November 16, 2020

Future of Renewable and Low-Carbon Hydrogen in Europe

Stratas Advisors

This report is from our Global Hydrogen Outlook (GHO) service. 
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The following report discusses strategy of the European Union (EU) as well as EEA countries (EU Member States along with Iceland, Lichtenstein, Norway, Switzerland) towards greener growth pathways through the deployment of renewable and blue hydrogen. Furthermore, the report analyzes prerequisites for achievement of EU-wide targets related to production of renewable and low-carbon hydrogen.

EU Support for Zero and Low-Carbon Hydrogen Deployment

In December 2019, a newly formed European Commission (EC) presented the proposal for a European Green Deal, a policy roadmap towards greener growth strategy, which aims to introduce political and legislative framework in order to reach carbon neutrality of the Union by 2050 and provide strategies and means to achieve this goal. The Energy System Integration Strategy, one of the milestones of all EU Green Deal Strategies, seeks to profoundly reform the current European energy system in order to create a European, integrated and decarbonized energy system focused on the promotion of ‘renewable and low-carbon fuels, including hydrogen, for hard-to-decarbonise sectors’, which is one of six pillars.

The strategy highlights the role of hydrogen in the sectors where electrification is almost not feasible such as heavy-duty vehicles, maritime transport, aviation, and energy-intensive industries. The role of hydrogen is not limited to ‘hard-to-abate’ industries, on the contrary, its potential in integrated energy systems in forms of energy carrier and storage could address intermittencies in electricity supply from variable renewables.

In line with the above strategy, the EC published a dedicated EU Hydrogen Strategy, which lays down a three-phase roadmap for hydrogen development in the EU with clearly defined milestones:

  • 6 GW installed capacity of renewable hydrogen electrolyzers and 1 Mt of production by 2024 in the EU;
  • 40 GW installed capacity of renewable hydrogen electrolyzers and 10 Mt of production by 2030 in the EU with an additional installed capacity of 40 GW outside of the EU; and
  • As of 2030, hydrogen technologies to reach maturity and to be deployed at large scale in all hard-to-decarbonize industries and to play an increasing role in European energy systems; i.e. hydrogen could constitute more than 23% of the European energy mix in 2050.

In the long term, the Hydrogen Strategy envisages production of renewable, the so-called green hydrogen, i.e. through electrolysis powered by wind and solar energy. Nevertheless, in the short and medium terms, other forms of low-carbon hydrogen, which encompass production from fossil fuels with carbon capture, i.e. blue hydrogen and the so-called electricity-based hydrogen, where overall lifecycle greenhouse gas emissions (GHG) are lower than existing production technology, will be considered vital in order to rapidly reduce CO2 emissions.

In the context of recovery from the COVID-19 crisis, the EC deems critical to unlock investments in green technologies and value chains, while hydrogen has been repeatedly stressed as one of the most essentials areas for investments in the energy transition. According to the Commission, cumulative investments in green hydrogen are expected to reach up to EUR 180-470 billion (US$ 209.3 – 546.6 billion) and up to EUR 3-18 billion (US$ 3.49 – 20.9 billion) for blue hydrogen by 2050.

EUR 1.85 trillion for Green and Digital Transition in the EU

The European Green Deal Investment Plan representing the investment pillar of the Green Deal, set the goal to achieve the sustainable investments of at least EUR 1 trillion (US$ 1.16 trillion) over the next decade.

Through the Just Transition Fund (JTF), created under the EU Green Deal, the EU aims at supporting the most dependent EU Member States on fossil fuels and therefore the most affected by the transition to a low carbon economy. Against the backdrop of the COVID-19 crisis, the JTF was further enhanced by the EU Recovery Plan and along with other funding mechanisms, the fund is expected to trigger the amount of at least EUR 150 billion (US$ 174.6 billion) in just transition investments between 2021-2027 (including private capital). Solely the EU Recovery Plan will distribute EUR 750 billion (US$ 872.9 billion) in grants (EUR 390 billion; US$ 453.9 billion) and low-interest loans (EUR 360 billion; US$ 419 billion) to EU Member States.

