EU Hydrogen Strategy Upgrades Green Hydrogen from Pipe Dream to Reality

Morgan Lewis
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Morgan Lewis

The use of hydrogen as a cleaner alternative to fossil fuel in the transportation sector, as well as for industrial use, has been under discussion for some time, but its potential was very much put in the spotlight recently. While Saudi Arabia unveiled the world’s largest green hydrogen project, the European Union presented its ambitious hydrogen strategy a day later. It’s clear that hydrogen’s status has shifted from the clean energy gas of the future to the clean energy gas of the present.

The European Union (EU) released its Hydrogen Strategy for a Climate-Neutral Europe(the EU Hydrogen Strategy)[1] on 8 July, announcing that it views hydrogen as “essential to support the EU’s commitment to reach carbon neutrality by 2050.” There is a growing realisation that renewable power will not be sufficient to decarbonise all of the EU’s energy consumption by 2050, and green hydrogen is seen as crucial to bridge the gap.

Furthermore, the EU stated that it firmly believes that the economic rescue plan following the coronavirus (COVID-19) pandemic should be built around the European Green Deal strategy, a roadmap presented in December 2019 which aims to make Europe the first climate-neutral continent by 2050, and the EU expects to unlock investments that are aligned with its “green objectives.”

WHAT IS GREEN HYDROGEN?

Hydrogen is a sought-after source of energy because it does not emit carbon dioxide and creates almost no air pollution when used as a fuel. The colour coding assigned to hydrogen depends on how it has been produced. “Green hydrogen” (also referred to as “renewable hydrogen” or “clean hydrogen”) is created by the electrolysis of water using the electricity generated by renewable energy, and is therefore remarkably clean with its close to zero greenhouse gas emissions production process.

Conversely, “blue hydrogen” is produced from fossil fuels, usually natural gas, and the carbon dioxide that is released as a byproduct is captured and stored. Blue hydrogen is therefore not completely carbon free, but is often argued to be an acceptable transition measure. “Grey hydrogen,” on the other hand, is hydrogen that is produced using fossil fuels but with no carbon reduction process, and is therefore the least environmentally friendly version of hydrogen.

FACING MANY CHALLENGES

To date, most of the hydrogen produced is grey hydrogen and is thus not carbon friendly. According to Wood Mackenzie,[2] green hydrogen currently accounts for less than 1% of all hydrogen production. The biggest hurdle to scalability of clean hydrogen production has been its cost. Clean gas is not cost competitive when compared to fossil-based hydrogen: the production, transportation, and storage costs are substantial (e.g., the estimated costs for fossil-based production of hydrogen are 1.5 €/kg, compared to 2.5 to 5.5 €/kg for hydrogen produced using renewable energy[3]).

The current push for green hydrogen comes as production costs of renewable power are rapidly falling, making the cost savings resulting from the use of fossil-based hydrogen less significant. In particular, according to the EU Hydrogen Strategy, the cost of electrolysers used to produce clean hydrogen have already fallen, having been reduced by 60% in the last 10 years, and thanks to economies of scale, are expected to be half of their current costs by 2030.

The wide-scale deployment of green hydrogen therefore requires a combination of factors, including critical mass in investment, an attractive regulatory framework, sustained research and innovation, and a large-scale infrastructure network, all of which make the EU well placed to lead the hydrogen revolution.

EU AMBITIONS FOR GREEN HYDROGEN

The EU Hydrogen Strategy lays out a roadmap for achieving its green hydrogen ambitions:

  • In the first phase, install at least 6 GW of renewable hydrogen electrolysers in the EU by 2024, resulting in the production of up to 1 million tonnes of renewable hydrogen to decarbonise the existing hydrogen production. This would involve the scaling up of electrolyser manufacturing and retrofitting existing hydrogen production plants with carbon capture and storage technologies. In this phase, the EU will also support strategic investments in clean hydrogen in the context of the European Commission’s post-COVID-19 recovery plan.
  • In the second phase, install at least 40 GW of renewable hydrogen electrolysers in the EU by 2030, resulting in the production of up to 10 million tonnes of renewable hydrogen. This would require renewable hydrogen to become cost competitive with other forms of hydrogen production, and will require policies that encourage increased demand for hydrogen in areas such as the manufacture of steel and transport applications. The EU Hydrogen Strategy also envisages that this phase will involve the development of regional ecosystems to cater for localised demand, including for heating of residential and commercial buildings, but also the increase in need for EU-wide logistical infrastructure to allow transportation of hydrogen from areas with high renewable potential to areas of high demand. This phase also would require the evolution of an open EU hydrogen trading market.
  • In the third phase, move to the deployment of large-scale projects so that all hydrogen is green hydrogen and 25% of all renewable power is used in the production of hydrogen by 2050. In this phase, the use of hydrogen would extend to the production of synthetic fuels used in aviation and shipping, as well as in industrial applications.

