More than just renewables and efficiency will be required to put the world on track to meet climate goals and other sustainability objectives
As governments focus on dealing with the Covid-19 health emergency, they are increasingly turning their attention to the impact of shutting down their economies and how to revive them quickly through stimulus measures. Economic recovery packages offer a unique opportunity to create jobs while supporting clean energy transitions around the world.
Energy efficiency and renewable energy like wind and solar PV – the cornerstones of any clean energy transition – are good places to start. Those industries employ millions of people across their value chains and offer environmentally sustainable ways to create jobs and help revitalise the global economy.
But more than just renewables and efficiency will be required to put the world on track to meet climate goals and other sustainability objectives. IEA analysis has repeatedly shown that a broad portfolio of clean energy technologies will be needed to decarbonise all parts of the economy. Batteries and hydrogen-producing electrolysers stand out as two important technologies thanks to their ability to convert electricity into chemical energy and vice versa. This is why they also deserve a place in any economic stimulus packages being discussed today.
What batteries and electrolysers have in common
Batteries and electrolysers are small‑sized, modular technologies that are potentially well-suited for mass manufacturing. Cost reductions like those experienced through the large-scale production of solar PV are not inconceivable and, in fact, are already underway. The progress of battery technology is more advanced than that of electrolysers, with the cost of lithium-ion batteries in particular having decreased thanks to higher production volumes. The scale up of electrolysers manufacturing, on the other hand, is at an earlier stage. But that makes its scope for significant near-term cost reductions even larger.
Batteries and electrolysers apply the same scientific principles of electrochemistry, meaning that they share several components such as electrolyte and membrane materials, as well as key manufacturing processes. The future development of electrolysers therefore stands to benefit from the experience of manufacturing batteries. The knowledge acquired from batteries should spill over into the scaling up of electrolyser production, enabling faster cost reductions.
Specialised suppliers for both technologies such as Toray or BASF tend to capitalise on these similarities and innovate to the benefit of both devices. The human capital and skills that are developed cross-fertilise each other. The lessons learned in the development of individual components also have the potential to ripple through other industries that share them. These include fuel cells, control systems and specialised materials for other engineering applications.
The IEA will publish an Energy Technology Perspectives special report focusing on clean energy technology innovation on 2 July that will discuss these and other attributes of technologies that are particularly suitable for fast clean energy transitions.
The clean energy sector of the future needs both batteries and electrolysers
The price of lithium-ion batteries – the key technology for electrifying transport – has declined sharply in recent years after having been developed for widespread use in consumer electronics. Governments in many countries have adopted policies encouraging increased deployment of electric cars, further accelerating the decline in battery prices. At the same time, the power sector now offers growing opportunities for the use of batteries to support the integration of variable renewables such as wind and solar PV into electricity systems. As such, lithium-ion batteries are now a technology opportunity for the wider energy sector, well beyond just transport.
Electrolysers, devices that split water into hydrogen and oxygen using electrical energy, are a way to produce clean hydrogen from low-carbon electricity. Clean hydrogen and hydrogen-derived fuels could be vital for decarbonising sectors where emissions are proving particularly hard to reduce, such as shipping, aviation, long-haul trucks, the iron and steel or chemical industries. These are areas where other clean energy technologies cannot be easily deployed.
However, natural gas and coal are currently the primary sources for almost all of the approximately 70 million tons of hydrogen produced each year for making fertilisers and for use in oil refineries. This means that the production and use of hydrogen is associated with more than 800 million tons of carbon dioxide (CO2) emissions today – a staggering amount that is equivalent to the emissions of the United Kingdom and Indonesia combined.
Battery manufacturing is growing, but there is significant room to scale up further
The world’s capacity to make battery cells has expanded rapidly in recent years. Today, manufacturing operations globally can produce around 320 gigawatt-hours (GWh) of batteries per year for use in electric cars. This is well above the approximately 100 GWh of batteries required for the 2.1 million electric cars that were sold in 2019.
Having sufficient capacity available for battery manufacturing is critical for the continued electrification of road transport. Global production capacity is unevenly distributed. China is the world leader, accounting for around 70% of global capacity, followed by the United States (13%), Korea (7%), Europe (4%) and Japan (3%). The outbreak of the Covid-19 epidemic has affected all of China’s battery production hubs, located in the provinces of Hubei, Hunan and Guangdong. Manufacturing has resumed gradually due the time it takes to restore the supply chain and return employees to work.
There is a need for manufacturing capacity to grow further. Assuming that the global auto industry’s announced targets for electric vehicle production are met despite the Covid-19 crisis, around 1,000 GWh of battery manufacturing capacity would be needed in 2025. This output would require equivalent of 50 plants, each on the scale of a Tesla Gigafactory.
Longer-term targets set by governments around the world – as reflected in the Stated Policies Scenario of the IEA’s World Energy Outlook – could require global annual battery production to reach around 1,500 GWh by 2030 for all electric vehicles combined (including cars, buses, etc.). Moreover, about twice as much production would be needed in 2030 to supply the amount of batteries envisaged in the IEA’s Sustainable Development Scenario, which provides a pathway to meeting long-term sustainability goals.
While such figures are ambitious, they are achievable. Battery manufacturing capacity targets for 2030 announced by companies led by CATL, LG Chem, BYD, Northvolt and Panasonic stack up to around 2,100 GWh per year. Nevertheless, time is of the essence, as building a large-scale battery factory can take anywhere from two to five years, depending on the country.
