How Northwest Europe can shape a clean hydrogen market

There is a growing awareness that the global energy transition will not succeed unless it finds ways to decarbonise the “hard-to-abate” sectors like industry and heavy transport, while providing sufficient flexibility to balance electricity grids all year round.

Clean hydrogen is one of the few options available. This explains why you hear so much about it lately. Witness the recent reports of the Energy Transition Commission, the EU’s 2050 climate strategy, as well as The Economist. Austria launched a Hydrogen Initiative during their EU presidency this year. Japan holds the presidency of the G20 in 2019 and has already announced that hydrogen will be one of their priorities.

Even more importantly, there is a growing number of real-life applications in the transport sector and beyond that announcements of major new hydrogen projects by companies around the world. Recent examples include Air Liquide in California, Gasunie, Nouryon and Engie in the Netherlands, Equinor in Northern England and Kawasaki in Japan.

In the Netherlands alone, several 100 MW capacity hydrogen projects have been announced close to industrial clusters. Of course, most of these projects are feasibility studies that may not all reach the stage of final investment decision. But we can already see that a growing number of countries are reviewing how to position themselves in the nascent global hydrogen market. This is not only driven by the huge potential of clean hydrogen to help decarbonize the energy system, but also by its contribution to enhancing energy security by lowering the need for imports of oil and gas and offering storage solutions to the increasingly difficult task of balancing the grids.

Most probably clean hydrogen will become an important part of the European Union energy strategy of the new EC. But it will take quite some time before that will be a reality. Meanwhile, countries in Northwest Europe have a unique opportunity to use current momentum in the market to jointly craft a suite of coordinated policy actions that could jump-start the development and deployment of clean hydrogen.

The so-called Pentalateral Forum, consisting of the Benelux, France, Germany and Austria, with Switzerland as observer, has acted as a front-runner in electricity and gas market integration in the past. The Netherlands is making the case that it can play a similar role in shaping the European clean hydrogen market.

Already showing publicly that neighbouring countries are willing to consider policy coordination at this moment in time will send a strong signal to the private sector that governments understand that a joint approach will help the scale-up in making projects more or earlier investable and bankable because of bigger market potential.

In addition, this would signal the willingness of governments to overcome complicated cross-border regulatory barriers. Fast-forward 20 or 25 years, and it is possible to imagine European cross-border gas infrastructure being transformed into a new European hydrogen backbone. The key question is now how to make this happen as quickly as we can.

Several policy actions could be considered to accelerate the development and deployment of clean hydrogen. They range from voluntary – or perhaps mandatory – targets for blending of clean hydrogen in the European gas networks and greening of current hydrogen use in industry, to the creation of European transport corridors to enable hydrogen trucks, buses and ships to cross Europe unhindered by lack of access to pumpstations. Zero-emission vehicles targets by some future date are significant drivers in this respect. Gas pipelines which are no longer needed to transport gas might very well be adjusted to transport 100% hydrogen.

The more we would be able to take a European angle in setting objectives and regulating the nascent hydrogen market, the better. In addition, one could imagine ambitious European initiatives to drive down the cost of green hydrogen production by scaling up the size of electrolysis capacity to the necessary GW-scale in the next decades.

This will certainly require new public-private partnerships, bringing together both supply of and demand for clean hydrogen and possibly including banks and investment agencies. For the public side, the challenge will be how to provide a sufficient level of de-risking to make projects viable. We can foresee a European roadmap where initially the production of ‘blue’ hydrogen (using CCUS where feasible) may help us to gain experience and enable the build-up of hydrogen infrastructure, alongside a continuously growing role for green hydrogen (mainly from over time ever increasing volumes of offshore windpower).

Important market players like Engie say it should be possible to push green hydrogen down to competitive prices by around 2030. One can imagine a similar learning curve for green hydrogen as the one we experienced with wind offshore in Europe. What would certainly help business cases is if the EU manages to keep CO2 prices on an upward trajectory.

The Austrian EU presidency estimated that 45% of EU industrial (grey) hydrogen demand, or 10% of EU natural gas consumption, could be substituted by green hydrogen in 2030. Let’s not forget, however, that not all clean hydrogen will need to be produced in Europe. We are receiving more signals on a weekly basis of feasibility projects around the world considering low-cost production of blue and green hydrogen that may reach European destinations in the coming decades by ship or even dedicated pipelines. It is also important that European ports start preparations for absorbing future imports safely. 

But what about electrification, which is so often discussed? Well, electrification is extremely important and welcome. In World Energy Outlook 2018, the IEA shows how much scope there is to further electrify our energy system beyond the current 20% of final energy consumption. And if this is done by renewable energy or nuclear, this is a very welcome greening of electrons and helps decarbonization.

But this still leaves the majority of the energy system in need of greening of molecules. And that is exactly the territory where clean hydrogen has such a critical role to play – to reach the sectors where electrification alone won’t do the job, mainly industry and heavy transport, as well as provide seasonal storage that is really hard to manage just with batteries. Regarding industry it is important to understand that it’s not only about greening current use of grey hydrogen, but also about the new waves of decarbonizing investment that often require significantly higher use of clean hydrogen as a feedstock.

In all jurisdictions where the share of renewable electricity rises above say 40%, balancing the grid satisfactorily over time becomes an issue. In some countries the cost of curtailment is already around 1 billion euro per year. There are several ways to maintain sufficient flexibility in the system, but hydrogen storage is certainly an important one.

In short, clean hydrogen is an ideal complement to green electrification. Which is exactly why clean hydrogen is rapidly gaining momentum in the world. Northwest Europe can and should position itself as a front-runner in developing and deploying clean hydrogen to help the decarbonisation of the energy system, while improving energy security at the same time. Many new jobs would be created in the process.