What needs to be done to develop hydrogen as a major fuel in Europe as the continent looks to diversify away from Russian oil and gas supplies? The war in Ukraine has led to the EU substantially raising its hydrogen ambitions. While the earlier “Fit for 55” target for 2030 was set at 5.6 Mt, the new REPowerEU strategy has increased the target to 20 Mt, to replace 50 bcm of Russian gas. That means, for example, the use of hydrogen in industrial heat is planned to increase 4.5-fold compared to the already ambitious “Fit for 55” targets, and a more than 2.5-fold increase is planned for transport. Helena Uhde at ECECP lays out the challenge, and turns to Eric Rakhou at Boston Consulting Group for some of the answers. In essence, the focus should now turn to building the hydrogen infrastructure, setting demand targets, and enabling all the right incentives. But hydrogen should only ever be the second-best option, as the first priority should always be efficiency and electrification.
EU policy makers face a difficult dilemma: how to manage energy security and independence without losing sight of the climate neutrality target. With the launch of REPowerEU (which maps the bloc’s plans to increase its energy security), they are signalling their determination to end the bloc‘s dependence on Russian gas and to accelerate the transition to clean energy.
According to the plan, by the end of 2022 100 bcm of gas imports from Russia will be replaced by means of various strategies, including more LNG and pipeline imports from other countries, doubling the sustainable production of biomethane, increasing the production and import of renewable hydrogen, while accelerating renewable energy generation.
Fundamental changes to energy security
It is a massive undertaking that requires a fundamental change in energy supply, production and consumption structures. In 2020, 83.5% of the EU’s demand for natural gas was covered by imports; 15 EU Member States even had an energy dependency rate for natural gas of over 90%. Russia has hitherto been the largest, though not the only, source of imports of crude oil, natural gas and solid fossil fuels into the EU.
Reshaping the European energy system and ending the dependency on Russian fossil fuels requires a radical acceleration of efforts, leaving policy makers faced with difficult choices. At the press conference on REPowerEU on 8 March 2022, European Commission’s Executive Vice-President Frans Timmermans was blunt: ‘It is hard, bloody hard. But it is possible, if we are willing to go further and faster than we have done before.’
High hopes for hydrogen
One energy source that is receiving more attention in the REPowerEU plan is hydrogen, along with its derivatives, such as ammonia, methanol, e-kerosene, and e-petrol. While the 2030 target for renewable hydrogen in Fit for 55 is set at 5.6 Mt, the new REPowerEU strategy has increased the target to 20 Mt, with a view to replacing 50 bcm of Russian gas.
…but the new REPowerEU hydrogen targets won’t be enough
The enormous change becomes particularly clear in the planned use of hydrogen by 2030 (see Figure 1). The use of hydrogen in industrial heat, for example, is planned to increase 4.5-fold compared to the already ambitious Fit for 55 targets. A more than 2.5-fold increase is envisaged in the transport sector.
But even if the targets seem huge, they are not enough to meet the targets set by the 2015 Paris Agreement. A recent article by Boston Consulting Group (BCG) concludes that 565 Mt/year of low-carbon hydrogen and derivatives will be required to meet the Paris Agreement target for the mean global temperature to rise 1.5°C above pre-industrial levels; achieving the more achievable 2°C target would require least 380 Mt production per year globally. The REPowerEU target of 20 Mt is only one-nineteenth of that, with half of that set to be imported into the EU.
Critics denounce hydrogen as energy-intensive and expensive. Elon Musk dismissed hydrogen storage as ‘the most dumb thing’ as recently as in May 2022. While Erik Rakhou, Associate Director at BCG and hydrogen expert, does not agree based on latest global hydrogen technology developments, he believes that hydrogen should not be the first choice. ‘Never use hydrogen first! It always comes second. Normally, you would always prioritise energy efficiency and electrification, and only if that is not possible, you would use hydrogen. It is a net zero tool, the second-best option. Secondly, on efficiency: yes, you lose energy in transport, in conversion, so you just have to look at the economics.’
The focus of hydrogen deployment should be on hard-to-abate sectors, such as the chemical industry, steel or ammonia production. ‘For me personally, hydrogen is a fantastic means of transporting renewable energy, where we cannot transport it in the form of electrons. Energy is transformed into molecules and can thus be used in sectors that are difficult to abate, because some of the processes require molecules’, says Rakhou.
Tomorrow starts today
Recently announced large-scale projects using green power or otherwise net-zero compliant solutions that aim to produce hydrogen or its derivatives, such as the HIF global eFuel plants in Chile, ACWA Power consortium’s green ammonia production plant in Saudi Arabia, or Shell’s hydrogen plant in the Netherlands, could take up to six years from public announcement to planned opening.
