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29 June 2021updated 06 Nov 2021 7:12am

How green hydrogen will grow up into a global market

Emerging partnerships between countries like Germany and Australia, backed by business interests and financial incentives, are laying the foundations for a global, green hydrogen market to replace fossil fuels.

By Sonja van Renssen

Demand for green hydrogen and its derivatives is expected to grow ten-fold between now and 2050, rising to a substantial share of total energy demand of some 500 million tonnes (t) a year. About 60% of that demand will be traded, rather than locally produced and consumed, believes Gunar Hering, chief operating officer of Enertrag, a leading German provider of renewables services.

For all its local roots, there is a growing conviction that the Energiewende will spawn a global “green” hydrogen market that optimises supply and widens the reach of clean power.

Hering made his comments last week (23 June 2021) at the second annual conference of Global Alliance Powerfuels, an initiative of the German Energy Agency (DENA) aimed at promoting “powerfuels”. Otherwise known as e-fuels, these include hydrogen and its derivatives, such as ammonia, made from electrolysis fuelled by renewables. The logic is that not all processes can be (cost-effectively) electrified. Instead, those that rely on fossil molecules could switch from natural gas or oil to green hydrogen and its derivatives.

Altmaier-surrounded-by-screens

German Economy Minister Peter Altmaier and German Transport Minister Andreas Scheuer (on the screen) give a joint statement on a large-scale EU hydrogen project in May 2021 in Berlin. (Photo by Bernd von Jutrczenka /pool/AFP via Getty Images)

Inevitably there are arguments about which use cases make most sense, but there is general agreement that some hydrogen will be needed to get to net zero, and that the end goal is for this hydrogen to come from renewables. Today, most hydrogen comes from natural gas, and adding carbon capture and storage (CCS) is not a long-term solution for most energy transition experts.

Enertrag built its first wind-to-hydrogen plant in 2011. Today it is involved in a project in South Africa to make green hydrogen-based kerosene as fuel for planes. The goal is to make enough to fuel 500 flights a year from South Africa to Germany, potentially saving 400,000t of CO2.

A global hydrogen market could be much more diverse than today’s oil and gas market, Hering suggested. “The cost difference between the best and OK regions [for green hydrogen production] is roughly a factor of two, which is much less than oil and gas markets today,” he said. “Many more exporting regions will play a role, not just the lowest cost ones.”

Australia steps up

“We know we will not be able to produce all the hydrogen we will need in Germany,” said Falk Bömeke from the German federal ministry for economic affairs and energy at the conference. “It does not make any economic sense.” DENA’s CEO Andreas Kuhlmann suggested the EU could “save lots of money, maybe up to 30%” by relying on global trade rather than local production.

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Japan, like Europe, is expected to be a major hydrogen importer. The US, in contrast, “could also largely rely on local production”, Hering said.

Potential exporters include Australia, Chile, the Middle East, North Africa, South Africa and southern Europe. “I have set it as my top objective as ambassador here in Germany to establish the basis of a supply chain of green hydrogen between Australia and Europe,” said Philip Green, Australia’s ambassador to Germany, Switzerland and Liechtenstein on 23 June. “We imagine ourselves as a major, perhaps the major, exporter of green hydrogen to the world.”

Nine days earlier, Germany and Australia had signed a bilateral green hydrogen production and trade agreement. With Germany expecting to import the bulk of its hydrogen needs, utilities such as RWE and Uniper are starting to look to source green hydrogen from abroad. Germany has put up €9bn ($10.73bn) in public funds, €2bn of that for international partnerships, to build a green hydrogen economy.

I have set it as my top objective as ambassador here in Germany to establish the basis of a supply chain of green hydrogen between Australia and Europe. Philip Green, Australia's ambassador to Germany, Switzerland and Liechtenstein

Australia aims to produce hydrogen at under AUD$2 (€1.30–1.35) a kilogram, Green said. If just 3% of Australia’s landmass was covered in solar panels, it could produce ten times the green molecules Germany will need in a year, he claimed. Conversely, Australia is looking to Germany to supply the manufacturing and engineering expertise to develop this new export industry.

Germany recently moved forward its net-zero goal from 2050 to 2045 and increased its emissions reduction goal for 2030 from 55% to 65%, after its constitutional court ruled it needed to do more on climate action. Australia has yet to follow commitments by Europe, the UK, the US and Japan to target net-zero greenhouse gas emissions by 2050, or to increase its climate target for 2030.

