The world must look beyond sun and wind for hydrogen

We need lots of the gas, and cheaply, if it is to help replace liquid carbon fuels

Jonathan Ford

In this Oct. 30, 2017, photo, workers of Toyota Motor Corp. set hydrogen-stored tanks, in yellow, to be placed into a Mirai fuel cell vehicle at the automaker's Motomachi plant, in Toyota, western Japan. Toyota is banking on a futuristic “electrification” auto technology called hydrogen fuel cells for its zero-emissions option. The Associated Press got a tour of Toyota’s Motomachi plant that assembles the Mirai fuel cell vehicle. (AP Photo/Yuri Kageyama)
Workers at a Toyota factory in Japan prepare hydrogen tanks to be placed in the company's Mirai fuel-cell car © AP


Interest in hydrogen as a clean substitute for carbon fuels is surging. Shares in the producers of fuel cells, which convert the gas into electric power, have appreciated mightily over the past year.

Sweden’s PowerCell is up nearly eight-fold, while Canada’s Ballard Power and Plug Power of the US have more than doubled.

Investors are betting on the perfection of processes that turn hydrogen into usable energy. That may be necessary to spur their take-up, but the real challenge lies further up the production chain. It is how to make hydrogen a sufficiently plentiful and cheap resource that it can contribute meaningfully to decarbonisation. Only then will these bets really pay off.

Hydrogen isn’t widely used at present. In Britain, current annual production is about 700,000 tonnes or 27 terawatt hours (TWh) of energy equivalent, according to the Committee on Climate Change. That’s just 1.5 per cent of total UK energy consumption.

High production costs are one reason. Made by consuming hydrocarbon fuels, hydrogen can’t really compete for any application where these are an alternative.

Decarbonisation could change the picture — out of necessity if nothing else. Electricity at present accounts for just 20 per cent of final energy consumption, and not all that other 80 per cent is easily electrifiable. With events such as last week’s judicial ruling against the expansion of London’s Heathrow airport, it is dawning that without a zero-carbon liquid fuel substitute, eliminating emissions may involve potentially unpopular behavioural change.

Hydrogen is certainly an option to power such areas as heating and transportation. But to help materially in getting to net zero emissions by 2050, the CCC estimates that it will need to supplant a big chunk of the 80 per cent of Britain’s energy that comes from gas or liquid fuel.

In the body’s so-called “full hydrogen” scenario, demand balloons from today’s 27TWh to 700TWh.

Where is that hydrogen to come from? It won’t be from hydrocarbon feedstock without carbon capture and storage — technologies that have yet to be deployed economically at scale. Many are therefore pinning hopes on renewable energy making so-called “green hydrogen” using electrolysis. But how realistic is that, given the engineering properties of solar and wind farms?

A major determinant of hydrogen cost is the so-called capacity factor of the generating source.

That’s the power generated as a proportion of the facility’s rated peak power. The problem with renewables is that capacity factors are relatively low, although they have been rising. With solar, for instance, they are about 10 per cent in the UK, and 25-27 per cent in the sunniest places in the world.

To see the cost impact, take two hydrogen production sources. Plant A has a capacity factor of 25 per cent, while for Plant B, it is 100 per cent. That means for each unit of capacity, Plant A is producing only a quarter of the output of the second. Even if Plant B costs, say, three times as much per unit of capacity to build, Plant A’s output remains 30 per cent more expensive, all other things being equal.

Low capacity factors are one reason most current renewables have theoretical production costs for hydrogen in the $4-$6 per kilogramme range, according to research from Eric Ingersoll of the consultancy, LucidCatalyst. That’s well above the $1-$2/kg cost from existing hydrocarbon sources. Unlike capital costs, which can be chiselled down, nature limits the amount that capacity factors can be increased.

Then there is another problem with low capacity factors: the sheer amount of space that plant would take up. Assume you used offshore wind to supply 700TWh of hydrogen. That would require 238 gigawatts (GW) of capacity, assuming a 50 per cent capacity factor. On the basis that you can fit roughly 2.3MW of capacity into a square kilometre, that would require you to fill 104,000 km2. That is 40 per cent of the whole UK land mass.

Of course, technological development will yield further advances in renewables. Remember that costs for offshore wind have fallen 75 per cent over the past seven years.