A total of the above, accounting for EUR 1.85 trillion (US$ 2.15 trillion) for the period of 2021-2027, shall be used for the support of green and digital transition in EU Member States, while hydrogen is eligible for funding and will benefit, e.g. from the Recovery and Resilience Facility amounting to a total of EUR 672.5 billion (US$ 782.7 billion) of the package. EU Member States which have integrated hydrogen strategies in their national Recovery and Resilience Plans including Austria, France, Germany, the Netherlands and Portugal would therefore be eligible to fund the related investments from the Recovery and Resilience Facility.

France, Germany, the Netherlands, Norway, Portugal and Spain Adopted National Hydrogen Strategies

Indeed, hydrogen is gaining momentum in recent times. Increased interest and ambitions of European countries in hydrogen have been reflected in national hydrogen strategies as well as regional plans. By September 2020, six EU and EEA countries published national hydrogen strategies: France, Germany, the Netherlands, Norway, Portugal and Spain while a handful of other EU Member States such as Austria, Estonia, Luxembourg, Poland and Slovakia are currently developing their strategies. Moreover, certain regions, particularly in the countries with already published national hydrogen strategies, have adopted regional hydrogen strategies. The table below provides an overview of national hydrogen strategies adopted by EU countries:

Overview of National Hydrogen Strategies of EU Countries

Country

Production

Mobility

Industry

Approved Funding (EUR)

France

6.5 GW of electrolyzer capacity by 2030

  • 20,000-50,000 PV + LCVs, 800-2,000 HDVs by 2028
  • 400-1,000 H2 refueling stations by 2028
  • 10% share of decarbonized H2 in H2 for the industry by 2023 and 20-40% by 2028

7 billion over 2020-2030

Germany

  • Electrolyzer capacity of 5 GW by 2030 and 10 GW by 2040
  • H2 production 14 TWh by 2030
  • H2 demand 90-110 TWh by 2030

-

  • H2 demand for steelmaking up to 22 TWh by 2050
  • H2 demand for refining and NH3 production of 22 TWh by 2050
  • 7 billion for upscaling H2 technology
  • 3.6 billion clean vehicle purchase and 3.4 billion for infrastructure in 2020-30

Netherlands

  • Electrolyzer capacity of 0.5 GW by 2025 and 3-4 GW by 2030
  • 15,000 PVs + LCVs by 2025 and 300,000 by 2030
  • 3,000 HDVs by 2025
  • 50 H2 stations by 2025

-

-

Portugal

  • 2-2.5 GW of electrolyzer capacity by 2030
  • 5% of H2 in final consumption by 2030
  • 10-15% of H2 blending in natural gas grid by 2030
  • 5% of H2 in road transport fuel consumption by 2030
  • 3-5% of H2 in domestic maritime transport by 2030
  • 50-100 H2 stations
  • 5% of decarbonized H2 in the industry’s energy mix by 2030

Mobilized investments of 7-9 billion by 2030 (85% from private sector)

Spain

  • 4 GW of electrolyzer capacity by 2030
  • 150-220 H2 buses
  • 5,000-7,500 LDVs and HDVs
  • 100-150 H2 stations
  • 2 commercial H2 train lines
  • All the above by 2030
  • 25% of decarbonized H2 share in H2 mixed in the industry

9 billion over 2020-2030

Notes: PVs – Passenger Vehicles, LCVs – Light Commercial Vehicles, LDVs – Light Duty Vehicles, HDVs – Heavy Duty Vehicles, H2 – Hydrogen, GW – Gigawatt, TWh – Terawatt Hour

*Norway did not define specific targets and funding measures in the national hydrogen report, therefore it is not included in the table.

Source: National Hydrogen Strategies and Hydrogen Europe, 2020

Based on the above numbers, five EU Member States, with cumulative GDP accounting for 58.5% of the EU-27 GDP, aim to achieve renewable hydrogen installed capacity between 20.5 GW in the low case scenario and 22.5 GW in the high case scenario by 2030. The EU-wide objective is to reach 40 GW within the next decade. When it comes to an assessment of the feasibility of the aforementioned objectives, it is vital to understand where the hydrogen industry stands in 2020.

