Alternative Fuels

The “electrification of everything” strategy seeks to decarbonize cars, buildings, and even factories by powering them with electricity generated from renewable energy and other zero-carbon sources. However, there are industries, processes, and applications that are not suitable candidates for immediate electrification due to energy requirements, technological limitations, or other obstacles. Long-haul transportation, shipping, and aviation, as well as certain industrial processes requiring high heat levels, are among the segments of our economy that are more challenging to electrify. These applications differ from buildings, electric vehicles, heat pumps, and certain industrial boilers that can connect to low-carbon electricity for decarbonization.

How do we decarbonize the segments of our economy that cannot be immediately electrified? Alternative fuels provide an opportunity to decarbonize these sectors.

Alternative fuels are derived from sources other than petroleum. They include:

• Gaseous fossil fuels like propane, natural gas, methane, and ammonia

• Biofuels like biodiesel, bioalcohol, and refuse-derived fuel

• Other renewable fuels like hydrogen

Liquid electricity, known as “Power-to-X,” offers an opportunity to decarbonize segments of our economy that cannot be immediately electrified. This method begins with zero-carbon electricity that flows through an electrolyzer, splitting water into hydrogen and oxygen. The “green” hydrogen can either be used as a gas or converted to synthetic liquid fuels such as methanol. Hydrogen can also be transformed into ammonia for transport on the global market in regions where these fuels are not economically produced.

FIGURE 1. LIQUID FUEL PATHWAYS

Electromechanical

Solar, wind, and other renewable energy technologies enable the low-carbon Power-to-X process. Renewable energy cost improvements and capacity expansion are critical to the widespread adoption of liquid electric fuels. Below are the primary components of solar and wind energy generation. In addition to the solar and wind power technologies, nuclear, hydro, and geothermal power offer zero-emission power sources for Power-to-X.

Key components of solar energy systems:

• Inverter: Converts DC current produced by the panels to AC, which is used by the grid

• Racking systems: Holds the solar panels, sometimes including tracking systems that optimize generation by aligning the panel surface with the sun’s location

• Energy control systems: Manages integration into the grid

• Substation: Manages the interconnect to the distribution system, including transformers, to assure proper output voltage and frequency

Key components of a wind turbine:

• Tower: Supports the wind turbine and blades, averaging over 300 feet high to reach steadier, less turbulent wind flows

• Hub and blades: Typically three, ranging from 50 meters to more than 100 meters in length

• Hub, drive shaft, gearbox, and generator: Converts the low-speed, high-torque rotation from wind energy to spin a turbine that generates electricity

• Nacelle: Covers the generating components of the turbine

• Substation: Manages the interconnect to the distribution system, including transformers to assure proper output voltage and frequency

Green Hydrogen and Synthetic Fuel Production

The process of using electricity to split water into hydrogen and oxygen occurs in an electrolyzer. For liquid electric fuels, an additional step involves combining low-carbon hydrogen with captured carbon dioxide from direct air capture or another carbon capture unit. Improving the cost, performance, and durability of green hydrogen and synthetic low-carbon fuel production systems is a key objective for green hydrogen market participants and governments.

FIGURE 2. GREEN HYDROGEN PRODUCTION VALUE CHAIN

Technological solutions required:

• Electrolyzer: There are different types of electrolyzers, such as polymer electrolyte membrane electrolyzers, alkaline electrolyzers, and solid oxide electrolyzers. They each have their methods and heat requirements. Work is ongoing to improve the energy efficiency of these processes and to enable them to operate under a wide range of conditions.

• Renewable energy: Green hydrogen production requires reliable, zero-emission power to achieve its decarbonization potential, using methods like wind, solar, hydro, and nuclear.

• Energy storage: For on-demand, reliable renewable energy, green hydrogen production facilities will require energy storage for periods when renewable energy is not generating power.

• Transportation and storage: Green hydrogen production deployment requires a network of pipelines, storage tanks, and transportation vehicles (rail, shipping, aviation).

• Synthetic liquid fuel transformation: To produce a synthetic liquid fuel like methanol, the green hydrogen is combined with captured CO₁.