But alternative sources shouldn’t be ignored. The main one is nuclear. It typically operates at a 90 per cent capacity factor, and is scalable without massive land use. The key is capital costs, which have historically been too high.

How far these can be shaved by advanced reactors and manufacturing processes is open to question. But China has driven capex down to about $3,000/KW at which level it could be feasible to produce hydrogen at about $2/kg. So far, however, nuclear has been largely overlooked.

Decarbonising liquid fuels is an enormous challenge; too big to place all our chips on one technology. We must explore all the available options, or learn to live with fewer substitutes for ubiquitous liquid fuels.

Coronavirus Selloff Reveals the Hidden Mechanics of Financial Markets

Gold and yen are among the assets that have performed unexpectedly, revealing how market structures have changed

By Mike Bird




You only learn who has been swimming naked when the tide goes out, Warren Buffett famously wrote in a shareholder letter. As volatility has soared during the past two weeks, some asset classes have started to show a little more skin, and interesting wrinkles.

Perhaps the most notable anomaly of the latest selloff has been gold, which had been enjoying a strong year. As bond yields tumbled and equities plunged last week, the price of the supposed haven didn’t rally. Rather, it fell.

Forced selling is at the heart of most explanations for why the gold price slipped. As investors face margin calls for other investments, they sell gold to cover themselves. A similar theory advanced by Cantor Fitzgerald analysts is that the precious metal may be sold by central banks in emerging markets, which use the dollars received to defend their currencies.

Oddities are emerging in the foreign exchange market, too. The Japanese yen is often described as a haven, based on expectations that Japanese investors repatriate their overseas profits and even liquidate foreign assets during market tremors.

Recent market turmoil has led some asset classes to behave unpredictably. /Photo: kimimasa mayama/Shutterstock .


But the yen is barely up at all over the past month, having risen just 0.5% against the U.S. dollar.

Though it has moved more reliably in recent days, the yen’s increase has been barely more pronounced than the euro’s against the dollar, even though the eurozone currency isn’t traditionally regarded as a haven currency.

One reason the yen doesn’t react in a predictable way anymore is the sheer volume of overseas buying by Japanese pension funds. The latest data show mammoth purchases of foreign bonds in January, an emerging trend that may have changed the calculation of how the yen behaves.

The euro itself may have benefited from the unwinding of carry trades. Investors who borrowed cheaply in euros to invest elsewhere could be closing their positions during a moment of panic and buying euros in the process.

The equity market has perhaps behaved more predictably. The least creditworthy companies as measured by their Altman Z-score—calculated using a company’s earnings, retained earnings, working capital and sales relative to its assets, as well as the company’s market value relative to its liabilities—have performed worse than the average stock.

Those with an Altman Z-score of more than 3, judged to be relatively safe from bankruptcy, are down by less than 1.5% year to date. An investor who held only those stocks might barely know a market correction was under way. Those with a score of less than 1.8, judged to be distressed, are down by around 8%. 
In a selloff, the creditworthiness of companies matters more, hidden pockets of leverage are revealed and established relationships can turn out to be broken. Keeping an eye on how market mechanics operate under stress teaches investors a necessary lesson in how to protect themselves against future panics.

Thoughts on the Coronavirus

By: George Friedman


I have presented geopolitics to be like economics, a science that predicts and summarizes the impersonal forces that drive a system so vast as to be beyond the control of individuals.

Each is controlled by forces so powerful that kings and peasants alike must align with them or fall victim to them.

Kings ultimately do not decide the global business cycle, nor do they control the relations between nations. Kings must align with the overwhelming forces that are at work.

To some extent, individuals are helpless in the face of massive forces. In a world of seven billion people and endless variables, humans make history by aligning with it. This is difficult, since thinking that we are caught in a storm in which we may choose to get wet or to make and sell umbrellas collides with the idea that we are all masters of our fate.

We are masters of our fate in making certain we understand the forces that compel and constrain us. We are masters of our fate in choosing how we align with the broad reality. But when markets decline, we can claim to have willed them to do so, but the markets consist of billions of people making billions of decisions, so the best we can do is try to anticipate the decisions that are going to be made.

There is something preposterous in all this. We all know that politicians do make decisions and that these decisions matter. It is the wisdom and goodwill of the leader, and sometimes the lack of both, that make history.

The idea of history being out of control – the idea that depressions and war are ultimately beyond the control of the leaders whom we hold responsible for all things, good and bad, and can at best anticipate what is coming and mitigate it – is terrifying.