Where the EU Stands as of 2020

In terms of Power-to-Hydrogen (PtH) projects, in other words, hydrogen produced by electrolysis, there are a total of 151 PtH projects with an installed capacity of 21.3 GW planned in the EU at the time of publishing this report. Out of them, 106 projects have announced plans to install 20 GW of total capacity by 2040 and 101 PtH projects  with a total capacity of 9.1 GW plan to start operations latest by 2030 but have yet to indicate exact start dates. The remaining 45 projects have a total installed capacity of 1.3 GW with start dates yet to be specified. Overall by 2024, 79 projects with a total installed capacity of 2.1 GW are expected to be operational.

The average annual addition of electrolyzers installed capacity between 2020-2030, calculated by Hydrogen Europe, being 0.83 GW, implies that the capacity of 2.1 GW is feasible  to be operational by 2024. In addition, the average capacity of the above 106 projects with completion dates between 2020-2040, is 189 MW (0.2 GW). In line with this, McPhy, European designer and manufacturer of hydrogen production equipment, one of rather minor players in the market, claims to be capable of delivering 100 to 300 MW of electrolyzer capacity per annum.

From a national perspective, the total announced electrolyzer capacity in the Netherlands constitutes around 65% of the EU total announced capacity by 2040, which has by far the leading position at the EU level. According to the Joint Research Center, the EC's science and knowledge service, the total installed capacity of electrolyzers in European countries has reached 1 GW so far, which accounts for 1.4% of total hydrogen production capacity.

The table below demonstrates the expected progress towards the achievement of the targets related to total installed capacity of electrolyzers in Europe entrenched in the EU Hydrogen Strategy, assuming all of them become operational by the start dates.

Expected Progress Towards the EU Hydrogen Strategy Targets

EU Hydrogen Strategy Targets

Planned PtH Projects 2020-2024

Planned PtH Projects 2020-2030

Planned PtH Projects 2020-2040

Share of Planned Projects vs. EU Target

6 GW target as of 2024

2.1 GW

-

-

36%

40 GW target as of 2030

-

9.1 GW

-

23%

No target set as of 2040

-

-

20 GW

-

Source: Stratas Advisors based on data from EU Hydrogen Strategy and Hydrogen Europe, 2020


Even though the last column of the above table does not seem very promising, the implementation of the EU Hydrogen Strategy, launch of multiple initiative such as the European Clean Hydrogen Alliance (ECH2A) as well as announcement of multiple funding instruments at the EU or national levels, are likely to facilitate the deployment of the planned projects. The importance of the ECH2A lies in its role of creating liaison between private sector and public institutions and other relevant stakeholders in order to enable as well as prioritize investments in line with the EU Hydrogen Strategy.

It is also worth mentioning, that electricity source has been announced for 82 out of 151 PtH projects, when wind, solar and hydro energy will be powering 99% of electrolyzer capacity and will therefore be producing green hydrogen.

With respect to blue hydrogen, which is expected to play an important role in the short and medium term, there are currently two existing facilities using carbon capture, utilization and storage (CCUS) technology in Europe abating around 1.2 million tons of CO2 emissions per annum. This represents about 0.7% of hydrogen production capacity in the EU.

Another 12 important projects where hydrogen production will be complemented by CCUS technology have been announced. Based on available information and estimates, Stratas Advisors expects these projects to contribute to annual CO2 emission reduction of about 38[1] million tons of CO2 annually by 2030[2].

Hydrogen Production Contributes 2% of Total European CO2 Emissions

Looking at the impact of existing hydrogen production in the EU on the climate, assuming hydrogen demand in European countries reached 8.3 million tons[3] in 2018 and carbon intensity from steam-methane reforming, the most common process for hydrogen production, is 10 kg[4] of CO2  per 1 kg of produced hydrogen, then production of hydrogen in the European countries would produce at least 83 million tons of CO2. (In this simple calculation, neither production from coal nor by PtH technology was taken into account as they play very marginal roles.) Hence, in 2018, production of hydrogen was likely to have contributed 2% of total EU CO2 emissions equivalent.

Conclusions

Great optimism for hydrogen on the European continent is undeniable. This optimism is also justified. The word hydrogen, as one of pathways in the upcoming decades of decarbonization, is more and more often repeated in EU policies, strategies as well as in legally binding legislative acts. This is not surprising, given the current context of the COVID-19 crisis, where investments in green technologies are key to boost growth and job creation.

