Not to be left behind as the world is spun in circles by hydrogen hype, Ontario published a hydrogen strategy in 2022. Recently it announced the first approved significant project, one that involves truckloads of hydrogen leaving Niagara Falls to be burned in a gas generator over 100 kilometers away. Multiple layers of energetic and economic nonsense are involved in this.
When I consider the qualities of things that call themselves strategies, I use Richard Rumelt’s kernel of strategy from his by far the best book on the subject, Good Strategy Bad Strategy: The Difference and Why It Matters. (I can say it’s the best book because I’ve read virtually all of them, and certainly all the regularly cited ones.)
The kernel is simple and it’s remarkable it’s so rarely adhered to. First, it requires a clear eyed diagnosis of reality, of what is going on here. Second, it requires establishing policies on how the organization will respond to reality to gain value and avoid risks. Third, it reqires an action plan. That’s it: reality, policy, plan. As an exercise for the reader, if your organization has a published strategy, go see if it has those three things.
Of these, getting reality right is the most important. Without that, the rest is built on shaky foundations. Most hydrogen strategies get reality wrong, and so are built on quicksand. Ontario’s strategy has that problem.
A Good Ontario Hydrogen Strategy
A hydrogen strategy for Ontario should have started with the following basis in reality:
Hydrogen is an industrial feedstock made from fossil fuels and is a global warming problem on the scale of all of aviation globally.
The biggest consumer of hydrogen in Ontario is oil refineries and this demand will drop substantially in the coming decades. Ontario refinery emissions solely related to hydrogen are in the range of 2.3 million tons of CO2e annually.
The second biggest consumer of hydrogen is ammonia-based fertilizer manufacturing at the Courtwright facility, the ony manufacturer in Ontario, one that produces a maximum of a million tons of ammonia-based fertilizer products annually, and this too will decline due to carbon pricing on the potent greenhouse gas NOx emissions from its use on fields. Direct emissions from manufacturing fertilizer at this facility are in the range of 1.4 million tons of CO2e per year. Roughly 0.18 tons of hydrogen are required per ton of fertilizer. The power requirement for 70% utilization and diminished demand is in the range of 900 MW.
Ontario manufactures 10-12 million tons of steel annually, and this is a potential but not guaranteed growth area for hydrogen demand. The power demand for HYBRIT-style hydrogen reduction with ~55 kg of hydrogen per ton of steel with 70% utilization is in the range of 90 MW.
Hydrogen, whether manufactured with electricity or from fossil fuels is a poor energy carrier due to inefficiencies in its manufacturing, storage, distribution and use, and will not be competitive in any use case here grid-tied or battery electrification is possible.
Hydrogen is not suitable as a replacement for natural gas or oil for heating water and spaces in residences or commercial buildings. Electricity and heat pumps will be used for these applications.
Ground transportation will not use hydrogen as grid-tied and battery electric models are completely fit for purpose, although rail electrification is hampered by US continental dominance.
Ontario has an excess of nuclear generation on its grid at present and as such has many periods of surplus baseload generation annually, typically at night. This necessitates spilling water at the Sir Adam Beck hydroelectric plant at Niagara Falls, driving its capacity factor under 60% against the 80% capacity factor at the nearby American Robert Moses Plant. Similarly, this forces curtailment of especially wind but sometimes also solar generation assets in the province. Finally, this often forces Ontario to pay neighboring jurisdictions to take excess eectricity as the CANDU fleet cannot follow demand.
Ontario has underinvested in electricity storage infrastructure, with only the small pumped hydro facility at the Sir Adam Beck facility in use today.
Ontario’s electricity carbon intensity is fairly low, 25 grams of CO2e per kWh, so electrolysis of hydrogen would be much lower carbon intensity than manufacturing it from fossil fuels with or without carbon capture, if peak demand periods where marginal electricity is produced by natural gas generation are avoided. The roughly 1.25 kg of CO2e per kg of hydrogen is above the Hydrogen Science Coalition’s baseline of 1 kg per kg, but much better than present manufacturing emissions.
Ontario’s electricity carbon intensity will be rising in the coming years due to the stoppage of renewables construction and even operation in 2018, the natural end of life of the aging nuclear plants and the resulting requirement to expand Ontario’s natural gas generation fleet.
Ontario’s natural gas productio is rapidly declining and is not suitable for conversion to hydrogen compared to direct use of electricity.
With the required reduction in fossil fuels, the Sarnia and Nanticoke regions will be economically impacted with 12,000 direct and indirect jobs impacted, and layoffs have already started.
