There is a new consensus among climate campaigners, policymakers and industry that climate neutrality requires green or renewable hydrogen. That means hydrogen made from the sun or wind-powered electrolysis of water.
“Even if all [energy] production and consumption was electric, more than half of that power would have to be converted to hydrogen for [cost-effective] transport and storage,” says Ad van Wijk, professor for future energy systems at Delft University of Technology in the Netherlands.
Green hydrogen is both an enabler of and enabled by renewable power production. It could help transport and store large volumes of offshore wind power in particular, to avoid adding pressure to an already overloaded grid.
“Conversion to hydrogen is a kind of hedging for a renewables investor,” says head of new business at Mitsubishi Power Europe Emmanouil Kakaras.
Some companies, such as Dutch wind turbine manufacturer Lagerwey, are exploring the possibility of building electrolysers in the body of turbines. In parallel, policymakers are looking into joint tenders for hydrogen and offshore power production.
The energy transition’s original challenge was scaling up renewables such as wind and solar power.
“In a way that was the easy part,” says Frauke Thies from Smart Energy Europe (smartEn), a European business association for demand-side flexibility. “The challenge today is twofold: one, running a power system with a high share of variable renewables, and two, decarbonising the rest of the energy system.” For her, energy system integration via green hydrogen is an answer to both.
In other words, green hydrogen can be an additional source of flexibility in the electricity system –although direct electrification remains the priority, Thies stresses – and extend the use of clean power to sectors such as transport, industry, and heating and cooling by converting it from electrons to molecules. However, the narrative has broadened, notably under the influence of the oil and gas industry, to the pursuit of hydrogen as an alternative energy carrier in its own right.
“We are creating a new commodity,” asserts Jorgo Chatzimarkakis of Hydrogen Europe, the European industry association for hydrogen. “It is not a fossil fuel but tradable globally like oil and gas. We want Europe to be the central marketplace for this new commodity.”
This worries climate campaigners, who believe hydrogen should remain complementary to electrification.
“Energy efficiency, renewables and direct electrification are the bulk solutions,” says Dries Acke, head of energy at the European Climate Foundation think tank. “Hydrogen is essential to get to net zero in certain sectors like industry, but we are talking about the last 20% of emission reductions.”
He also points out that nearly all hydrogen today is still made from coal and gas – without carbon capture and storage – and therefore does not help with climate action.
“There is a risk of policy before definitions,” says Acke.
Energy experts agree that policymakers will make or break the hydrogen economy, and that Europe is a key continent to watch.
“Europe is the laboratory,” says Kakaras. “We look at it as the place where [hydrogen-related] technology, and especially policy, can be tested and pave the way for global deployment.”
The hydrogen economy is an integral part of Europe’s Covid-19 recovery plans. On 8 July, the European Commission is due to unveil the first-ever EU hydrogen strategy and a Clean Hydrogen Alliance. The strategy will identify different hydrogen value chains, their climate impact and how policymakers intend to incentivise each. The Alliance will bring together investors, companies and policymakers to build European industrial leadership on electrolysers. Clean hydrogen will be one target of a pioneering €1bn call opening in July under the EU’s carbon market-fed Innovation Fund.
EU-level activity follows a slew of national announcements, most recently in Germany, which wants to replicate the pioneering role it played in promoting renewable energies 20 years ago.
However, there is a big difference: unlike solar and wind, green hydrogen production is driven by operational not capital expenditure. Policymakers need an electricity price that is expensive enough to make renewable power viable, but cheap enough to make the hydrogen produced from it competitive with gas.
In practice, “hydrogen production through electrolysis requires dedicated policy support to bridge the cost gap vis-a-vis fossil gas”, says Matthias Deutsch from German think tank Agora Energiewende. Experts are converging on the idea of Carbon Contracts for Difference, which would guarantee investors in green hydrogen projects a price for CO2 emissions above the EU carbon market price. Germany intends to pilot this for steel and chemicals production.
Indeed, another challenge for policymakers is that energy-intensive industries offer the greatest potential economies of scale, but they are also highly price-sensitive sectors. In an ideal world, private car owners would take on some of the early costs of green hydrogen production, but European carmakers are prioritising battery electric vehicles. In practice, industry and policymakers expect green hydrogen to debut in steel, chemicals and refining, and long-distance transport such as aviation and shipping in the form of hydrogen-derived “e-fuels”.
On 25 June, ArcelorMittal, the world’s largest steelmaker, announced that it aims to make its European operations carbon neutral by 2050, with an “important role” for hydrogen. Public support for clean steel is one way of reviving an industry suffering from ageing assets, over-capacity and Chinese competition. The scale of the challenge is daunting, however: the company estimates that an electrolyser of at least 1GW is needed to decarbonise one unit of steelmaking.
Hydrogen may have potential “in the longer term” – as the German government puts it – in other sectors such as heating. This remains the most fiercely contested sector, with climate campaigners in favour of more efficient electric solutions such as heat pumps.
In parallel, investors like Luxembourg-based Thematica Future Mobility also see long-term opportunities for green hydrogen in road transport. Thematica is investing in companies such as UK-based ITM Power, and Nel, a Norwegian company, which cover the entire hydrogen value chain from electrolysers to refuelling stations. The fund’s value is up 33% so far this year, despite the coronavirus crisis, says chairman Claes Orn.
Green hydrogen’s biggest challenge, if it becomes a goal in its own right, is the vast amount of renewable power it requires. To get a sense of scale, if all current hydrogen production worldwide switched to electrolysis, that alone would require 3,600TWh a year, more than the EU’s entire annual electricity production, according to the International Energy Agency.
Europe plans to import most of its hydrogen in future. Germany is setting aside nearly a quarter, or €2bn, of its envisaged recovery money for hydrogen for international partnerships.
The grand vision is for green hydrogen to be made abroad with German electrolysers. It makes more economic sense to import renewable power as hydrogen from North Africa than to install solar photovoltaic (PV) panels on Dutch rooftops, says Van Wijk. Green hydrogen today costs €3.50–€6 a kilogram, or two to four times fossil-based hydrogen, but that price will come down as solar and wind get even cheaper.
“If deep decarbonisation is on the societal agenda, then hydrogen will come,” says Kakaras.
The business case for hydrogen depends first and foremost on renewables policy.