The discussion around hydrogen is often focused on scaling up production and supply, how to get it done quickly, at what cost, and the best technologies. Less attention has been given to security of demand and how producers and end users can be linked up.
The discussion around hydrogen is often focused on scaling up production and supply, how to get it done quickly, at what cost, and the best technologies. Less attention has been given to security of demand and how producers and end users can be linked up.
Green and low-carbon hydrogen can play a vital role in energy transition, if the right sectors are targeted. In road transport, for example, hydrogen may be more suitable for trucks and trains than for passenger cars where electrification has already come a long way. But a roll-out of standardized infrastructure is necessary to enable the transition from gas to hydrogen in heavy-duty transport.
The H2Accelerate initiative1 – which brings together companies such as Volvo, Shell, Daimler, and TotalEnergies – is one example of how companies across different sectors can collaborate and create synergies in the hydrogen value chain. The aim of the partnership is to promote hydrogen to decarbonize long-haul, heavy-duty trucking across Europe. Earlier this year, the partners received €30mn in funding from the EU-backed Clean Hydrogen Partnership to deploy 150 fuel cell trucks, and €42mn in further funding from the EU’s Connecting Europe Facility (CEF) to set up refueling stations, thus taking the total number of planned stations so far to 29.
Green and low-carbon hydrogen can play a vital role in energy transition, if the right sectors are targeted. In road transport, for example, hydrogen may be more suitable for trucks and trains than for passenger cars where electrification has already come a long way. But a roll-out of standardized infrastructure is necessary to enable the transition from gas to hydrogen in heavy-duty transport.
The H2Accelerate initiative1 – which brings together companies such as Volvo, Shell, Daimler, and TotalEnergies – is one example of how companies across different sectors can collaborate and create synergies in the hydrogen value chain. The aim of the partnership is to promote hydrogen to decarbonize long-haul, heavy-duty trucking across Europe. Earlier this year, the partners received €30mn in funding from the EU-backed Clean Hydrogen Partnership to deploy 150 fuel cell trucks, and €42mn in further funding from the EU’s Connecting Europe Facility (CEF) to set up refueling stations, thus taking the total number of planned stations so far to 29.
Another example is a project titled the ‘European Hydrogen Network,’ by Hype, a French taxi firm with a fleet of 700 hydrogen-fueled vehicles. Hype plans to install 26 hydrogen refueling stations in the Greater Paris area by the end of 2025 and a minimum of 18 stations and three electrolyzers in seven other European regions; Le Mans, Bordeaux, Brussels, Madrid, Barcelona, Lisbon, and Porto. The project was recently selected for over €18mn in funding under the EU’s ‘CEF – Transport – AFIF (Alternative Fuels Infrastructure Facility)’2.
These projects are important first steps, but a clear strategy for linking producers and offtakers is still missing at large. In this article, we look at some of the challenges and opportunities facing the hydrogen industry at this embryonic stage.
Another example is a project titled the ‘European Hydrogen Network,’ by Hype, a French taxi firm with a fleet of 700 hydrogen-fueled vehicles. Hype plans to install 26 hydrogen refueling stations in the Greater Paris area by the end of 2025 and a minimum of 18 stations and three electrolyzers in seven other European regions; Le Mans, Bordeaux, Brussels, Madrid, Barcelona, Lisbon, and Porto. The project was recently selected for over €18mn in funding under the EU’s ‘CEF – Transport – AFIF (Alternative Fuels Infrastructure Facility)’2.
These projects are important first steps, but a clear strategy for linking producers and offtakers is still missing at large. In this article, we look at some of the challenges and opportunities facing the hydrogen industry at this embryonic stage.
Navigating Challenges on the Road to Hydrogen
Europe is not alone in trying to attract investments into hydrogen.
There is a risk that clean tech investors may migrate to the U.S. where some view the regulatory framework as more supportive. For example, tax rebates under the Inflation Reduction Act (IRA) have been designed to attract investment in green tech, including renewable hydrogen and low-carbon hydrogen using carbon capture technologies. Some European companies, including Norwegian hydrogen company, NEL, have announced that they are relocating some of their operations to the U.S. because of the attractiveness of the IRA. The extent to which the EU’s move to temporarily relax state aid rules will address this issue remains to be seen.
Linking producers and offtakers will require adequate transport infrastructure. Options include converting existing gas pipelines to transport hydrogen, building new infrastructure, transporting hydrogen as ammonia over long distances using ships, or producing the hydrogen near or adjacent to the demand centers.