But it is not only the electrolysers that need time. The construction of wind and solar plants, as well as transmission lines, also take years. ‘It can take up to eight years to build transmission lines, if electrolysers are in places where there is no production,‘ states Rakhou.
Projections for hydrogen in the European Hydrogen Strategy 2020, which had less ambitious hydrogen targets than REPowerEU, assume that sectors that are difficult to decarbonise will be largely powered by hydrogen from 2030 onwards. Rakhou does not consider it realistic to achieve this goal any earlier, given how long it takes to develop projects. For industrial processes, the changeover could take just three years. ‘If you make the decision today and hydrogen is available, like in the Netherlands, you can start using hydrogen in industrial processes as early as 2025,’ says Rakhou.
Supporting the development and scale up of hydrogen
The development and scale-up of hydrogen must therefore be accelerated. ‘We need to strengthen three areas: funding, infrastructure, and various enablers,‘ urges Rakhou, referring to the study ‘How to Meet the Coming Demand for Hydrogen‘, which was recently published by BCG.
In terms of funding, the roll-out of carbon contracts-for-difference was signalled within the framework of REPowerEU. These could create Europe-wide incentives for the development of green hydrogen, with electricity sourced from renewable energy facilities. In order to ensure that the development of renewable hydrogen complies with emission reductions, the European Commission published two delegated acts on 23 May 2022 that specify how renewable fuels of non-biological origin (RFNBOs) and their emissions are to be defined. Increasing the innovation budget for cases where electrification is not possible, and conducting demonstration projects, could further encourage development.
In terms of infrastructure, Rakhou supports the expansion of electrolyser gigafactories. Examples include the 1 GW electrolyser project for a green hydrogen production complex in Esbjerg, Denmark, and a gigafactory in France to produce solid oxide electrolysers. Other important actions to expand the infrastructure include increasing the availability of land at offshore sites for local renewable energy production, accelerating permitting processes and developing cross-border hydrogen infrastructure, which will be crucial for managing flexibility.
General enablers for hydrogen include other supporting factors such as the Hydrogen Accelerator and hydrogen support by means of recognition as an Important Project of Common European Interest (‘IPCEI’). These are strategic funding projects that contribute to economic growth, employment and competitiveness for the EU‘s industry and economy. This signalling effect and financial support reduces the risk to investors. Certification is another enabling factor that could be introduced in order to distinguish renewable hydrogen from other commodities.
Important Project of Common European Interest in the hydrogen technology value chain (‘IPCEI Hy2Tech’) 
On 15 July 2022, the European Commission approved the project ‘IPCEI Hy2Tech’ which supports the development of the hydrogen value chain, including generation, fuel cells, storage, transport and distribution of hydrogen and end-user applications, especially in the field of mobility, in line with the objectives of key EU policy initiatives such as the Green Deal, the EU Hydrogen Strategy and REPowerEU.
The project will receive up to EUR 5.4 billion of public support from 15 Member States: Austria, Belgium, Czechia, Denmark, Estonia, Finland, France, Germany, Greece, Italy, the Netherlands, Poland, Portugal, Slovakia and Spain, and is expected to unlock an additional EUR 8.8 billion in private investments.
International hydrogen cooperation and trade
Under the 1.5°C global warming scenario, IRENA predicts that a quarter of total global hydrogen demand of about 150 Mt per year could be met through international trade, while the remaining three quarters would be produced and consumed domestically. Half of the targeted hydrogen volume of 20 Mt by 2030 is to be imported under the REPowerEU plan. This is well below today’s oil trade volumes in the EU, where about 74% is traded internationally, yet it is above the current gas market, where cross border trade accounts for just 33% of consumption.
Rakhou suggests that the hydrogen market could develop in a similar way to the market for LNG: ‘Hydrogen is a globally tradable commodity because we have means of transport, be it as ammonia, as methanol, be it through the development of e-fuels, of liquid hydrogen or of pipeline systems,’ he says. In order to evaluate the economic viability of trade, transport costs must be taken into account in addition to production costs at the site. ‘That is why we are already thinking about building a hydrogen backbone connecting the production centres with the demand centres. Here, it is very important that the policy makers sign MoUs, so that private actors, based on initiatives like H2Global, can match the supply outside Europe with the demand in Europe using the right incentive mechanisms,’ adds Rakhou.
Acceleration of efforts required
The upcoming COP27 climate conference in November 2022 in Egypt will show whether policy makers worldwide are ready to take the necessary steps to reach net zero by 2050. According to Rakhou, prioritisation is needed above all to push hydrogen as the second-best option. ‘I think net zero can be achieved, but we need to radically accelerate our efforts. My top three priorities for policy makers are i) enabling infrastructure, ii) demand targets, and iii) incentives. And then the market will work together to accelerate,’ summarises Rakhou.
This article was first published in the EU-China Energy Magazine – 2022 Summer Double Issue, available in English and Chinese, and is published here with permission
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