Far better to imbue them in our minds with powers they don’t have, to praise or execute them for things over which they are as helpless as we are.

I bring this up in light of the coronavirus, which exists outside the purview of world leaders. It is dreadful because it will do what it will do. It is even more dreadful because it is a virus, something without consciousness that cannot be reasoned with or bribed.

We are merely observers of it, waiting for it to show whether it is as powerful as we fear, and waiting with even more dread to see whether we or those we love will fall victim to its terrible power or be saved with the discovery that its power will be meager. We search for a way to align ourselves with the disease, but like history, it flows on.

We live in the age of technology that has achieved remarkable things, from antibiotics to microchips to visions of the universe. We take pride in what has been wrought. But each of these things has come from understanding the nature we have been given, aligning with its forces, and crafting engines that conform with nature, not changing it.

And when our power grows enough that we delude ourselves to be nature’s master, something arises to remind us of our limits. In due course, it will learn more about the coronavirus, including ways we can fight it, but for now our fears take counsel of themselves.

The threat of the virus is not only that we may die, but that the fear of death will cause the world to heave up out of control. The virus first emerged with authority in China, a country dominated by the idea that the state’s power governs all things. This belief holds a fractious nation together in pride at how the state had made China great.

The coronavirus showed the limits of human power, even in China. Beijing insists that it will deal with the virus and that its edicts will stop its spread, but the reality is that China is being overwhelmed, both by the disease and by the fear of the disease.

Two great forces are being hurled against each other. On the one side is a tiny bag of molecules that aligns with the vulnerabilities of the human body. On the other side is science, desperately trying to find its footing, justifying itself by asserting the limits of its knowledge and the promise that it will know more later.

The virus is what it is, science is what it is, and so are the rulers, whose opinions on what the virus is and what ought to be done are of value to the extent that they conform to the reality.

Our local supermarket has announced that it is rationing the number of sanitizing wipes that can be bought because of high demand, while the latest word from experts is that the virus is spread by human liquids. No matter, where there is no solution, we invent solutions. They give us comfort that we are fighting back.

In truth, we don’t know how deadly the virus is. It may kill no more than the flu. It may turn out to be much worse. We don’t know. And therefore the global economy is in disarray.

China’s economy seems shattered. The price of oil is plunging. And fear of Turkey releasing Syrian refugees on Europe is now compounded by fear that they carry this disease among others.

We speak of black swans, unpredictable events that wreck economic and geopolitical expectations. This is surely a black swan, even if humanity has been periodically hit by unexpected diseases for time immemorial. We know there are black swans swimming about, and that one or two will occasionally come to shore. It is the time they decide to leave the lake, and the reasons that they have chosen this particular time, that startles us and drives us to search for explanations and solutions.

Not understanding why they chose this moment or what their intent is, we search for explanations. Since we no longer believe that they are here as God’s punishment for our sins, they must have been caused by biological warfare units, or have spread because of the incompetence of scientists and politicians. Where priests used to comfort us, now leaders do, and now we hold the leader responsible not for causing the virus, but for not acting quickly enough to protect us.

Coronavirus does not seem to be like the Black Death that wiped out half of Europe. It seems more like a nasty flu. But then that is just one guess in a world full of guesses. It has been elevated to a global menace because living in Texas, I am aware of what is going on in Wuhan.

Listening to scientists, I am told that this is a new virus. Being American, I am presented with a problem and expect someone to solve it quickly. It is what I know that concerns me: The virus is global, it kills people, it has wreaked havoc in China and some other countries, and therefore

I should be and am afraid. It is not the unknown but the poorly understood that is frightening, as well as the inability of very smart people charged with protecting me from all things natural and dangerous to do so.

Our expectations are what frighten us. The coronavirus does not seem especially dangerous to our species. But we have come to expect to be protected and when we are not our imaginations turn to the apocalypse. The successes of science and the claims of politicians have led us to believe in human invincibility so that the arrival of the virus is a violation of the social contract between the state, science and us. There are limits to power, and that, above all else, frightens us.

That 1970s Feeling

Policymakers and too many economic commentators fail to grasp how the next global recession may be unlike the last two. In contrast to recessions driven mainly by a demand shortfall, the challenge posed by a supply-side-driven downturn is that it can result in sharp drops in production, generalized shortages, and rapidly rising prices.