In December 2022, Spanish energy company Cepsa announced a €3bn investment in the Andalusia region to build Europe’s largest hydrogen hub, with a total planned capacity of 2GW. Cepsa announced that it would work closely with other renewable energy producers in the region and across Spain to “promote the integration of these new plants into the electricity system”3
In the UK, proposed clusters such as HyNet and Net Zero Teesside – which have backing from many large players including oil majors – aim to deploy multiple decarbonization technologies to clean up industrial activity; carbon capture and storage (CCS), hydrogen production, low-carbon power generation, and more. Decarbonization clusters could bring down industrial greenhouse gas emissions substantially, but they require multi-billion pound investments and strong government support to scale up.
Another major challenge is cost competitiveness. This goes for both imported and domestically produced hydrogen. Cost estimates for green and blue hydrogen vary significantly, but conventional fuels are expected to remain a cheaper alternative for the foreseeable future. Governments may consider market interventions such as quotas or requirements in public procurement to create demand. Such interventions are not without controversy and could create market distortions. But without strong demand from end-users, hydrogen projects may struggle to develop at scale and Europe’s decarbonization targets may remain out of reach.
Navigating Challenges on the Road to Hydrogen
Europe is not alone in trying to attract investments into hydrogen.
There is a risk that clean tech investors may migrate to the U.S. where some view the regulatory framework as more supportive. For example, tax rebates under the Inflation Reduction Act (IRA) have been designed to attract investment in green tech, including renewable hydrogen and low-carbon hydrogen using carbon capture technologies. Some European companies, including Norwegian hydrogen company, NEL, have announced that they are relocating some of their operations to the U.S. because of the attractiveness of the IRA. The extent to which the EU’s move to temporarily relax state aid rules will address this issue remains to be seen.
Linking producers and offtakers will require adequate transport infrastructure. Options include converting existing gas pipelines to transport hydrogen, building new infrastructure, transporting hydrogen as ammonia over long distances using ships, or producing the hydrogen near or adjacent to the demand centers.
In December 2022, Spanish energy company Cepsa announced a €3bn investment in the Andalusia region to build Europe’s largest hydrogen hub, with a total planned capacity of 2GW. Cepsa announced that it would work closely with other renewable energy producers in the region and across Spain to “promote the integration of these new plants into the electricity system”3
In the UK, proposed clusters such as HyNet and Net Zero Teesside – which have backing from many large players including oil majors – aim to deploy multiple decarbonization technologies to clean up industrial activity; carbon capture and storage (CCS), hydrogen production, low-carbon power generation, and more. Decarbonization clusters could bring down industrial greenhouse gas emissions substantially, but they require multi-billion pound investments and strong government support to scale up.
Another major challenge is cost competitiveness. This goes for both imported and domestically produced hydrogen. Cost estimates for green and blue hydrogen vary significantly, but conventional fuels are expected to remain a cheaper alternative for the foreseeable future. Governments may consider market interventions such as quotas or requirements in public procurement to create demand. Such interventions are not without controversy and could create market distortions. But without strong demand from end-users, hydrogen projects may struggle to develop at scale and Europe’s decarbonization targets may remain out of reach.
Seizing Hydrogen’s Opportunities
Despite these challenges, hydrogen – as a storable, low-carbon fuel – clearly still has a role to play in the energy transition. For example, both blue and green hydrogen could play a vital role in certain hard-to-abate sectors where electrification falls short.
Steel making is an example. Germany, which has a strong industrial base, has set a 65% reduction target for greenhouse gas (GHG) emissions by 2030 and 88% by 2040 compared with 1990 levels. It will not be possible to meet these targets without decarbonizing heavy industry such as steel, cement, paper and glass.
This will cost money, but the German government seems to understand this.
Seizing Hydrogen’s Opportunities
Despite these challenges, hydrogen – as a storable, low-carbon fuel – clearly still has a role to play in the energy transition. For example, both blue and green hydrogen could play a vital role in certain hard-to-abate sectors where electrification falls short.
Steel making is an example. Germany, which has a strong industrial base, has set a 65% reduction target for greenhouse gas (GHG) emissions by 2030 and 88% by 2040 compared with 1990 levels. It will not be possible to meet these targets without decarbonizing heavy industry such as steel, cement, paper and glass.
This will cost money, but the German government seems to understand this.
In June this year, it started a preparatory process to implement a €50bn funding scheme to decarbonize its industrial sector by 2045. The subsidy scheme will allow developers of hydrogen to bid for Carbon Contracts for Difference (CCfDs) in order to bridge funding gaps. CCfDs with a duration of 15 years will be offered to successful bidders and the first auction is expected to take place later this year.