FIGURE 3. GREEN HYDROGEN PRODUCTION COSTS ARE PROJECTED TO COMPETE WITH BUSINESS-AS-USUAL PRODUCTION METHODS (SOURCE: HYDROGEN COUNCIL)

Governments globally are betting big on alternative fuels to achieve decarbonization. The U.S. government invested $8 billion in regional hydrogen hubs in the Infrastructure Investment and Jobs Act (IIJA) and established incentives for clean hydrogen production and renewable energy generation in the Inflation Reduction Act (IRA). Together with the falling cost of renewable energy (which accounts for nearly 70% of hydrogen production), government support aims to achieve technological improvements and widespread adoption globally.

FIGURE 4. HYDROGEN DEMAND PROJECTIONS BY 2050 (SOURCE: PWC)

Future Market Size

Demand for clean hydrogen and low-carbon synthetic fuels is projected to grow rapidly post-2030, as technologies and costs improve and infrastructure and applications expand.

• The International Energy Agency (IEA) estimates that hydrogen demand could reach 115 metric tons (Mt) by 2030, up from 94 Mt in 2021. Nearly 200 Mt would be needed to stay on track for net-zero emissions by 2050.¹

• Production of low-carbon hydrogen is projected to reach 24 Mt per year by 2030, with approximately half of that production from electrolysis. If all industry announcements are fulfilled, electrolysis production could reach up to 60 GW per year by 2030.

• Decreasing costs for renewable energy, paired with technological improvements, could lead to green hydrogen production costs falling below $1/kg by 2050 achieving cost parity with other hydrogen production methods by 2030.

• The EU estimates that green hydrogen could meet nearly a quarter of global energy demand by 2050.

Challenges

• Cost: Although costs have improved over the past decade, hydrogen production via electrolysis remains more expensive than traditional hydrogen production (gray hydrogen).

• Technology gaps: Power-to-X technologies still require scaling up. Improving energy efficiency for converting electricity to hydrogen over a wide range of operating conditions is needed. Currently, most of the cost for green hydrogen production comes from the high energy requirements. Notably, 30-35% of the energy used is lost during the electrolysis process, and further conversions to other energy carriers (e.g., ammonia) result in an additional ~20% loss, while transportation and end-use result in further losses.

• Renewable energy: Liquid electric fuel production requires a significant amount of renewable energy. Building out dedicated capacity co-located with Power-to-X facilities will be crucial.

• Transportation: Developing a resilient and wide-reaching infrastructure for moving alternative fuels is critical to global deployment. Storage, transportation, and conversion capabilities that maintain safety without compromising the product are key.

• End-use applications: Off-takers for Power-to-X fuels are currently limited due to costs. Expanding the actual demand for liquid electric fuels is necessary to scale up and bring costs down. Potential applications include power generation, ammonia production, manufacturing, heavy industries like steelmaking and cement production, fuel cell vehicles, and heavy-duty transportation.

Significant steps are being taken to address these barriers through government and private sector investments in Power-to-X technologies and end-use applications. Importantly, the decline in costs for renewable power is improving the economics of alternative fuels substantially.

• Legislative support: The IIJA and IRA have established a once-in-a-generation level of support for alternative fuel production. This support primarily provides incentives and funding for low-carbon hydrogen production. Further policies will be necessary to support transportation and end-use applications.

• Renewable energy costs: The cost of renewable energy makes up a substantial portion of the costs associated with Power-to-X facilities. As renewable energy costs fall due to technological advancements, economies of scale, and support from the Inflation Reduction Act, the cost improvements will benefit alternative fuel production costs.

• Decarbonization commitments: Governments and the private sector have made strong commitments globally to decarbonizing economies and business operations. For sectors where electrification is not an immediate solution, alternative fuels will play an increasingly important role in meeting climate commitments. Consequently, demand for their production, transportation, and deployment will rise as we approach mid-century. Meeting government climate pledges would require 34 Mt of low-emission hydrogen production per year by 2030; a path compatible with reaching net-zero emissions by 2050 globally would require around 100 Mt by 2030.¹

Relevant NEMA Products

• Renewable energy to power liquid electric fuel production facilities

• Energy storage to access the renewable energy on demand for production

• Transmission to enable connectivity between production and power

• Distributed energy resources