Five European countries of France, Germany, the Netherlands, Spain and Portugal have published national hydrogen strategies with defined targets and financing measures up to 2040, another one (Norway) without established targets, and at least another six national strategies are in the preparatory phase. And all these within a few months of the announcement of the European Green Deal and the EU Hydrogen Strategy. In addition, detailed plans for financing at the EU level have been also established. Solely the Just Transition Fund, further enhanced by the EU Recovery Fund, provides for EUR 150 billion (US$ 174.6 billion) in just transition investments between 2021-2027. The Recovery and Resilience Facility amounting to a total of EUR 672.5 billion (US$ 782.7 billion) constitutes another significant source for funding of hydrogen-related investment.

At this point, however, it might seem unrealistic at first sight to reach the EU targets of installed capacity of renewable electrolyzers amounting to 6 GW by 2024 and 40 GW by 2030 given that they would only be met at 36% and 23% respectively based on planned projects. Nevertheless, based on the national hydrogen strategies of France, Germany, the Netherlands, Spain and Portugal, which, economically speaking, represent slightly more than half of the EU, at least 20.5 GW of electrolyzer capacity is expected to be operational by 2030, implying that Europe is likely on track. Moreover, the announcement of substantial funding at the both EU and national level along with the launch of a number of initiatives such as the ECH2A aimed at facilitating the cooperation between private and public entities and enabling the investments for hydrogen related projects, are likely to push developments in this area forward.

What seems more realistic at first sight are developments related to production of fossil-based hydrogen complemented by CCUS technology. 12 of the most relevant projects in this respect with completion estimated at the latest by 2030, are expected to capture around 38 million tons of CO2 annually. This represents approximately 46% of CO2 emissions emitted from hydrogen production in Europe in 2018. These numbers demonstrate that blue hydrogen will indeed be playing an important role in the upcoming decade of decarbonization until renewable hydrogen becomes economically viable for deployment on a large scale in hard-to-abate industries.

Glossary:

As there are variety of processes of how hydrogen may be produced, depending on technology, energy source or range of emissions a certain production process is associated with, Stratas Advisors refers to the definitions included in the EU Hydrogen Strategy for the purposes of this report:

Renewable hydrogen’ or ‘green hydrogen’ is hydrogen produced through the electrolysis of water (in an electrolyzer, powered by electricity), and with the electricity stemming from renewable sources such as wind, solar or hydro. The full life-cycle greenhouse gas emissions of the production of renewable hydrogen are close to zero. Renewable hydrogen may also be produced through the reforming of biogas (instead of natural gas) or biochemical conversion of biomass if incompliance with sustainability requirements.

Fossil-based hydrogen’ refers to hydrogen produced through a variety of processes using fossil fuels as feedstock, mainly the reforming of natural gas or the gasification of coal. This represents the bulk of hydrogen produced today. The life-cycle greenhouse gas emissions of the production of fossil-based hydrogen are high.

Electricity-based hydrogen’ refers to hydrogen produced through the electrolysis of water (in an electrolyzer, powered by electricity), regardless of the electricity source. The full life-cycle greenhouse gas emissions of the production of electricity-based hydrogen depends on how the electricity is produced.

Fossil-based hydrogen with carbon capture’ or ‘blue hydrogen’ is a subpart of fossil-based hydrogen, but where greenhouse gases emitted as part of the hydrogen production process are captured. The greenhouse gas emissions of the production of fossil-based hydrogen with carbon capture or pyrolysis are lower than for fossil-fuel based hydrogen, but the variable effectiveness of greenhouse gas capture (maximum 90%) needs to be taken into account.

Low-carbon hydrogen’ encompasses fossil-based hydrogen with carbon capture and electricity-based hydrogen, with significantly reduced full life-cycle greenhouse gas emissions compared to existing hydrogen production

Power-to-Hydrogen’ refers to hydrogen produced by electrolysis of water regardless of electricity source.


[1] Based on carbon capture capacity estimations of each project

[2] Based on the announced completion dates

[3] According to Hydrogen Europe

[4] According to the calculation of EDF

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