Electrolyser manufacturing is in its early stages, but growth is picking up
Electrolyser production is still in its early stages. Europe, the world leader, has a manufacturing capacity of 1.2 gigawatts (GW) per year, enough capacity in theory to power more than half a million fuel cell passenger cars with hydrogen from water. Production capacity is expanding rapidly. The world’s largest electrolyser plant, under construction by the United Kingdom’s ITM Power, is expected to produce 1 GW per year. In addition, NEL Hydrogen of Norway has announced plans to build a plant with a production capacity of 360 megawatts (MW) per year and the potential to expand to triple that amount.
The deployment of electrolysers has also picked up in recent years, both in terms of the number and the size of the projects. About 10 years ago, the majority of projects were smaller than 0.2 MW. Over the last three years, several projects were in the range of 1 MW to 5 MW, with the largest at 6 MW. In Japan, a 10‑MW project just started operating, and a 20‑MW project in Canada is under construction. Larger projects in the hundreds of megawatts have been announced.
As a result, the next two years could set new records, with announced projects bringing the global installation of electrolyser capacity from 170 MW in 2019 to 730 MW in 2021. To ensure that such momentum is kept up after the Covid-19 crisis, it will be important for governments to reassure investors about their continued commitment to hydrogen.
Why batteries need a stimulus boost
Batteries will have a central place in future energy markets. For this reason, government stimulus packages should recognise and anticipate their future prominence. Doing so is likely to pay off, given the expected size of future markets. For instance, stationary battery deployment at scale would enable a more rapid deployment of wind and solar technologies, which are themselves important potential areas for clean energy stimulus.
Furthermore, support for battery manufacturing would send strong signals to the auto industry that governments remain committed to the electrification of transport. Such stimulus support can safeguard existing jobs and create new ones if combined with demand-side policies that boost electric car sales. This is already happening in China through the extension of purchase subsidies as well as support for investment in public recharging infrastructure. Supporting battery manufacturing can also serve as a means to increase competition and drive down costs. This is no small benefit considering that, for electric cars, batteries are the main cost component at around 40% of total costs.
For countries with strong auto industries, challenging transitions lie ahead. Support for battery manufacturing and electric cars alone does not necessarily offer a major economic boost in the near term, since it is the conventional car industry and its supply chains that are at the heart of the economic activity of many major economies and associated with millions of jobs.
On the other hand, support for conventional vehicle manufacturing and sales alone may generate some positive economic effects in the near term but, if poorly designed, may also undermine the competitive position of the industry a few years down the road. The appropriate level of stimulus packages for battery manufacturing in each country will therefore depend on medium-term targets for renewables integration and road transport electrification. It is likely to require a balancing act between supporting electric cars and highly efficient conventional cars.
How solid is the case for electrolysers?
Before committing to supporting electrolyser manufacturing, governments may understandably want to know whether clean hydrogen demand will take off in new areas, such as transport, iron and steel production or the buildings sector. Hydrogen has failed to live up to high expectations in the past, and there is no cast-iron guarantee that it will in the future.
Still, investing in electrolyser manufacturing is a significant opportunity for stimulus packages. Support for electrolysers is likely to create a degree of economic stimulus on its own as the alternative is to continue to rely on the existing production of hydrogen from natural gas, which delivers no fresh economic impetus. In addition, support for electrolysers provides indirect support for the power sector – and, if well designed, for the renewables industry – because it provides a potential extra boost to electricity demand.
Even if new demand for hydrogen from electrolysers fails to materialise in the short term, there are still immediate opportunities available. Electrolysers can be used to clean up existing hydrogen supplies in industrial clusters, such as ports where much of today’s global hydrogen production is located. And, as pointed out by The Future of Hydrogen, our report from 2019, new demand could be created directly, for instance, by requiring hydrogen blending in natural gas pipelines.
This would create reliable demand for clean hydrogen while at the same time reducing the emissions intensity of natural gas supplies. If hydrogen were blended into all natural gas use in the European Union at just 5% by volume, low-carbon hydrogen demand would be boosted by 2.5 million tonnes of hydrogen per year. If this were supplied by electrolysers, then it would require almost 25 GW of water electrolysis capacity.
The opportunity for electrolysers can be bolstered further if stimulus measures to support manufacturing are accompanied by policies supporting new hydrogen demand. In many countries, roadmaps are underway to sketch out the opportunities for hydrogen. Low-carbon fuel standards, purchase subsidies and tax credits are all ways to stimulate demand in near-term areas of opportunity such as fleets of buses, trucks or taxis. Meanwhile, labelling standards, green procurement policies and fiscal advantages for audit-proven sustainable steel can all support the uptake of electrolysers in the iron and steel industry.
Carefully designed stimulus to create the energy industry of the future
Ideally, clean energy stimulus packages would include battery and electrolyser manufacturing simultaneously in order to take advantage of the spill-over benefits between the two technologies discussed above. It is important, however, to recognise that stimulus measures supporting battery manufacturing or electrolyser production would not on their own generate huge numbers of jobs or significantly boost economic recovery. But they would provide measurable benefits throughout the industrial value chain.
Today, battery and electrolyser manufacturing are capital-intensive activities, but are not necessarily a major job engine. Direct job creation would therefore be limited to specialised profiles in engineering and electrochemistry. However, additional jobs would be likely to come indirectly from the development and maintenance of related infrastructure such as electric vehicle recharging stations.
The real value of such investments today would come in the form of lasting long-term benefits. Both industries have the potential to create many more jobs across their entire supply chains as the use of batteries and hydrogen picks up. And support for battery and electrolyser manufacturing is also a strategic opportunity for governments to ensure that their industries come out of the Covid-19 crisis stronger than before, ready to supply future domestic and international growth markets and able to anticipate potential bottlenecks in technologies. Putting these technologies in stimulus packages is a way to carry out essential groundwork that will enable us to accelerate clean energy transitions in the years ahead. Failure to do so risks hindering progress at a critical time.