Making a market

The belief a global green hydrogen market is needed does not make it a reality,” said Hyung-Ja de Zeeuw from Netherlands-based Rabobank. “[So far] subsidies have not been sufficient to make hydrogen projects bankable. Many projects still have a risk profile more in line with venture capital than senior debt [debt with the highest priority of repayment].” A country like the Netherlands has announced an ambitious strategy and targets, but “almost no dedicated funding to support the ambitions”, she added.

The German H2Global initiative is aimed at helping make green projects bankable by matching demand and supply, and bridging the financial gap between the two. It formally kicked off on 14 June, the day after Germany and Australia signed their bilateral hydrogen accord, with €1bn in funding. Hering intends to apply it to Enertrag’s South African green kerosene project.

Under H2Global, a specially created foundation will award ten-year contracts to producers of green hydrogen, including delivery to Germany, via competitive auctions. This process should provide producers with the certainty needed to make their projects bankable. The foundation will then resell the procured amount of hydrogen product to the European market on a yearly basis, generating a loss, which the German government will cover. 

"We are not comparing the price to fossil fuels, but looking at what the market is willing to pay [for green hydrogen],” explains Bömeke.

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More than half of the cost of green hydrogen is down to the price of the power that drives the electrolyser. Beyond that, there is still a technological risk in the electrolyser, de Zeeuw said. Electrolysis is not [yet] proven on a large scale.” Making the business case for green hydrogen also requires political support and regulatory change, she added.

Fit for 55, fit for hydrogen

2020 saw a peak in national hydrogen strategies, with more on the way, but these need to engender regulatory change to create a global hydrogen economy. There are initiatives under way at both a European and a national level. From March to mid-June 2021, the European Commission ran a public consultation on hydrogen and decarbonising the EU gas market ahead of legislative proposals to revise existing gas market rules later this year.

Many [green hydrogen] projects still have a risk profile more in line with venture capital than senior debt [debt with the highest priority of repayment]. Hyung-Ja de Zeeuw, Rabobank

In the meantime, grey hydrogen producers need to stop getting free allowances under the EU Emission Trading Scheme (ETS), argued De Zeeuw. This measure was put in place to guard against the potential risk of carbon leakage, or European industry leaving for regions with looser carbon constraints.

The EU ETS is up for review as part of the EU’s 'Fit for 55' package expected on 14 July. Free allowance allocations are likely to be adjusted with the introduction of a proposal for a new carbon border adjustment mechanism. This initiative would, over time, replace them for at least some sectors. A revised renewable energy directive is expected to provide fresh incentives for the take-up of hydrogen in transport and industry.

A global hydrogen market could not function without certification. This subject is one of the most urgent, and difficult, to address. The hydrogen, and the carbon it is recombined with in hydrogen-derived synthetic fuels or e-fuels, must be sustainably sourced for the product to count as “green”.

For the hydrogen, the energy source must be renewables, although many still argue for a transition role for 'blue' hydrogen made from natural gas with CCS. The source of the carbon, in the minds of most climate campaigners, must be direct air capture. However, Hering is working with carbon sourced from biomass in Enertrag’s South African project, while Global Alliance Powerfuels sees a transition role for using the carbon in process emissions; for example, from cement manufacture. The EU is working on  binding a set of sustainability standards for green hydrogen for later this year.

Another tricky issue is the best way of moving hydrogen around. Ahead of H2Global’s first anticipated auctions in August or September, its foundation will decide which products and volumes are likely to be needed in Germany and Europe, Bömeke said. It will need to decide what a “product" actually is, he added. This looks likely to be ammonia or methanol in the first instance, Bömeke added. The German government will also set some sustainability criteria.

There are other dimensions to the development of a global market. Development experts for example, question the sense of producing hydrogen for export in countries that lack universal access to electricity for their population. One solution could be to ensure profits are invested in the exporter’s own domestic energy transition, one expert suggested at the 23 June event.

Either way, a future global hydrogen market will rely on the success of the first major projects, concluded Hering. Those with a good chance as first movers include places like South Africa, he argued, which has an existing export infrastructure and local industrial base. This can help them ramp up at reasonable cost and lay the foundations for a new global market. It may be a grand vision, but Germany and the rest of Europe will likely depend on it for their net-zero ambitions.

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