Kenneth Rogoff

rogoff191_Anthony KwanGetty Images_wuhangrocerystorecoronavirus


CAMBRIDGE – It is too soon to predict the long-run arc of the coronavirus outbreak. But it is not too soon to recognize that the next global recession could be around the corner – and that it may look a lot different from those that began in 2001 and 2008.

For starters, the next recession is likely to emanate from China, and indeed may already be underway. China is a highly leveraged economy, it cannot afford a sustained pause today anymore than fast-growing 1980s Japan could. People, businesses, and municipalities need funds to pay back their out-size debts.

Sharply adverse demographics, narrowing scope for technological catch-up, and a huge glut of housing from recurrent stimulus programs – not to mention an increasingly centralized decision-making process – already presage significantly slower growth for China in the next decade.

Moreover, unlike the two previous global recessions this century, the new coronavirus, COVID-19, implies a supply shock as well as a demand shock. Indeed, one has to go back to the oil-supply shocks of the mid-1970s to find one as large. Yes, fear of contagion will hit demand for airlines and global tourism, and precautionary savings will rise.

But when tens of millions of people can’t go to work (either because of a lockdown or out of fear), global value chains break down, borders are blocked, and world trade shrinks because countries distrust of one another’s health statistics, the supply side suffers at least as much.

Affected countries will, and should, engage in massive deficit spending to shore up their health systems and prop up their economies. The point of saving for a rainy day is to spend when it rains, and preparing for pandemics, wars, climate crises, and other out-of-the-box events is precisely why open-ended deficit spending during booms is dangerous.

But policymakers and altogether too many economic commentators fail to grasp how the supply component may make the next global recession unlike the last two. In contrast to recessions driven mainly by a demand shortfall, the challenge posed by a supply-side-driven downturn is that it can result in sharp declines in production and widespread bottlenecks. In that case, generalized shortages – something that some countries have not seen since the gas lines of 1970s – could ultimately push inflation up, not down.

Admittedly, the initial conditions for containing generalized inflation today are extraordinarily favorable. But, given that four decades of globalization has almost certainly been the main factor underlying low inflation, a sustained retreat behind national borders, owing to a COVID-19 pandemic (or even lasting fear of pandemic), on top of rising trade frictions, is a recipe for the return of upward price pressures. In this scenario, rising inflation could prop up interest rates and challenge both monetary and fiscal policymakers.

It is also noteworthy that the COVID-19 crisis is hitting the world economy when growth is already soft and many countries are wildly overleveraged. Global growth in 2019 was only 2.9%, not so far from the 2.5% level that has historically constituted a global recession. Italy’s economy was barely starting to recover before the virus hit.

Japan’s was already tipping into recession after an ill-timed hike in the value-added tax, and Germany’s has been teetering amidst political disarray. The United States is in the best shape, but what once seemed like a 15% chance of a recession starting before the presidential and congressional elections in November now seems much higher.

It might seem strange that the new coronavirus could cause so much economic damage even to countries that seemingly have the resources and technology to fight back. A key reason is that earlier generations were much poorer than today, so many more people had to risk going to work. Unlike today, radical economic pullbacks in response to epidemics that did not kill most people were not an option.

What has happened in Wuhan, China, the current outbreak’s epicenter, is extreme but illustrative. The Chinese government has essentially locked down Hubei province, putting its 58 million people under martial law, with ordinary citizens unable to leave their houses except under very specific circumstances. At the same time, the government apparently has been able to deliver food and water to Hubei’s citizens for roughly six weeks now, something a poor country could not imagine doing.

Elsewhere in China, a great many people in major cities such as Shanghai and Beijing have remained indoors most of the time in order to reduce their exposure. Governments in countries such as South Korea and Italy may not be taking the extreme measures that China has, but many people are staying home, implying a significant adverse impact on economic activity.

The odds of a global recession have risen dramatically, much more than conventional forecasts by investors and international institutions care to acknowledge. Policymakers need to recognize that, besides interest rate cuts and fiscal stimulus, the huge shock to global supply chains also needs to be addressed.

The most immediate relief could come from the US sharply scaling back its trade-war tariffs, thereby calming markets, exhibiting statesmanship with China, and putting money in the pockets of US consumers. A global recession is a time for cooperation, not isolation.


Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.