Shell Sees Opportunity in Clean Hydrogen Production

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The dream for those of us following renewable energy is to someday be able to produce 100% of the world's energy from renewable sources. Wind and solar power could easily provide enough energy to replace every power plant and barrel of oil in the world, if only there were a cheap, easy way to store it. Batteries are expensive and chemically intensive, so hydrogen was always seen as a top-option for long-term energy storage. 

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Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B) and ITM Power (NASDAQOTH: ITMPF) may have taken a small step toward building a hydrogen-fueled renewable future earlier this month by announcing a 10-megawatt  electrolyzer complex in Germany that will supply hydrogen to its refining plant. The hydrogen could also be used to help balance the grid or be sold to customers for their own uses. 

A big deal for hydrogen

Hydrogen has incredible potential to disrupt the energy industry, but it has been rendered all but obsolete in most of the auto industry, pushed aside in favor of rapidly improving batteries. There's no point in building a hydrogen vehicle or the necessary infrastructure if batteries can charge quickly and are cost-effective. 

Hydrogen backers have then had to push to alternative use cases to advance their business. ITM Power is pivoting from building hydrogen fueling stations for cars to electrolyzers that will turn electricity from the grid to hydrogen for industrial use or even grid energy storage. All it takes to produce hydrogen is water and electricity, splitting the molecule into hydrogen and oxygen components. It's the perfect clean energy because the only byproduct is oxygen when the hydrogen is created and water when it's used to generate electricity. 

At the 10 MW plant, Shell plans to use hydrogen in its refining process, replacing hydrogen formerly created from natural gas (where most hydrogen comes from), cleaning up a part of the refining process. If it's successful, Shell could find other applications for the hydrogen, including selling electricity from stored hydrogen to the grid. 

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Bigger goals ahead

This is more of a proving ground than anything else for ITM Power. The company needs to pivot to hydrogen as a chemical additive and energy storage medium to build a growth market. But if hydrogen from water can be produced cost-effectively, it could be a great way to reduce the hydrogen produced from natural gas and make a viable long-term energy storage medium. 

Quietly, hydrogen technology is improving and the viability of hydrogen as a source of energy is being proven out. When combined with renewable energy, hydrogen may be a key to unlocking a cleaner grid in the future. And this project is a stepping stone along the way. 

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Travis Hoium owns shares of Royal Dutch Shell (A Shares). The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.