The cost of realising Europe’s hydrogen potential

A report from the European Commission sets out how increased hydrogen production will be key to the energy transition, although it is not clear how it will be paid for, writes Jon Whiteaker.

On 8 July, the European Commission (EC) published its new strategy on hydrogen, a fuel whose expanded use could spark significant investment across the continent.

A report produced in 2019 for the EU’s Fuel Cells and Hydrogen 2 Joint Undertaking initiative estimated that hydrogen production could support up to 5.4 million jobs in equipment supplier industries across the region by 2050.

Despite lobbying from major energy companies for a ‘technology neutral’ approach, the EC has prioritised green hydrogen (produced through electrolysis powered by renewable energy), rather than grey hydrogen (produced from fossil fuels) or blue hydrogen (produced using natural gas but with carbon emissions captured or reused).

Although green hydrogen is being prioritised, environmental groups are objecting that other forms of “low-carbon hydrogen” form part of the strategy and that the make-up of the new European Hydrogen Alliance that will oversee the strategy includes representatives from major oil companies.

Creating scale is seen as a priority for the alliance, which will seek to deliver a pipeline of large-scale projects. By 2024 the EU is targeting 6GW of green hydrogen electrolysers developed in the EU at an estimated cost of €5–9bn, scaled up to 40GW of EU-based electrolysers and 40GW of non-EU-based electrolysers by 2030 at a cost of up to €44bn.

These projects will be exempt from some EU regulations to help accelerate development, although many questions remain about how the strategy will be funded.

The German template

Germany, which began its presidency of the EU at the beginning of July, published its own hydrogen strategy, Nationale Wasserstoffstrategie (NWS), in June. In a pre-echo of the EU strategy, NWS viewed green hydrogen as central to a plan that had eye-catching headline targets but few details on delivery.

NWS is aiming for electrolysis capacities in Germany of 5GW by 2030, and 10GW by 2040, supported by government funding of up to €10bn. Grey hydrogen meets demand today of 55 terawatt-hours (TWh) but Germany expects that to rise to 90–110TWh by 2030.

Hydrogen has applications in industrial production, as a fuel and as a heating source. It can also be stored and transported using existing gas infrastructure. As it is produced from water without emitting carbon, ramping up its production will help governments meet their emission reduction targets.

Producing hydrogen is very energy intensive, however, and depressed gas prices have made grey hydrogen very cheap. Analysis from data intelligence company ICIS estimates that green hydrogen production costs about four times more than hydrogen produced from fossil fuels.

Senior analyst at ICIS Sebastian Braun estimates that green hydrogen will still require government subsidises until around 2030.

“Germany plans to invest massively in hydrogen, both through electrolysers and additional offshore wind capacity… but they haven’t yet said how they want to do this,” he says. “I see two possibilities: supporting the investment in electrolyser capacity or a support per kilogram of green hydrogen.”

NWS set out plans for a pilot carbon contracts for difference scheme that would incentivise the use of green hydrogen in steel and chemical industries.

CEO of industry group WindEurope Giles Dickson says: “If Germany and other governments can move very quickly on setting up something like climate contracts for difference schemes, then this could move very quickly. What is so telling on hydrogen is the number of large companies and very serious investors who want to invest.”

Bearing the cost

Senior manager at Germany Trade & Invest Heiko Staubitz says the large project pipeline suggested by the NWS will attract the level of foreign investment needed to strengthen supply chains, create efficiencies and drive down costs.

“We have already had a lot of requests from international companies in this field, such as ITM of the UK, Nel of Sweden and other Japanese electrolyser specialists, as well as companies across the whole value chain for hydrogen,” he says.

Earlier this year, oil major BP, German utility RWE and chemicals producer Evonik signed a memorandum of understanding to develop Germany’s first network connecting green hydrogen production with industrial customers.

Under the plan RWE wind farms would power a 100MW electrolyser in Lingen that would supply hydrogen via existing pipelines to a local BP refinery, as well as a chemical facility operated by Evonik and another BP refinery, both in Gelsenkirchen, via a 130km grid.

Although the partners are targeting a completion date of 2022, details on project costs or how it will be funded are as yet unknown. A spokesperson for RWE says that the economics of the project will be determined by future legislation and support schemes.

The spokesperson says: “Green hydrogen is not yet economically viable. To pay the difference there needs to be support from the government.”

Legislation lacking

As yet there is no existing legislation that allows transmission system operators to build or operate hydrogen transport infrastructure in Germany or the wider EU, and it is not clear how long it will take to agree and then implement the necessary regulatory changes.

Braun says: “Without the legislation the strategy will be impossible to achieve. All the investments taking place at the moment are testing out the technology, but the legislation needs to be in place before anyone is going to invest on a large scale.”

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Dickson of WindEurope says that the electricity network as well as the gas network will need to be invested in to ensure the success of green hydrogen strategies.

“It is only with the further expansion of wind and solar in Europe that you will be producing the critical mass of renewables to convert into renewable hydrogen, and it is only through that market scale that you would be able to produce renewable energy at low costs,” he adds.

For Europe’s green hydrogen strategy to be realised, investment will be needed for gigawatts of new renewable energy capacity, gigawatts of electrolysers, potential upgrades to pipelines and transmission lines, and significant subsidy support. No one yet has made clear the full cost of this, or who will bear it.