PERSPECTIVE3-5 min to read

Podcast: Is hydrogen really the solution to net zero?

How practical is it for the world to adopt such a complex and dangerous fuel as hydrogen as a major clean energy alternative? Kristian Hoeg Madsen, Co-Head of Hydrogen Investment at Schroders Greencoat, joins the pod to discuss.

Hydrogen pipe line


David Brett
Multi-media Editor

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Full transcript below.

[00:00:07.930] - David Brett

Welcome to the Investor Download the podcast about the themes driving markets and the economy now and in the future. I'm your host, David Brett. On Monday, Saudi Arabia's NEOM Green hydrogen company announced a deal to build the world's largest green hydrogen production facility at a cost of $8.4 billion. The plant, to be completed in 2025, will make green fuel for export and decrease the country's dependence on petrodollars and gain Saudi Arabia a strong foothold in the nascent hydrogen market. The agreement struck by NEOM is one of many in recent years that has seen hydrogen become a very big deal.

[00:01:03.190] - Kristian Hoeg Madsen

So essentially, we see hydrogen as being quite an exciting new technology that can have potentially massive applications throughout the energy sector.

[00:01:13.290] - David Brett

That's Kristian Hoeg Madsen, Co-head of Hydrogen Investment at Schroders Greencoat. Hydrogen is seen as an attractive alternative to fossil fuels and can be produced using renewable energy.

[00:01:25.900] - Kristian Hoeg Madsen

So we see a multitude of potential application areas and end products as well as end customers. But I think also more broadly, it really sets a path as to how otherwise hard to abate sectors can actually be decarbonized.

[00:01:45.110] - David Brett

So in this show, we're going to discuss whether hydrogen is a green energy solution and what the future holds. But in the first part of the show, we'll look at why hydrogen and why now.

[00:01:58.790] - Advert

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[00:02:06.250] - David Brett

Around 90 million tonnes of hydrogen is currently used per year, globally. However, demand for hydrogen is set to soar. Based on existing government pledges, demand is expected to reach around 250 million tonnes per annum by 2051. This would make the hydrogen market worth up to around 800 billion US dollars in annual revenues. Net zero targets are the main reasons why hydrogen is becoming such a big focus for countries.

[00:02:39.670] - News clip

Now the latest World Health Report on climate change and health calls for transformational action in every sector, including energy, transport and finance. It says the public health benefits of ambitious climate actions far outweigh the costs. Many countries around the world have committed to a goal of net zero emissions to avert the worst of global warming.

[00:02:58.320] - David Brett

However, globally, energy related CO2 emissions grew last year, according to the International Energy Agency.

[00:03:05.550] - Kristian Hoeg Madsen

So in that sense, we really haven't started the journey yet. But obviously this varies quite significantly both between regions and sectors. So if we look at the EU as one example, that actually saw a two and a half percent reduction in CO2 emissions last year, and keeping in mind that 2022 was a year marked by oil and gas market disruptions, then we, in short, saw still that building sector emissions felt quite markedly helped by a mild winter. But power sector emissions still grew. So I would summarise it as being globally, we're in the very start of this journey.

[00:03:48.310] - David Brett

So for many regions and sectors, the path to net zero remains opaque.

[00:03:54.160] - Kristian Hoeg Madsen

So I would say we've seen quite good advances when it comes to power markets. So the penetration of renewables in the power markets have come a reasonable way. Wind and solar now account for 12% of global electricity generation in 2022 and it seems likely that the power sector emissions have peaked globally. If we zoom in a bit and look at the EU, then 2022 marked a year where wind and solar actually generated more electricity than gas for the first time, whereas coal was already surpassed some years ago. In the UK, to take another example, grid CO2 emissions fell by more than half between 2012 sorry, 2010 and 2020. That was mainly a function of coal leaving the system and renewables taking its place. Looking at a technology such as solar, which has really had a remarkable streak, it seems quite likely that 2022 will be the year where solar crosses the mark of 200 gigawatts of new capacity being added. However, in the more hard to abate sectors, we see that progress is quite limited.

[00:05:07.190] - David Brett

Hard to abate sectors include areas such as cement, the chemical industry and in particular steel. Steel production requires high temperatures, traditionally using dirty fossil fuels in a conventional blast furnace. As a result, steel production emits about two tonnes of CO2 for every tonne of steel, making it one of the worst offenders when it comes to emissions. For an industry in which fossil fuels are baked into the production process, all hope for decarbonization hangs on hydrogen.

[00:05:37.200] - Kristian Hoeg Madsen

Essentially, hydrogen is quite a flexible energy source. So that can provide electricity, it can provide a fuel for land transportation, for aviation, for shipping heat, long power, long term power storage and also chemical feedstock for industrial processes. So it can really in addition, it can also be stored as a gas or as a liquid and be converted into various other synthetic fuels. So it's essentially this flexibility of hydrogen that has gained this nickname of the Swiss Army knife in the energy transition.