Roughly 5,000 employees of Enbridge and TC Energy will be impacted by the reduction of fossil fuel distribution through pipeline infrastructure.
The merger of Union Gas and Enbridge Gas Distribution Inc into EGI means that it supplies the vast majority of Ontario’s natural gas consumers through its 147,600 kilometers of pipelines. These pipelines are not suitable for hydrogen transmission or distribution without significant retrofits, hydrogen is not a suitable energy carrier, but EGI and parent company Enbridge will be working hard to create pressure for this and to slow the elimination of natural gas for heating.
What policies would this reality suggest?
Ontario will focus its hydrogen effors on ammonia-based fertilizer and steel production, focused on the Courtright facility in Sarnia and steel manufacturing facilities in Nanticoke and Hamilton, all of which are close to low-carbon electricity generation.
Ontario will provide beneficial rates for at least 70% of the day outside of peak demand hours to hydrogen electrolysis facilities for those purposes, enabling high utilization of the capital intensive facilities, reducing surplus baseload generation and renewables feathering.
Ontario will work to bridge skilled resources from the petrochemicals and natural gas industry into the hydrogen electrolysis industry, but otherwise will consider the requirement to manage the decline of those industries as outside of the scope of the hydrogen strategy.
Ontario will not consider manufacturing of blue hydrogen from its diminishing natural gas production and imported natural gas, but instead assume that it will be used as a supply source for the diminishing natural gas demand in th coming one to two decades.
Ontario will not waste governmental time and resources on hydrogen for energy efforts such as home heating, building heating or transportation. The requirement to bolster the electricity grid and heat pump availability are considered to be outside the scope of the hydrogen strategy.
Ontario will not consider hydrogen as an avenue for grid decarbonization, and energy decarbonization efforts will be considered outside of the scope of the hydrogen strategy.
Ontario will not consider the existing natural gas distribution network as an asset related in any way to its hydrogen strategy, and will consider the requirement to manage the decline of those industries as outside of the scope of the hydrogen strategy.
Ontario will not provide further subsidies to refineries for emissions reductions, but will expect carbon pricing to drive that industry to clean itself up as it diminishes in size. It will consider the requirement to manage the decline of those industries a outside of the scope of the hydrogen strategy.
Initial action plan:
Ontario will work with the CF ammonia facility in Courtright, IESO and other agencies to assess electricity requirements and accelerate delivery of sufficient electricity to the facility to power electrolysis.
Ontario will work with Stelco in Nanticoke, ArcelorMittal in Hamilton along with IESO and other agencies to assess electricity requirements and accelerate delivery of sufficient electricity to the facilities to power electrolysis.
Ontario will work with IESO and other electricity agencies and industry stakeholders to define an appropriate rate structure for high utilization hydrogen electrolysis facilities.
Ontario will work with industry and financial organizations to find suitable fiscal solutions for necessary capital investments.
So that’s a pretty sensible strategy. It has a good starter kernel with reality, policies and plan. It respects the reality of Ontario’s situation along with the realities of hydroen. It makes a bunch of hard policy decisions that actually make sense against that context and will drive emissions in Ontario down while providing products Ontario requires, steel and fertilizer. It avoids the traps of using hydrogen to prop up dying industries, delaying climate action or be a meaningless jobs work program.
Is this a perfect strategy? No, of course not. I came up with it in a couple of hours, admittedly from a solid understanding of Ontario’s energy and industrial sectors as well as the realities of hydrogen and some rapid Googling and math. It’s also informed by assessing the hydrogen strategies of multiple countries on at least three continents. The combination means that it’s less wrong than most hydrogen strategies I’ve reviewed, but there are undoubtedly gaps. I’m also insensitive to the politics of major political contributors and downplaying the overwhelming political pressure to save jobs in at risk regions and industries. But at least it’s a rational startig point and allowing a bit of nonsense in later through consultation would still leave it well ahead of most of these types of strategies.
Ontario’s Actual Strategy
Is this what the actual Ontario hydrogen strategy says? No, of course not.
It does have some reality correct. It notes that the refineries and fertilizer industries are the biggest consumers today, and that they are consuming hydrogen manufactured from mostly natural gas. It doesn’t quantify the volumes of those industries, the emissions pertaining to hydrogen or mostly assess their likely futures. It does note that the fertilizer industry will see diminished volumes as use of ammonia-based fertilizers diminishes with climate policies.
