Costs for hydrogen produced from renewable energy through electrolysis are coming down and the technology is increasingly heralded as a clean energy carrier for the future, but there are hurdles to overcome before a clear business case for green hydrogen can be made

Cost:
Experts forecast that by 2030 the falling cost of both renewable energy and electrolysis technology could make production of green hydrogen as cheap as chemically synthesising grey hydrogen from fossil fuel gas

Needs:
For hydrogen made from renewable energy to be competitive with alternatives the technology requires an abundant supply of cheap green energy, a high carbon price on fossil fuels and supportive regulation

Key quote:
“Hydrogen can be a winner in the energy transition if industry works with us, if we are smart enough to set the right framework and we move hydrogen out of the niche market where it is stuck today into a broader mainstream.”

Hydrogen is not the future, it is the now, insists Thierry Lepercq from Solairestream, a French company. “We are at the tipping point,” he says. Once green hydrogen can be produced at $1.5 a kilogram, it becomes a competitive option as an energy carrier if fossil fuels, from which hydrogen is traditionally derived, are loaded with a “reasonable carbon price”. Lepercq was speaking at a workshop organised by SolarPowerEurope in Brussels at the end of May 2019. Most energy experts have long been sceptical about whether the large-scale production of hydrogen from renewable energy, also known as green hydrogen, can be economically viable. With falling renewable energy prices accelerating the energy transition, however, hydrogen actors across the European supply chain are keen to prove it can be. They want to place the continent at the forefront of a hydrogen revolution. Belief in the future of hydrogen dominated discussions at the Brussels workshop on solar-to-hydrogen. But massive growth in solar and wind power is vital if renewable hydrogen is to have the future some are predicting as a carrier of cheap green energy. Most (grey) hydrogen is currently produced from natural gas through steam methane reforming, which is highly carbon dioxide (CO2) intensive unless the CO2 is captured and stored (blue hydrogen). While grey hydrogen, is incompatible with responding to the climate emergency, it has been considerably cheaper to produce for industrial processes such as in oil refineries and to manufacture fertilisers, than green hydrogen . Advocates believe this is set to change. By 2020-2025, the cost of producing hydrogen from fossil fuels without carbon capture and storage (CCS) will be €1-1.5 a kilogram, reports the Technical University of Delft in the Netherlands, with the cost of hydrogen from fossil fuels with CCS projected at €2.0-3.0/kg and hydrogen from renewable energy and electrolysis at €2-3/kg. The university’s research indicates the production cost of green hydrogen will drop to €1.5-2.5/kg from 2025-2030 and to around €1/kg after 2030. EU-produced renewable gas production could, by 2050, reach at least 122 billion cubic metres (bcm) of natural gas equivalent, or about 1200 terawatt hours, according to a recent study by Ecofys, part of the Navigant group, for the Gas for Climate consortium. The report forecasts that this would consist of 98 bcm of biomethane and 24 bcm of hydrogen from renewable electricity surplus to immediate requirements that would otherwise be curtailed. More significant volumes could be possible if electrolysers come down in cost, Ecofys acknowledges. Still, the projection is described as “rather cautious” by Klaus-Dieter Borchardt, deputy director general at DG Energy, speaking at the Brussels event.

Sleepless nights

Luc Garé, vice president of sales and marketing at Nel, a Norway-headquartered hydrogen company, insists costs are already being driven down with the hydrogen industry “giving the oil and gas people sleepless nights”. Cheaper electrolysers and lower renewable electricity costs will accelerate growth in renewable hydrogen, he told workshop participants. “It will take a couple of years to get to a general price of $2 a kilo”, said Garé, agreeing with Delft university’s cost projections. But in certain cases it is already possible today to make a business case for renewable hydrogen through solar, he added, giving the example of his company’s electrolyser factory in Norway that will scale up its yearly production capacity to 360 megawatts (MW), nearly ten times more than today. “The fully automated factory will massively drive prices down and we can easily duplicate this,” he said. Another way of creating a business case for green hydrogen is to rethink. “Instead of a PPA [power purchase agreement], go for a GPA [gas power agreement],” says Garé. He explained at the workshop that by this he meant solar developers should stop focusing on simply selling electricity and instead concentrate on “building or producing something else to create more value”. As an example he suggested the owner of a solar photovoltaic plant in Spain should use solar-generated electricity to produce green hydrogen and sell this to a company like the global energy giant Repsol under a GPA rather than selling its electricity to a utility like Iberdrola under a PPA. Such a “hydrogen ecosystem” is vital to drive down costs and scale up the green hydrogen market and supply chain, said Garé. “We get ten to 20 people a day contacting us from chemical companies and pharmaceutical plants wanting to know about green hydrogen,” he added. “Many are driven by shareholder requests and a responsibility to the outside world.” The transition to a clean energy economy is much more alive than some people try to get us to believe,” he contends. “We need an ecosystem to drive this and speed it up.” Project developers and engineers with a knowledge of both the gas and renewable energy business and “everybody in between” need to work together and make sure the right knowledge is in the right place, said Garé.

