quickly and act decisively Power-to-X will have a real chance to become an alternative energy source of the not-so-far future.
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Footnotes
[1] Siemens Energy. 2022. “Hydrogen Solutions. The Power of Hydrogen.” [electronic resource] PEM Water Electrolyzer Hydrogen Production
Renewable Energy Siemens Energy Global https://www.siemens-energy.com/global/en/offerings/renewable-energy/hydrogen-
solutions.html (siemens-energy.com) (accessed 08/07/2022).
[2] Siemens Energy. 2021. “Power-to-X: The crucial business on the way to a carbon-free world." White paper (Ed.) Katrin Mauthner, Heike
Graf, Ute Rohr. siemens-energy.com/electrolyzer.
[3] World Energy Council. 2019. “Power-to-X Innovation Forum.” [electronic resource] https://www.worldenergy.org/news-views/entry/power-
to-x-innovation-forum (accessed 08/09/2022).
[4] Huelsen, Isabell, Benedikt Mueller-Arnold and Michael Sauga. 2022. “Die EU setzt auf gruenen Wasserstoff – und reguliert ihn kaput.”
Spiegel 36/2022 (accessed 09/03/2022).
[5] World Energy Council. 2019. “Power-to-X Innovation Forum.” [electronic resource] https://www.worldenergy.org/news-views/entry/power-
to-x-innovation-forum (accessed 08/09/2022).
[6] Pfennig, Maximilian, Michael von Bonin and Norman Gerhardt. 2021. “PTX-ATLAS: Weltweite Potenziale Für die Erzeugung von Grünem
Wasserstoff und Klimaneutralen Synthetischen Kraft- und Brennstoffen.” Bundesministerium für Umwelt, Naturschutz und nukleare
Sicherheit.
[7] Lopes, Oscar. 2022. “Mexico Sees Its Energy Future in Fossil Fuels, Not Renewables.” [electronic resource]
https://www.nytimes.com/2022/08/17/world/americas/mexico-president-renewable-energy.html (accessed 08/20/2022).
[8] IEA. 2022. “Energy Statistics Data Browser.” [electronic resource] https://www.iea.org/data-and-statistics/data-tools/energy-statistics-
data-browser?country=USA&fuel=Renewables%20and%20waste&indicator=SDG72modern (accessed 08/30/2022).
[9] IEA. 2022. “Energy Statistics Data Browser.” [electronic resource] https://www.iea.org/data-and-statistics/data-tools/energy-statistics-
data-browser?country=CHILE&fuel=Energy%20consumption&indicator=OilProductsCons (accessed 08/30/2022).
[10] Stausberg, Hildegard. 2021. “Wir können 70-mal mehr Strom erzeugen, als wir selbst verbrauchen.” [Electronic resource]
https://www.welt.de/wirtschaft/article232359839/Chiles-Fuehrungsanspruch-Saubere-Energie-ohne-Ende-zu-niedrigsten-Kosten.html
(accessed 08/07/2022).
[11] Porsche. 2020. “Porsche and Siemens Energy, with partners, advance climate-neutral eFuels development.” [Electronic resource]
https://newsroom.porsche.com/en/2020/company/porsche-siemens-energy-pilot-project-chile-research-development-synthetic-fuels-
efuels-23021.html (accessed 08/22/2022).
[12] Covestro. 2022. “Fortescue Future Industries and Covestro announce plans to enter a long-term green hydrogen supply agreement.”
[Electronic resource] https://www.covestro.com/press/fortescue-future-industries-and-covestro-announce-plans-to-enter-a-long-term-
green-hydrogen-supply-agreement/ (accessed 08/22/2022).
[13] Government of Canada. 2022. “Canada and Germany Sign Agreement to Enhance German Energy Security with Clean Canadian
Hydrogen.” [Electronic resource] https://www.canada.ca/en/natural-resources-canada/news/2022/08/canada-and-germany-sign-
agreement-to-enhance-german-energy-security-with-clean-canadian-hydrogen.html (accessed 08/25/2022).
