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Green Hydrogen Climbing Up Europe's Priority List

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Green hydrogen — using electrolyzers and wind and solar power — is quickly rising in importance within the EU's toolkit to drastically cut reliance on Russian fossil fuels. Brussels released a strategy paper supporting green hydrogen in July 2020, but a near-fivefold increase in natural gas prices since the middle of 2021 has turbocharged political backing and interest in renewables-based hydrogen production.

Indeed, since the beginning of the year, there has been a notable increase in the number and scale of announced green hydrogen projects in Europe, reflecting improving cost dynamics between green and blue hydrogen. Norway-based electrolyzer manufacturer Nel told Energy Intelligence this week that there is "certainly a growing focus on the role of renewable hydrogen in reducing EU import dependency and in particular the continent’s reliance on Russian fossil fuel imports."

The International Energy Agency includes green hydrogen on its 10-point list to reduce reliance on Russian gas, published in March. The Paris-based agency also sees it as an important medium-term tool to help the EU meet its 2030 and 2050 emissions targets.

Deepening Interest

The EU was already eyeing green hydrogen, and recent price pain and geopolitical tensions have only deepened this sentiment. Back in July 2020, Brussels released its EU Hydrogen Strategy calling for 6 gigawatts of electrolzyer capacity to be built by 2024 and 40 GW by 2030, producing up to 1 million tons of green hydrogen by 2024 and 10 million tons by 2030. More recently, Brussels said green hydrogen would be a key pillar of its REPowerEU initiative to wean the bloc off Russian fossil fuel imports and promote domestic energy production.

It is no coincidence that since the near-fivefold increase in natural gas prices since last August, there has been a notable shift toward green hydrogen projects and away from blue hydrogen schemes using natural gas and carbon capture and storage (CCS). This reflects concerns that natural gas prices — the main cost component of blue hydrogen — will likely remain relatively high for years, as the forward market suggests.

Concerns that rising costs in the renewables world could also push up renewable electricity prices and therefore damage the economics of green hydrogen are overplayed, says Norway's Nel. They add that "the demand for renewable hydrogen is driven by dramatic reductions in the costs of renewable energy and the cost reductions and technological advancements in electrolyzer manufacturing."

German electrolyzer manufacturer Sunfire told Energy Intelligence this week that "the momentum for green hydrogen has never been greater." Sunfire says "renewable hydrogen prices are falling and approaching those of gray hydrogen," adding high gas prices due to the Russian invasion of Ukraine means "it can be more economical for the industry to use green hydrogen than gray. This development would otherwise have taken years."

Political Pulse

Green hydrogen has been getting considerable political airtime in recent weeks. European Commission President Ursula von der Leyen called for the EU and India to develop green hydrogen projects during an official visit last week. In the same week, Executive Vice President for the European Green Deal Frans Timmermans discussed green hydrogen with Turkish officials and promoted a Mediterranean green hydrogen partnership.

Spain and Portugal have been particularly active in recent months. Last week, a consortium including Denmark's Copenhagen Infrastructure Partners announced plans for a €1 billion ($1.1 billion) green hydrogen and green ammonia project complex in the coastal city of Sines in southern Portugal. The project would use 500 megawatts of electrolyzer capacity, potentially producing 50,000 tons of green hydrogen and half a million tons of green ammonia per year. CIP and project partners including Enagas and Naturgy announced plans in February for a multistage 2 GW electrolyzer capacity Catalina project in Aragon, Spain, fed by 5 GW of wind and solar PV capacity. Under a first-stage development, some 1.7 GW of wind and solar capacity would feed 500 MW of electrolyzer capacity to produce 40,000 tons/yr of green hydrogen.

Other recent big green hydrogen projects in Iberia include the 7.4 GW Hydeal Espana project and the Repsol-led 2 GW Shyne project, both in Spain. In December, BP affiliate Lightsource bp announced plans to develop green hydrogen projects in Portugal. Portugal published a hydrogen strategy in 2021 calling for 2 GW of installed electrolyzer capacity by 2030, requiring an investment of some €7 billion.

Many other political and market developments are supporting green hydrogen in Europe — including the UK government announcement to double its hydrogen target from 5 GW by 2030 to 10 GW under its energy strategy and the European Commission's decision to almost triple its electrolyzer target for 2030.

Demand Side

Still, there is an urgent need to develop the demand side of the equation, through measures such as offtake agreements. Offtake agreements by buyers would, experts say, help the nascent hydrogen sector take concrete steps forward. Toward that end, German utility E.On inked a memorandum of understanding with Australian green hydrogen supplier Fortescue Future Industries last month for up to 5 million tons/yr of green hydrogen into Europe by 2030. A spokeswoman for E.On tells Energy Intelligence that "the current situation in Ukraine makes it clear that the expansion of renewable energy, including the ramp-up of the hydrogen economy, is an absolute priority and must proceed even faster in the future."

Sunfire points to an urgent need for Brussels to cultivate a green hydrogen market in Europe. Many are waiting for the European Commission to provide a "clear regulatory framework" for the hydrogen market, for example on power purchases for electrolysis. "Only then will the final investment decisions be made."

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