[00:06:13.290] - David Brett

So if hydrogen is the answer to our net zero problems, why isn't its use more ubiquitous?

[00:06:19.950] - Kristian Hoeg Madsen

I will though add that despite its flexibility, just because it can be used many different places doesn't mean that it's necessarily the best option for all purposes.

[00:06:30.360] - David Brett

That's coming up in part two of the show.

[00:06:34.510] - Advert

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[00:06:47.570] - David Brett

Around 90 million metric tonnes of hydrogen is produced globally per year. It comes in many different colours, but the main ones are grey, blue and green. However, the overwhelming majority produced is so called grey hydrogen.

[00:07:04.610] - Kristian Hoeg Madsen

Yeah, so grey or brown hydrogen is produced is the traditional method of producing hydrogen and that's produced by reacting steam, so steam water, with methane to natural gas and that leads then to material CO2 emissions in that process.

[00:07:22.220] - David Brett

Grey hydrogen uses 6% of natural gas and 2% of coal to make it. Unfortunately, the byproduct is CO2 emissions which are equal to that of a large European country. So an alternative to grey is blue hydrogen.

[00:07:39.710] - Kristian Hoeg Madsen

Then we also have blue hydrogen, which essentially seeks to capture and store all the CO2 that's released in the production of brown hydrogen.

[00:07:50.220] - David Brett

Blue hydrogen is produced from gas and coal, but you can capture the CO2 at source.

[00:07:56.270] - Kristian Hoeg Madsen

The captured CO2 should then be stored so that the emissions are not coming into the air. That could be, for example, storage in old salt cabins, or it could be in the storage of, for example, depleted oil fields in the North Sea or other underground storage possibilities, for example, in the North Sea, as being identified as a key area for this.

[00:08:22.290] - David Brett

Unsurprisingly, blue hydrogen might be preferred by the oil and gas industry because it utilises fossil fuels. However, that means investing in tech that might be defunct in ten years time, given countries net zero commitments. So the ideal solution is green hydrogen.

[00:08:45.270] - Kristian Hoeg Madsen

One of the other colours is a green hydrogen. So that comes from electrolyzes of water using electric energy from a clean source importantly.

[00:08:54.310] - David Brett

Electrolysis, which has been known for hundreds of years, is the process of using electricity to split water into hydrogen and oxygen, the byproduct of which is as harmless as water. However, currently only 4% of the hydrogen produced is pure green hydrogen, which uses renewable sources. The main reason for that is cost. Green hydrogen produced through electrolysis using renewable power costs around about $15 per kilogramme. Compare that with as little as $2 per kilogramme for grey hydrogen produced with cheap, fracked natural gas costs.

[00:09:36.170] - Kristian Hoeg Madsen

It's a new technology. Certainly electrolyzers are using it in this scale and on those volumes is a completely new thing to do. So expertise has to be built up in this technology has to evolve, and you have to make sure that also from an operational point of view, that it is reliable and lives up to the various assumptions that you have regarding it. When it comes to blue hydrogen, there is the whole new additional part of the value chain where you actually need to, for example, pump it into a ship in order to sail it out and inject it into depleted oil fields as an example. That is a new technology and a new area.

[00:10:23.450] - David Brett

Transporting and delivering hydrogen comes with its risks too, most notably its flammability and corrosive effects. But Kristian sees the market rising to those challenges.

[00:10:36.090] - Kristian Hoeg Madsen

Currently, it is certainly more expensive than its grey or conventional counterpart, but among the market actors there's quite a strong belief that significant cost outs can be achieved and thus potentially making green hydrogen reach price parity in the future. So I think the analogy that's often drawn here is to renewables. We're looking at on and offshore wind as well as the solar sector. You can really see this potential of enormous cost reductions as a function of both volume but also innovation in a market.

[00:11:12.220] - David Brett

So what does the future for hydrogen look like and whose set to benefit? That's coming up in the final part of the show.

[00:11:24.970] - David Brett

We know the challenges in producing and delivering greener hydrogen, but we also know the demand it can satisfy given government's commitments towards net zero. So where are we most likely to see green hydrogen deployed?

[00:11:39.480] - Kristian Hoeg Madsen

Yeah, so in our view, the most obvious case is to use blue or green hydrogen where hydrogen is already used today. So that would, for example, be in the petrochemical industry where it would introduce no additional risks in terms of how to handle this gas, since these plants are already used to handling hydrogen, so we see that as the most obvious case. In terms of future uses then we see certainly aviation and shipping, as being some very interesting industries for its application, essentially industries where its energy density make it quite a plausible replacement for fossil fuels. So those sectors, they account for approximately four and a half percent of the global greenhouse gas emissions. And in order to meet net zero, a cleaner and high energy density alternative to fossil fuels must be found.