The strategy does allude to the imbalanced electricity demand and supply situation in Ontario, although it’s not at all clear on the scale and implications of it. It’s correct that Ontario’s grid carbon intensity is comparatively low and why, but is silent on the upcoming increases in caron intensity.
It spends a lot of time on hydrogen and hydrogen derivative energy use cases, using ‘could’ a lot as if that word is infinitely elastic. It explicitly references hydrogen fuel cell vehicles, including light vehicles and other small vehicles, as if that argument wasn’t long done. It even pretends the couple of small fleets of hydrogen fork lifts in Ontario aren’t just aberrations that will be replaced by the battery electric forklifts which increasingly dominate the space.
It has a bunch of completely extraneous material in it related to biogas and the automotive sectors battery electric investments.
It explicitly makes dealing with Ontario’s surplus baseload generation problem hydrogen’s problem, with the intent to manufacture hydrogen and burn it in ‘hydrogen ready’ gas generators run by Atura Power, the wholly owned subsidiary of Ontario Power Generation that runs owns and operates Ontario’s gas plants.
It lists a bunch of things unrelated to the hydrogen strategy tat Ontario is doing, like considering putting a moratorium on new gas fired plants, creation of a clean energy credit system, the demolition of the last bits of a coal fired generation plant that had been shut down years before the current administration took power and changing the contracts for facilities that burn biomass for electrical generation.
It does highlight some industrial electricity pricing policies that might be sufficient in and of themselves for hydrogen electrolysis requirements, saying that off-peak consumption of electricity would be at C$35 per MWh or less for industrial consumers. For context, that would put a ton of hydrogen electrolysis costs at around $1,750 just for the electricity. That might be viable for large hydrogen consumers if the electrolysis plant is built at the site of consumption and scaled to the demand so that little storage and compression and no distribution is required, all things which jack up the cost. Capex would quite easily double that, o it’s not like the hydrogen would be as cheap as Ontario’s current industrial approach, which is to make it from natural gas and use the atmosphere as a zero-cost open sewer.
They do pretend that the outsized and aging nuclear fleet is an advantage as opposed to a strategic problem in multiple dimensions. And they pretend that small modular reactors, something also irrelevant to a hydrogen strategy, are either meaningful, or will be able to replace the GW scale CANDU reactors currently operating at Bruce and Darlington. I use Bruce as an example of why there’s often madness around nuclear and SMRs. Political realities are political realities.
Of course they pretend that Ontario’s pipeline network can be used to transmit and distribute hydrogen. They are correct that Ontario has the potential for salt caverns for storage of hydrogen, but don’t make a good case for doing so. This strategy isn’t based on modeling like that of Sir Chris Llewellyn Smith for the UK, which took more than adecade’s hour by hour weather and demand generation and found that every decade or so there was a supply gap from renewables that would require a very big strategic store of an energy carrier. That study had its own faults, downplaying grid interconnects, explicitly throwing pumped hydro aside without analysis, and not considering what other molecules might be suitable instead of hydrogen, but at least it was a coherent study. No such thing for Ontario.
It leans into the inanity of blended hydrogen into gas lines for residential and commercial heating, and the idea that pure hydrogen is suitable for residential and commercial heating, despite now 54 independent analyses which make it clear that hydrogen is completely unfit for this purpose, per Jan Rosenow’s latest meta-analysis of the space.
So it has reality wrong and it has its policies wrong as a result. Not really a surprise as I haven’t read a jurisdiction’s hydrogen strategy from any continent that makes much sense except for orocco’s, which is pretty clear about decarbonizing their grid with renewables, decarbonizing fertilizer with green ammonia and only slightly less than explicit about exploiting European illusions about hydrogen for energy exports to make that occur.
Do they have actions? Yes, they have actions, so at least they have all three components of a good strategy, even if the strategy itself is bad.
With Bad Strategy Comes Bad Actions
The first one is “Launching the Niagara Falls Hydrogen Production Pilot”, in which Atura — the natural gas generation company — commits to build a 20 MW electrolysis facility at the Sir Adam Beck hydroelectric facility at Niagara Falls where water is being spilled without generation and other water is being pushed back up hill by nuclear electrons at night because there are too many reactors operating in Ontario. The 20 MW represents 1% of the almost 2 GW capacity of the facility, so this is peanuts.
And there are no hydrogen offtakers at Niagara Falls, so i’s in the wrong place. Remember, actual demand centers for hydrogen are in Sarnia (300 km away), Hamilton (72 km away) and Nanticoke (120 km away). Remember also that distributing hydrogen is expensive and further that there are zero pipelines running from Niagara Falls to anywhere because it generates electrons not natural gas. 85% of hydrogen is manufactured at the point of consumption in the volumes required for the industrial process today because of the expense of distributing it.
