Amazon announced a new agreement with Plug Power to supply green hydrogen to decarbonise its transportation and building operations. The move towards green hydrogen could showcase how the emerging technology could help decarbonise hard-to-abate operations at a large scale.
Amazon (NASDAQ:AMZN) signs a deal with Plug Power (NASDAQ:PLUG) to receive 10,950 tonnes of green hydrogen annually starting in 2025.
The new supply of green hydrogen will help Amazon decarbonise hard-to-abate operations like transport and heavy-lifting operations in fulfilment centres.
Scaling up supply and demand for green hydrogen will be key to making it competitive with blue and grey hydrogen over the coming decade.
Amazon adds green hydrogen to its logistics network
Through the new agreement, Amazon will receive 10,950 tonnes of green hydrogen per year from Plug Power, a provider of turnkey green hydrogen solutions. The supply will begin in 2025, and will be used to power up to 30,000 forklifts or 800 heavy-duty trucks used in long-haul transportation.
The new supply of green hydrogen will replace grey hydrogen, diesel, and other fossil fuels currently used to power Amazon’s operations, contributing to the company’s goal of achieving net zero across their operations by 2040.
This builds on Amazon and Plug Power’s existing partnership to deploy hydrogen solutions at fulfilment centres. The two companies have already outfitted 70 fulfilment centres with hydrogen storage and dispensing systems.
These systems help power over 15,000 fuel-cell propelled forklifts, with plans to grow that number to 20,000 across 100 fulfilment centres by 2025 when the new supply of green hydrogen will take effect.
“Amazon is proud to be an early adopter of green hydrogen given its potential to decarbonise hard-to-abate sectors like long-haul trucking, steel manufacturing, aviation, and ocean shipping”, commented Amazon’s vice president of global sustainability, Kara Hurst.
Green hydrogen is still an emerging technology and is in the nascent stages of deploying and commercialising at a large scale. The technology could be an important solution to decarbonise sectors that electric renewable energy sources are not able to power.
Plug Power’s ‘hydrogen ecosystem’
Plug Power started off as a renewable energy company 25 years ago, but has since shifted its business model to deliver green hydrogen solutions. The company has built an end-to-end “hydrogen ecosystem” with 50,000 fuel cell systems and more than 165 fuelling stations.
“Plug is fully committed to a green hydrogen future, and we are building a complete hydrogen ecosystem – from molecule to applications combined with a resilient network of green hydrogen plants around the world – to make hydrogen adoption easy for companies looking to reach net zero carbon emissions” explained Plug’s CEO Andy Marsh.
The company’s green hydrogen solutions use PEM water electrolysis paired with solar, wind, and hydro-electric power. The hydrogen produced is then liquefied to be stored and transported to storage and handling facilities that the company designs and instals on-site for its customers.
Plug also develops and manufactures PEM-based fuel cells that can be used in a wide array of applications such as forklifts, transport, generators at distribution and data centres, and electric vehicle charging stations to facilitate the use of the green hydrogen it delivers to its customers.
Currently, Plug produces at least 70 tonnes of liquid green hydrogen daily by the end of 2022, with the goal of ramping up production to 500 tonnes daily by 2025.
“Securing this major green hydrogen deal with a customer like Amazon affirms our multi-year investment and strategic expansion into hydrogen,” said Marsh.
Scaling up supply and demand to boost green hydrogen sector
This is not the first time Amazon has invested in green hydrogen, with the company’s US$2 billion Climate Pledge Fund announcing investments in electrolyser developers Electric Hydrogen and Sunfire in August 2022.
Amazon believes that large purchase agreements to scale the supply and demand for green hydrogen, such as their new deal with Plug Power and the Climate Pledge Fund investments, will help foster the growth of this emerging clean energy technology.
A report published by the Oxford Institute for Energy Studies finds that there are two main costs associated with green hydrogen that need to be brought down in order for the technology to be competitive with blue and grey hydrogen: the cost of renewable electricity and the cost of electrolysers.
Although the demand for hydrogen has risen almost threefold since 1975, most of the world’s hydrogen supply is produced with fossil fuels, estimating that around 6% of the global natural gas supply and 2% of global coal are being used for hydrogen generation.
The study found that the conventional production of hydrogen via fossil fuels is currently responsible for around 830 million tonnes of carbon each year – equivalent to the annual carbon emissions of the UK and Indonesia combined.
Although costs for renewable energy are falling rapidly in many countries, the International Renewable Energy Agency (IRENA), an intergovernmental body, finds that costs for green hydrogen are still two to three times more expensive than blue hydrogen. The cost of renewable electricity is the main factor of green hydrogen’s lack of cost competitiveness versus blue or grey hydrogen according to IRENA.
Green hydrogen production costs can reduce by 85% by 2050
However, BloombergNEF finds that with significant cost reductions expected for renewable electricity globally over the next decade as markets grow at an unprecedented rate, green hydrogen is expected to undercut the price of blue and grey hydrogen by 2030.
Although there is a clear trend towards cheaper renewable energy, electrolysers still remain another sticking point to reduce costs and scale-up green hydrogen. Electrolysers are a key technology in producing green hydrogen molecules by splitting water atoms powered by renewable electricity. But electrolysers are currently expensive and have become a cost barrier to adopting green hydrogen.
Like the renewable energy cost reduction story, policies and investments that can accelerate demand for electrolysers will be crucial to make this technology more affordable. With economies of scale, comes opportunities to drive technology innovation, efficiencies, optimise industrial applications, and create global supply chains.
IRENA expects that with aggressive policies and investments to continue to drive down the price of renewable electricity and electrolysers, green hydrogen production costs can reduce by 85% by 2050. These cost reductions will be key for green hydrogen to take the place of high emitting blue and grey hydrogen, and can play an important role in achieving net zero goals.
