Non-profit calls for Singapore’s hydrogen investments to steer clear of non-green sources

SINGAPORE’s hydrogen strategy carries significant risks for investments into blue hydrogen or into use cases outside of hard-to-abate carbon-intensive sectors, a sustainable-development non-profit has said in a report.

In its report, Asia Research and Engagement (ARE) said that while hydrogen is a major prong in Singapore’s plan to decarbonise its energy sector by 2050, the alternative to fossil fuels is not a “panacea” for addressing the nation’s climate challenges.

ARE argued that blue hydrogen, which is hydrogen produced from fossil fuels supplemented with carbon removal technologies, may be at odds with credible climate goals given that it risks prolonging the use of fossil-based power as feedstock and would likely result in significant carbon lock-in risks.

That is because carbon removal technologies have an underwhelming track record in terms of emissions reduction and costs. Even though blue hydrogen may be cheaper to produce than green hydrogen, which refers to hydrogen produced from renewable energy sources, producers still have to invest in equipment with long lifespans.

“Marginal emission reduction benefits will cause these capital investments to become uneconomical, and result in inefficient assets even before 2030, as the cost of green hydrogen is expected to fall to reach parity with blue hydrogen within the next decade,” ARE said.

In addition, blue hydrogen production also results in the emitting of other greenhouse gases such as methane, which is more damaging for the climate than carbon dioxide.

“The national hydrogen strategy risks not being viewed as a ‘credible transition’ strategy by considering fossil-based hydrogen with carbon capture as low-carbon hydrogen suitable for use in Singapore’s decarbonisation efforts,” the report argued.

ARE urged financiers to be cautious when financing or investing in projects that would rely on blue hydrogen. Financiers and investors should also assess certificates of origin for hydrogen to ensure that projects meet credible guidelines.

However, Professor Chan Siew Hwa, co-director of the energy research institute at Nanyang Technological University, said that there is “nothing wrong” with using blue hydrogen as a transition energy source as it is strategic and practical, given that it not only addresses environmental sustainability but energy security challenges. The adoption of blue hydrogen can also help to develop hydrogen-related infrastructure.

Hydrogen offers an important hedge against energy imports, which Singapore has to rely on given limited renewable energy options. While buying renewable energy through the Asean power grid is the most promising alternative to hydrogen, imports alone cannot fully meet Singapore’s energy security needs, he said.

Use of hydrogen for power generation

The report further argued against investing in hydrogren as a fuel for power generation except for hard-to-abate sectors where direct electrification is not practical.

ARE said the economics of using hydrogen for power generation does not make sense compared to burning natural gas, given that the addition of transport and storage costs of importing hydrogen into Singapore would make the overall costs of hydrogen unattractive. It added that the capability for 100 per cent hydrogen firing is currently unproven and the emission reduction benefits of co-firing with hydrogen are marginal at best.

“Such questionable emission reduction benefits could see capital investments in co-firing retrofits becoming uneconomical and result in stranded assets,” read the report.

The authors argue that funds used to develop hydrogen co-firing capabilities could be better utilised to scale up proven decarbonisation solutions, such as renewable energy, that make more economic sense.

“Financiers therefore should look to finance or invest in the ‘no-regret’ type of projects in Singapore, to avoid risking their capital in potentially dead-end projects,” said the report.

However, Angel Mah, research fellow at the energy studies institute at the National University of Singapore, said that dismissing hydrogen’s application for power generation may be premature, even though it may not be the most cost-effective solution for now.

Echoing Prof Chan’s point on diversification, Mah said that hydrogen presents an opportunity to transcend geographical constraints, enabling long-distance energy imports, such as from Australia.

“Another noteworthy application of hydrogen is its potential use as a large-capacity and long-term energy storage solution. Given Singapore’s high dependence on energy imports, building sufficient reserves can be crucial to ensure energy security despite the intermittency of renewable energy sources,” she added.

Sharad Somani, partner and head of infrastructure advisory at KPMG, said that as Singapore transitions, power generation would entail going through different forms of hydrogen, as long as the carbon intensity is continuously reduced without a compromise on energy security.

Banks’ positions on hydrogen projects

When asked to respond to the risks highlighted in the report, the three local banks pointed out that hydrogen as an energy source is still at a very nascent stage, and that various technologies have to be considered as the world moves to net-zero.

While green hydrogen is one viable renewable energy option for Singapore, OCBC’s chief sustainability officer Mike Ng said that more time is needed for the technologies to mature as prices are still high.

“However, we do expect that the price curves will be brought down over time and deployment will be scaled up, as we have seen with various renewable energy technologies,” he said.

When considering the bankability of any project, Ng said that OCBC would consider whether the company has secured bankable offtake agreements for its products, technological maturity, price competitiveness, applicable legal and regulatory frameworks pertaining to the project, as well as the lifecycle emissions associated with the project or technology.

As for UOB, Bonar Silalahi, head of the bank’s sector solutions group, said that it will look at the track record of the project sponsor or developer, the strategic significance of the project to the country or region, whether there is any governmental support, the commercial and economic viability of the project, as well as the overall environmental impact of the project.

A DBS spokesperson said: “From a financing perspective, banks will need to consider various commercial and risk factors before proceeding with any transaction, not just those related to hydrogen.”