Are they going to send the hydrogen to where it’s actually useful? No, per a recent announcement, they are going to truck it to Halton Hills (110 km away), where it will be blended with natural gas and put into an Atura combined cycle natural gas plant.
With the efficiencies of AC to DC conversion — hydroelectric dams generate in AC, electrolysers run on DC —, compression, transport and the maximum 60% efficiency of combined cycle generation, that 20 MW of electricity generated at Niagara Falls turns nto around 6 MW of electricity generated in Halton Hills. Not exactly something to write home about.
It gets worse, of course. The trucking of hydrogen for this inane use case is absurd. Given the average load of a hydrogen tanker truck at 380 bar (about 380 times the pressure of the atmosphere at sea level) and the output of 20 MW of electrolysis, that’s about one truck leaving Niagara Falls every hour and fifteen minutes day and night with a load of hydrogen and returning empty. That’s a 220 km round trip at 33 liters per 100 km for a diesel truck of that size, so 73 liters of diesel for each trip. Call it 20 trips a day, so about 1,500 liters of diesel a day. Diesel produces about 2.7 kg of CO2 per liter burned, so that’s 4 tons of CO2 per day.
That’s about 1,500 tons of CO2 a year just to move the hydrogen from where useful electrons are being generated to where many fewer electrons are being generated. Assuming a 90% capacity factor (hence the 20 trips a day), about 450 MWh of eectricity turns into about 130 MWh of electricity from the gas plant every day.
The carbon intensity of those newly generated electrons is effectively tripled by throwing two-thirds of them away to make hydrogen and turn the hydrogen back into electricity. Call it 75 grams CO2e per kWh. Then driving it around adds another 30 grams CO2e per kWh, so over 100 grams per kWh. And, of course, that electricity will be probably 10 times as expensive per MWh as the electricity generated at Niagara Falls.
Vastly more expensive electricity with a much higher carbon intensity. What’s not to like?
This pilot is an exercise in increasing the carbon intensity of electricity in Ontario, and is in no way aligned with the stated strategic objective of “Reduce Greenhouse Gas Emissions”.
How Did They Get This So Wrong?
This isn’t remotely a mystery. They started with the assumption, lobbied hard for by molecules for energy firms, that hydrogen was a great energy carrier. Then they invited organization to be part of the Hydrogen Strategy Working Group. If you are wondering why there’s a separate link for the Working Group from the strategy, it’s because the strategy is silent on who shaped it.
Who is in it? Some obvious and good members. The Canadian Steel Producers Association (CSPA) as a major potential growth area for hydrogen, the Independent Electricity System Operator (IESO) as a major supplier of electricity for hydrogen, a couple of clean technology and environment associations and Ryerson are good members. A couple of firms which manufacture electrolysers.
But the vast majority are hydrogen for energy lobbyists. Enbridge. Atura. Ontario Power Generation. Cummins which manufactures internal combustion engines and fuel cells. The Hydrogen Business Council of Canada, which is a hydrogen for energy lobbying group. Gas power organizations. Toyota, persistent pusher of hydrogen fuel cell vehicles in the face of utter failure everywhere. The Ontario Trucking Association. The Candian Hydrogen and Fuel Cell Association (CHFCA), another hydrogen for energy lobbying group.
Remarkably, there are no representatives of the two actual consumers of hydrogen today, refineries or fertilizer manufacturers. The hydrogen strategy was formulated without explicitly involving the biggest consumers with roughly 3.7 million tons of hydrogen manufacturing CO2e emissions between them.
It’s all hydrogen for energy players, all the time, with only one representative from a potential new market, steel, to provide the remotest bit of balance.
If you start a strategy with a bad assumption, then assemble a group of stakeholders deeply skewed toward that assumption, you end up with a strategy like Ontario’s Hydrogen Strategy. It’s a recipe for economic and climate failure.
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Michael Barnard
is a climate futurist, strategist and author. He spends his time projecting scenarios for decarbonization 40-80 years into the future. He assists multi-billion dollar investment funds and firms, executives, Boards and startups to pick wisely today. He is founder and Chief Strategist of TFIE Strategy Inc and a membe of the Advisory Board of electric aviation startup FLIMAX. He hosts the Redefining Energy – Tech podcast (https://shorturl.at/tuEF5) , a part of the award-winning Redefining Energy team. Michael Barnard has 654 posts and counting. See all posts by Michael Barnard
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