Despite sky high ambitions and unprecedented political support, Europe’s hydrogen industry is struggling. The EU’s goal to produce and import 20 million tonnes of clean hydrogen by 2030 is now widely seen as completely unrealistic. For hydrogen to take off, the EU needs to dial down its ambitions dramatically. Even a more achievable 4 million tonne goal would require an 80 fold increase in renewable hydrogen production.
Despite the chasm between hype and reality politicians remain unfazed. For their first big industry dialogue, Ursula von der Leyen and her new Green Deal Chief, Maros Šefčovič, chose hydrogen. Compared to the automotive, wind, chemicals or steel industry, it is a tiny part of the economy. But no industry sells dreams better than the hydrogen lobby.
The trouble is that unless we change course, the hydrogen dream will become an expensive nightmare.
It’s the economics, stupid!
There is a huge theoretical global “project pipeline” of more than 1 terawatt of electrolyser capacity. However, only 4% of hydrogen projects get financed. That’s because there is no business case for clean hydrogen. Trucks are a good example. According to the ICCT, in 2030 renewable hydrogen could be delivered to European trucks for €7/kg. That translates into energy costs of 45 cents per km and compares to 31 cents for diesel and 18 cents for an electric truck.
Hydrogen costs may come down a little more in Europe from their current €12/kg or more. The Boston Consulting Group now expects 2030 costs of €5-8/kg – that’s up from €3/kg hopes earlier. Genuinely cheap hydrogen would need to be produced outside Europe, in places like Namibia where it could reach €2/kg. To export hydrogen from Namibia, it needs to be transformed into a fuel that can be transported by ship, e.g. ammonia. Transforming green ammonia back into hydrogen and piping it around Europe is not economically viable. But green ammonia can be used to replace grey ammonia (e.g. for fertiliser), or to power ships as Belgian shipping giants CMB and Exmar plan.
Either way, even if costs come down, green hydrogen will remain more expensive than fossil fuels or direct electrification. That’s true for trucks but it also applies to planes, steel, chemicals etc. As a result the only road to market for renewable hydrogen is through a combination of subsidies and mandates.
How to boost renewable production 80x in 6 years?
The way forward is surprisingly simple. We need to focus on no regrets, low infrastructure hydrogen applications. These are precisely the areas where EU lawmakers have created the world’s most important regulated lead markets, i.e. the REDIII mandates for ammonia-fertiliser and refining, the e-kerosene mandate for aviation (RefuelEU) and the ammonia and methanol goals for shipping (FuelEU and REDIII).
Combined these lead markets need 4 million tonnes of renewable hydrogen in 2030. That would require an 80-fold increase in green hydrogen production (compared to current (very low) levels). These are the markets where the hydrogen industry cannot afford to fail if it wants to grow after 2030. These are also markets where no additional infrastructure is required. Unlike compressed or liquid hydrogen, ammonia, methanol and e-kerosene are easy to transport.
80-fold growth in 6 years is a huge challenge and so more support is justified. Despite the EU mandates, few hydrogen users (e.g. airlines, shipowners) are currently willing to sign long term contracts with producers. Without “offtake deals” banks won’t lend producers the cash needed to build the electrolysis and synthesis plants. Low interest loans, state guarantees, and other aid can help overcome this blockage.
Watch out for “blue hydrogen” and pipedreams
What we should not do is go easy on sustainability requirements for gas based hydrogen. Blue hydrogen can be just as bad, or even worse, than gas for the climate so we’ll need very strict rules on things like methane slip and carbon capture rates to ensure blue hydrogen meets the EU’s 70-80% reduction threshold in real world operations. If you’re gonna throw a tonne of public and private money at hydrogen that’s the least the public can expect.
The other thing we should not do is fall for hydrogen pipe-dreams. We don’t need hydrogen in heating, trains, aviation (maybe later), and we probably don’t need it in trucks. Meanwhile the business case for hydrogen in heavy industry is shaky (more on how to resolve the green steel challenge in a future blog). So for now, there’s absolutely no need to spend €80-140bn on “a hydrogen” backbone that will carry mostly fossil gas for the foreseeable future.
When it comes to hydrogen, less is more. If Europe’s politicians can avoid the temptation to apply the hydrogen miracle to everything, they have a chance of decarbonising hard-to-decarbonise sectors like shipping and aviation. With a healthy reality check we can really get the hydrogen industry off the ground.