Crossing borders

For Benedikt Herges, senior energy director at Siemens, a successful hydrogen ecosystem is one that transcends borders and regions. He highlighted the acute need for “access to cheap renewables to build a business case” for renewable hydrogen and suggested imports into Europe from sunny regions with lots of cheap energy, such as Morocco and Egypt, could be one solution. Imports would also avoid the need for subsidies or regional funding to build a hydrogen economy, added Herges. “We need to start thinking global,” he said. Siemens is currently building the Middle East’s first large-scale solar-driven hydrogen plant to produce green hydrogen in time for the World Expo 2020 that will kick off in Dubai at the end of 2020. Back in Germany, Siemens is hoping to get approval to build a power-to-gas facility of up to 100 MW that converts electricity from wind into green hydrogen in the coal regions of Saxony Anhalt with a broad variety of off-takers in the industrial and mobility sectors. The company is part of an EU project, H2Future, working on carbon-free steel production. Among other project members is Austrian-headquartered steel manufacturer Voestalpine and energy suppliers. Borchardt underlined the importance of “synergies between sectors” and urged “industry and policy makers to work together to find cost efficient solutions” to the energy transition. “We want to make sure all technologies have the same chance to contribute,” he said. “Renewable gas and hydrogen can play a very important role.” Borchardt was sceptical, though, in the short term at least, about relying on energy imports. “First we should tap into the potential we have here [in Europe]. We should not fall into the trap we have with gas, where we have a huge supplier and the problems that are linked to that.” Instead, Borchardt urged the hydrogen sector to start locally or regionally, reaching out to industries that want to decarbonise to help build a business case. “Nobody has said that surplus energy will be the only source for hydrogen, but it is the most obvious place to start business because you have zero price or even negative price raw materials,” said Borchardt. “Now we pay millions and millions on curtailment, which blocks the development of renewable energy. Our duty, first and foremost, is to make economic use of this surplus power and to free up possibilities for new renewable production and make use of hydrogen in other sectors that need to be decarbonised.”

Right framework

Regulation is another part of the puzzle that will decide the future of green hydrogen. In Europe that means “fast and forward-looking” implementation of the Renewable Energy Directive and related laws, said Herges. “Otherwise we will have a problem. We will need a better regulatory framework to create a business case.” Borchardt refused to be drawn on the role other legislation such as a future EU gas regulation framework would play concerning hydrogen, saying it was a question for the new European Commission when it comes into office at the end of 2019. “We are working very intensively on these matters, but the framework is not technically or politically mature,” he said. “We believe that hydrogen can be a winner in the energy transition if industry works with us, if we are smart enough to set the right framework and we move hydrogen out of the niche market where it is stuck today into a broader mainstream.” Discussions in the Madrid Forum, set up to discuss issues around an internal EU gas market, also give a good sense of what still needs to be solved concerning hydrogen, said Borchardt. He listed “definitions” as one area that needs work. “We talk about renewable hydrogen, green, blue, grey, black hydrogen,” said Borchardt. “It is nonsense. We need to base these definitions on emissions or the absence of emissions.” But it was less clear who should decide these definitions, he suggested, asking whether it should be the market, transmission system operators or distribution system operators or others. A second outstanding issue is whether targets are needed for renewable gases in general or hydrogen more specifically, said Borchardt. And thirdly is the question of funding. “If we believe that this technology can make an important contribution to the decarbonisation of energy and other sectors, we need to be open to funding potential available in the EU,” he said. Proposals have been put forward to fund hydrogen in the next EU budget (the Multiannual Financial Framework) under the Connecting Europe Facility, aimed at promoting growth, jobs and competitiveness through targeted infrastructure investment. “But there are a whole other bunch of possibilities we can deploy,” said Borchardt.

Cash cow

The general reaction from speakers at the event was that neither targets nor subsidies were a good idea, with a call instead for better CO2 pricing to boost renewable gas. Subsidies should only be available for innovation and not to develop other parts of the market, said Martin Hackl, global director business units at Fronius, an Austrian-based solar and hydrogen company. “Let the fossil energy carriers pay the damage they do to the climate via high CO2 pricing.” Speaking after the event, he also urged countries to make it easier for renewables to operate. “Make solar the new normal,” he said. “In many countries there is still a complex administrative procedure to get a PV system on a roof.” Hackl asked: “Did you ever hear about a complex process to get a fossil gas heating system in your house? Do you need a permission to buy a fossil fuel car?” As for targets, he said: “The markets are transparent enough and tend to bring out the right solutions. We don’t need hydrogen targets if everything else that should be done is done.” Maider Feunteun, director of green hydrogen innovation at Akuo Energy, a French-headquartered renewables company, agreed that targets for hydrogen were not needed as long as the technology was competing in a level playing field and other options were treated in the same way. “We don’t want to prevent people from looking at business cases and cost efficient solutions,” she said. “We have to make a business case for hydrogen without subsidies in the long run.” With all this in mind, Borchardt said he expected the price of CO2 to be on the table of the new Commission and that EU member states were already starting to discuss the issue. “While reforms to the EU Emissions Trading Scheme have pushed up the price to €25 a tonne, this is still not enough to make a business case for hydrogen and trigger change,” he said. Lastly, he called on member states to consider Commission proposals to speed up change by shifting from the requirement for a unanimous decision in the European Council when voting on energy charges and taxes to an outcome based on a qualified majority decision to stop countries using them for their own purpose and to make it easier to reach EU climate and clean energy goals. “Countries cannot use the energy system as a cash cow for general budget purposes,” he said.

Writer: Philippa Nuttall Jones