The COVID-19 pandemic has brought many things to a halt. Momentum for hydrogen is not one of them. The clean molecule – which holds great promise for storing zero-carbon energy and transporting it over long distances, coupling gas and electric systems, and decarbonising hard-to-abate sectors – is still the talk of the town. In the EU, the unprecedented decision to allocate hundreds of billions of euros for green recovery further improved the outlook for hydrogen. Wood Mackenzie has recently reviewed its estimate on future green hydrogen capacity upwards. The total capacity of announced green hydrogen projects that will become operational by 2025 is 3.2 GW, 12 times as much as total capacity installed in the period 2010-2020.
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Hydrogen keeps on rocking
So much is going on in ‘hydrogen country’ that it is hard to keep track of all the daily news. Since the spread of the COVID-19 outbreak to the EU, there has been a further acceleration in the adoption of hydrogen policy visions and in the announcement of international agreements. The EU launched its Hydrogen Strategy on 8 July, following the publication of the Dutch and German national hydrogen strategies in April and June respectively. In parallel with the EU Hydrogen Strategy, the EU Strategy for Energy System Integration and the Clean Hydrogen Alliance have been launched. In July, eleven infrastructure companies presented a EU Hydrogen Backbone Plan.
Not only policy visions, but also concrete projects are moving forward. In The Netherlands, the ambitious NortH2 project – hinging on plans of sizeable green hydrogen production from offshore wind – was launched at the end of February. In July, HYZON opened Europe’s first dedicated hydrogen truck production factory in The Netherlands. While frontiers between EU countries were being closed to limit the spread of the virus, a cross-border hydrogen infrastructure project between France and Germany – MosaHYc – was announced at the end of May.
In June, Snam signed a five-year agreement with Alstom to develop hydrogen trains in Italy and in July it successfully tested the world’s first ‘hybrid’ hydrogen turbine with Baker Hughes, paving the way for hydrogen-gas blending in Italy. ENI – which has recently embarked on a reorganization process to step up decarbonisation efforts – announced in June that it will scale up its CCS project around Ravenna to create one of Europe’s biggest CO2 and blue hydrogen hubs.
In July, Spain’s Iberdrola and Fertiberia signed an agreement to build large solar PV installations and electrolyser capacity to produce green hydrogen and ammonia, which will be used in the production of fertilisers. Portugal is also moving fast. In July, the projects chosen as beneficiaries in the framework of the country’s national hydrogen strategy were announced. H2 Sines by EDP and Galp and H2Enable by Bondalti Chemicals are the largest. All of the abovementioned projects, started after the beginning of the COVID-19 outbreak, add up to numerous projects launched in 2019 and before, which are listed in a useful IEA Database.
Scaling: the importance of competition and coordination
Hydrogen projects are increasingly ambitious in their scope and scale, with a significant number of them already targeting large-scale production. In practice, however, clean hydrogen production scaling still needs to be achieved. This will be the main challenge that the hydrogen industry will have to win in the next years. Final Investment Decisions (FIDs) will be made once there are sufficient guarantees that projects are financially sustainable in the long term.
Importantly, recent project announcements span across the entirety of what will be the future hydrogen value chain: from the construction of dedicated RES capacity, electrolysers and Steam Methane Reforming/CCS facilities to hydrogen-ready pipelines and fuel cells, trucks, trains and other hydrogen appliances for hydrogen in end-use sectors. Often, single projects involve diverse stakeholders that are collectively able to coordinate upstream, midstream and downstream investment.
Finally, while until 2018 hydrogen was only raising interest in a handful of countries – like Japan, Norway and The Netherlands – there are now hydrogen projects in virtually every EU country and also outside of the EU, including in MENA neighbours that seek to exploit and export their remarkable RES production potential.
Competition – namely among electrolyser and fuel cell producers – is welcome, in order to bring down costs. A prospective race between the EU and China on hydrogen technologies, for example, should be saluted as an enabler of a global breakthrough. While cheap Chinese technologies crucially helped the uptake of solar PV, this time the EU will have to do a better job at balancing the interest of achieving industrial leadership (and not losing first-mover advantage) and allowing market dynamics to abate costs. In the meantime, the current tangible pressure to be ahead of the curve is healthy because it induces companies to take bold steps.
Alongside competition, forms of coordination are needed because some hydrogen investments are interdependent. For example, in order for schemes to bring North African hydrogen to Europe to be successful, there needs to be high-level coordination to align investments in renewable energy installation, gas pipeline conversion (or construction of dedicated hydrogen lines) and end-user markets – to make sure that the timing of supply and demand creation is synchronised. Long-term contracts with state guarantees might also be needed to make hydrogen projects bankable, similar to natural gas market creation fifty years ago.
Why COVID-19 could have killed the momentum for hydrogen – and why it didn’t
COVID-19 had raised concerns that large energy investors would become reluctant to invest in riskier, visionary projects and would prioritise quick returns, focussing on their core business. Other concerns were that smaller hydrogen technology providers would face bankruptcy and that budget-constrained governments would cut hydrogen-enabling investments. The latter scenario would probably be the worse, as it is estimated that seventy percent of energy transition investments will have to be allocated by governments.
In the initial phase of the COVID-19 crisis, it was unclear whether the EU would deprioritise decarbonisation. The fear was that efforts to support ‘old economy’ sectors (forming the backbone of the EU economy) would absorb all of the EU’s financial capacity. These concerns are not fully dispelled, but things are definitely moving in the right direction. For now, the EU Hydrogen Strategy is a broad vision and significant doubts exist on the feasibility of its targets. However, its adoption could not have been more timely, as it gave strong and immediate signs that commitment to clean molecules would be maintained and even raised; paved the way for (and started to identify) regulation needed to unlock market opporunities for hydrogen; and provided a framework to channel private and (booming) public investment towards hydrogen. This proved crucial to maintain momentum for hydrogen in the EU in the midst of the COVID-19 crisis.
Another welcome element of current hydrogen plans is their marked international dimension, in an era of growing fragmentation and autarkic temptations. At the same time, the EU seems committed to use hydrogen as an opportunity to build industrial leadership and strategic autonomy. Hydrogen should be used to establish new links of positive interdependence with countries of its Southern and Eastern Neighbourhoods, whose prosperity is crucial (also) for stability in the EU.
This time is different
Yes, hydrogen has had a few false dawns, but this time is different. It is now supported by a broad coalition of companies, from utilities to car manufacturers, from oil companies to transmission operators. Some of them are faced with existential threats and massive stranded asset risks – encouraging them to bet on hydrogen. It also enjoys unprecedented political support. As a recipient of green recovery funds, it can be one of the few grounds of political synergy between Northern and Southern Europe.
RES production costs have come down significantly, increasing the viability of green hydrogen relative to 20-30 years ago – when the fuel made a false start. At the same time, system adaptation costs due to RES are rising. The limitations of near-full electrification pathways (and their hefty costs) are increasingly clear as RES deployment increases, proving the need for clean molecules as enablers of RES. To be sure, hydrogen needs to see huge investments to take off. At the same time, its holds promise of long-term affordability. The possibility to re-use existing gas infrastructure offered by hydrogen should not be missed at a time when it is particularly important not to waste precious resources.
The author: Luca Franza
Luca Franza is the Head of the Energy, Climate and Resources Programme at Istituto Affari Internazionali (IAI). He is also a Research Fellow at the Clingendael International Energy Programme (CIEP) in The Hague (The Netherlands) and a lecturer in the Energy Master of the Paris School of International Affairs (PSIA) – SciencesPo.
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