In June this year, it started a preparatory process to implement a €50bn funding scheme to decarbonize its industrial sector by 2045. The subsidy scheme will allow developers of hydrogen to bid for Carbon Contracts for Difference (CCfDs) in order to bridge funding gaps. CCfDs with a duration of 15 years will be offered to successful bidders and the first auction is expected to take place later this year.
National subsidies are not always compatible with EU competition law. To this end, the European Commission (EC) has announced that it will temporarily relax state aid rules, which should enable EU nations to subsidize clean energy projects to a greater extent than before. There are strong signals this is already happening; in July, the EC gave state aid approval to two projects aimed at decarbonizing steel production in Germany and France4. The first was a direct grant of up to €550mn from the German state to ThyssenKrupp to support the installation of a direct reduction plant (DRP) and two melting units in Duisburg, which will replace an existing blast furnace. As of 2037, the plant will be operated using only renewable hydrogen, according to plans. Moreover, a €1.45bn conditional payment scheme will cover the costs of procuring and using renewable hydrogen. The EC also approved an €850mn French subsidy scheme to support ArcelorMittal in partially decarbonizing its steel production in Dunkirk.
When it comes to transporting hydrogen, the repurposing of existing gas infrastructure also offers plenty of opportunities. In June of this year, Dutch TSO Gasunie took a final investment decision (FID) to develop the Rotterdam section of the country’s planned, 1,200 kilometer long national hydrogen network which will largely consist of existing natural gas pipelines5.The plan is to connect major industrial regions in the Netherlands with neighboring countries, including Germany and Belgium, from 2030 onwards. The total cost is estimated at €1.5bn.
In other cases, building new pipelines is necessary and – fortunately – there are plenty of examples to be excited about. As for cross-border projects, the planned two mtpa (million tons per annum) hydrogen pipeline between Barcelona and Marseille (H2Med), which also has support from Germany, could be up and running by 2030 at a cost of €2.5bn, although it hinges on EU grants to get the final go-ahead. More recently, the UK government-funded Net Zero Technology Centre (NZTC) outlined plans for a 10 GW green hydrogen pipeline that would connect Scotland’s east coast with Emden in Germany6. The estimated investment cost for the project – which would transport hydrogen converted from electricity produced by offshore wind – is £2.7bn.
With growing political support from the EU and national governments, these projects could make great contributions to the hydrogen economy. But for this to happen, the gap between producers and end-users must be bridged sooner rather than later.
National subsidies are not always compatible with EU competition law. To this end, the European Commission (EC) has announced that it will temporarily relax state aid rules, which should enable EU nations to subsidize clean energy projects to a greater extent than before. There are strong signals this is already happening; in July, the EC gave state aid approval to two projects aimed at decarbonizing steel production in Germany and France4. The first was a direct grant of up to €550mn from the German state to ThyssenKrupp to support the installation of a direct reduction plant (DRP) and two melting units in Duisburg, which will replace an existing blast furnace. As of 2037, the plant will be operated using only renewable hydrogen, according to plans. Moreover, a €1.45bn conditional payment scheme will cover the costs of procuring and using renewable hydrogen. The EC also approved an €850mn French subsidy scheme to support ArcelorMittal in partially decarbonizing its steel production in Dunkirk.
When it comes to transporting hydrogen, the repurposing of existing gas infrastructure also offers plenty of opportunities. In June of this year, Dutch TSO Gasunie took a final investment decision (FID) to develop the Rotterdam section of the country’s planned, 1,200 kilometer long national hydrogen network which will largely consist of existing natural gas pipelines5.The plan is to connect major industrial regions in the Netherlands with neighboring countries, including Germany and Belgium, from 2030 onwards. The total cost is estimated at €1.5bn.
In other cases, building new pipelines is necessary and – fortunately – there are plenty of examples to be excited about. As for cross-border projects, the planned two mtpa (million tons per annum) hydrogen pipeline between Barcelona and Marseille (H2Med), which also has support from Germany, could be up and running by 2030 at a cost of €2.5bn, although it hinges on EU grants to get the final go-ahead. More recently, the UK government-funded Net Zero Technology Centre (NZTC) outlined plans for a 10 GW green hydrogen pipeline that would connect Scotland’s east coast with Emden in Germany6. The estimated investment cost for the project – which would transport hydrogen converted from electricity produced by offshore wind – is £2.7bn.
With growing political support from the EU and national governments, these projects could make great contributions to the hydrogen economy. But for this to happen, the gap between producers and end-users must be bridged sooner rather than later.
For more information on anything from the green transition to the state of European energy supplies, click the link to visit our EU Energy Resource Center:
Built with Shorthand