[00:12:39.330] - David Brett

But it won't be for everyone.

[00:12:40.660] - Kristian Hoeg Madsen

So there's a couple of areas here where we remain a bit more sceptical. So domestic heat is an area we are sceptical about. We still remain unconvinced that it will actually prove cost effective to produce clean hydrogen and then in addition, upgrade the transmission network in order to distribute it. We believe electrification through heat pumps is likely a more efficient and cost effective solution, although of course the thermal efficiency of the building stock will need to be improved materially. Another example is cars and other kind of road vehicles. In our view, this race is more or less already run with electric vehicles being the clear winner for domestic use. So homes already have electric connections to power lithium ion batteries and we believe the challenges ensuring that the electrons from the grid are green enough. That's a solvable challenge and it's certainly much less of a challenge than having to distribute hydrogen out to end users. In addition, we also see that it's simply inefficient to take green electricity and use it to produce green hydrogen, transport the hydrogen and then use hydrogen to power the vehicle. It's simply easier to just let the green electrons flow directly into the vehicle's batteries instead.

[00:14:04.800] - David Brett

And what role might current fossil fuel producers play?

[00:14:08.350] - Kristian Hoeg Madsen

Yeah, so we expect them to play a significant role initially in replacing their currently used brown hydrogen by either green or blue counterparties. So oil and gas majors currently use hydrogen in, for example, refineries, and we see it as being an obvious place, as touched upon before, to start replacing that with green and blue. More broadly, we also believe that oil and gas majors, they are interested in this area for two key reasons. One being that some of these applications can potentially increase the longevity of their assets and they will be keen to pursue this route. The other being that hydrogen is expected to become a central part of the future energy sector, so they will be keen to be part of this future. Somewhat analogous to that, many oil and gas majors relatively recently have become very interested in an area such as offshore wind. We believe the same would happen in hydrogen.

[00:15:10.280] - David Brett

So where is all the money being channelled?

[00:15:13.100] - Kristian Hoeg Madsen

Currently, we already see significant amount of investments being channelled into clean ammonia, methanol and other synthetic fuels. We see this as in part driven then by first movers, for example, within the shipping industry that have taken significant steps forward and signed offtake agreements despite there being no subsidies. So subsidies are currently being rolled out in the UK, across the EU, US and several other places globally. And we do expect that as soon as these subsidies have been rolled out, this will drive investments significantly forward, broaden the end applications where we see investments going to. We also kind of note that given that this is potentially such a large area going forward, most countries are quite keen to be the future winners in this area. Reaping both, of course, the obvious economic benefits there could be from being the champions of the next hydrogen economy, but we also see that it has quite a clear impact on that it can increase energy security in countries which has also come to the top of the agenda due to recent events.

[00:16:28.150] - David Brett

Several industrialised countries have formulated ambitious national hydrogen strategies that rely heavily on importing green hydrogen from other countries, including countries in the global south that are rich in renewable energy. Countries in Africa, such as Namibia, for instance. India, too is expected to compete hard, and not to mention the US with its fiscal might. And China already has a dominant position in the market, having invested huge amounts into electrolyzers which are vital to green hydrogen production. Even so, Madsen believes we've not even started yet.

[00:17:07.370] - Kristian Hoeg Madsen

We're very excited about the potential path to net zero that we essentially, through hydrogen and its derivatives, we're now seeing as becoming much more concrete. We can actually see a credible path to decarbonizing some of the otherwise hard to abate sectors. We expect that this market will really take off in the next two to three years. And in particularly we see that initially it will be driven strongly by subsidies and we expect within the end of the decade that it will have come sufficiently down in price so that subsidies play a less prominent role. And if not by the end of this century, then sorry, by the end of this decade, but then certainly in the next, we do expect it to reach price parity.

[00:18:04.330] - David Brett

Well, that was the show. We very much hope you enjoyed it. If you want to find out more, cheque out our website You can also get in contact with us about anything in the show or ideas for future shows at Please remember to subscribe to us at Apple Podcasts, Spotify, Google or wherever you get your podcasts, and don't forget to leave a review. We're now doing one show a week, which will be available every Thursday from 5p.m. UK time. Thanks very much for listening, but above all, keep safe and go well. Cheers.

[00:18:41.490] - Speaker 5

The value of investments and the income from them may go down as well as up, and investors may not get back the amounts originally invested. Past performance is not a guide to future performance. The information is not an offer, solicitation or recommendation of any funds, services or products, or to adopt any investment strategy.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

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This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


David Brett
Multi-media Editor


The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.