The EU Hydrogen Strategy also officially kick-started the European Clean Hydrogen Alliance, which was set up to bring together investors, national and local public authorities, and industrial and institutional partners and to identify and facilitate cooperation in large-scale investment projects. The European Clean Hydrogen Alliance is expected to develop an investment agenda and a pipeline of projects required to achieve the targets outlined in the roadmap.

In addition, the EU Hydrogen Strategy sets a list of key action items for follow up, including the following:

  • Development of a policy framework that includes the introduction of a comprehensive terminology and EU-wide criteria for the certification of renewable and low-carbon hydrogen
  • Development of a pilot scheme for a carbon contracts for difference programme
  • Promotion of research and innovation in hydrogen technologies (such as the launch of a 100 MW electrolyser and a “Green Airports and Ports” call for proposals this year)
  • Strengthening of cooperation with neighboring countries, as well as cooperation with the African Union through the Africa-Europe Green Energy Initiative, which was laid out in the communication “Towards a Comprehensive Strategy with Africa” and proposes, in particular, a partnership for green transition and energy access[4]

Evidence of increasing cooperation between EU and African states can be found in the partnership agreement signed between Morocco and Germany on 10 June to develop the production of green hydrogen in Morocco and thus transform its renewable energy sector.

RACE FOR CLEAN ENERGY

Interest in green hydrogen is not new, but the significance of its role in the renewable energy mix has increased recently. Even major oil and gas companies have become important players in the hydrogen sector, such as Shell, which, together with Gasunie and Groningen Seaports, announced in February its intention to start feasibility work on NortH2, Europe’s largest green hydrogen project. This integrated project aims to set up electrolysers in Eemshaven, Netherlands to produce 800,000 tonnes of green hydrogen per year by 2030, using renewable energy generated by a new offshore windfarm to be developed in the North Sea that is capable of producing 3 to 4 GW of electric power a year. Gasunie’s infrastructure would be used to deliver the hydrogen to industrial users in the Netherlands and beyond. Similarly, Repsol has recently launched a pilot program to develop a green hydrogen plant for production of synthetic fuels.

More recently, a consortium involving Air Products, ACWA Power, and NEOM announced on 7 July the signing of a $5 billion agreement for the development of a green hydrogen–based ammonia production facility to be powered by renewable energy. The project, expected to be the world’s largest green hydrogen project, will include the development of more than 4 GW of renewable power generated from solar and wind resources to produce 650 tonnes of green hydrogen a day and 1.2 million tonnes of green ammonia a year.

CONCLUSION

The viability of green hydrogen as an alternative to fossil fuel has been a topic of conversation for some time, with high technology costs, insufficient demand, and a lack of associated infrastructure being touted as reasons for it to be considered only a niche product. But taken together, falling costs of renewable power generation, a renewed focus on the dangers of climate change, the ambitious EU Hydrogen Strategy, and government incentives and policies that are actively promoting investment in hydrogen production and use mean its time may finally have come.

 


[1] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, and the Committee of the Regions, A Hydrogen Strategy for a Climate-Neutral Europe, COM(2020) 301 final (8 July 2020).

[2] Wood Mackenzie, Green Hydrogen Production: Landscape, Projects and Costs (22 Oct. 2019).

[3] IAE 2019 Hydrogen Report, quoted in the EU Hydrogen Strategy.

[4] Joint Communication to the European Parliament and the Council, “Towards a Comprehensive Strategy with Africa,” JOIN(2020) 4 final (9 Mar. 2020).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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