Green hydrogen retreat poses threat to emissions targets
- Shelved projects knock lofty ambitions for green hydrogen (H2)
- Subsidies alone are not enough to drive investment
- Prices remain uncompetitive compared with alternatives
Green H2 developers are cancelling projects and trimming investments around the world, raising the prospect of longer than targeted reliance on fossil fuels.
The challenges facing the sector have exposed its initial ambitions as unrealistic.
Hard-to-electrify industries that were seen as ideal candidates for green H2, such as steelmaking and long-distance transportation, have found that transition to the low-carbon fuel looks prohibitively expensive.
The gap between ambition and reality in Europe shows the extent of the reset happening within the industry, said Jun Sasamura, hydrogen manager at research company Westwood Global Energy.
Only about a fifth of planned H2 projects across the European Union are likely to come online by the end of the decade, he said. That equates to roughly 12 GW of production capacity against an EU target of 40 GW, Westwood Global Energy data shows.
"In the current state, I really don't see the EU 2030 (hydrogen production) target being reached," he added.
Inflated expectations. Companies say that high costs and a lack of demand for green H2 have rendered many plans unprofitable.
"Green hydrogen was an inflated expectation that has turned into a valley of disillusionment," said Miguel Stilwell d'Andrade, chief executive of Portuguese power company EDP.
"What’s missing is the demand. There are €400 MM ($464.2 MM) of subsidies for hydrogen in Spain and Portugal, but we need someone to buy the hydrogen."
The company has several projects in advanced stages but cannot move forward because of a lack of buyers, said Ana Quelhas, EDP's hydrogen chief and co-chair of the European Renewable Hydrogen Coalition.
Across the border, Spain's Iberdrola IBE.MC has shelved plans to increase capacity at a green H2 plant with electrolyzer capacity of 20 MW until it finds buyers for additional output, company executive Iban Molina said at an energy event in Madrid.
They are among more than a dozen large companies that have trimmed spending or shelved projects across Europe, Asia, Australia and elsewhere in recent years.
Companies had scrapped or delayed more than a fifth of all European projects by the end of last year, Westwood Global Energy says.
At Aurora Energy Research, Emma Woodward said: "In 2020–2021 we had this view of hydrogen and the fact it was going to be used in almost every sector that hadn't been electrified. I think we've realized now that there are other, probably more commercially viable, alternatives for lots of sectors. Maybe we don't need as much hydrogen as initially expected."
Too expensive. Many governments have long supported development of green H2 - produced through electrolysis that splits water into H2 and oxygen using electricity from renewables - to help to decarbonize energy, transport and industry.
Countries including Australia, Britain, Germany and Japan announced ambitious investment strategies they hoped would bring down costs and eventually create a profitable green H2 sector that would no longer need support.
Production, however, remains more expensive than for natural gas and other fossil fuel-based alternatives, said Minh Khoi Le, Rystad Energy's head of hydrogen research.
It is at least three times more expensive than natural gas as a fuel for power generation, for example, and twice as expensive as grey H2. The latter is produced from natural gas and coal and is already used in industries such as oil refining and production of ammonia and methanol.
Costs could fall by 30%–40% in 10 yr–15 yr if equipment prices decline and the broader supply chain scales up, he added, while Aurora's Woodward and Westwood Global Energy’s Sasamura said that green H2 is unlikely to become competitive before then.
Only 6 metric MMtpy of low-carbon H2 capacity - including green and blue H2, which is made from gas - is either operational or under construction globally, consultancy Wood Mackenzie says.
This is well below the 450 MMtpy the consultancy says is needed as part of the global push for net zero greenhouse gas emissions by 2050. The EU has committed to reducing emissions by 55% from 1990 levels by 2030, en route to the 2050 target.
Buyers priced out of the market. The industry had counted on sectors such as steel, oil refining, cement and transport to be among the first buyers, but the expected demand has failed to materialize.
German die forging company Dirostahl, which makes components for wind turbines, ships and oil and gas drill pipes, is dependent on furnaces fired by natural gas and is looking for a replacement.
However, green H2 is still too expensive. Offers for the fuel do not come below €150 per megawatt hour (MWh) while natural gas can be bought for €30–€35/MWh, said Chief Executive Roman Diederichs.
"It simply doesn’t work. You might not want to call it economic suicide, but in practice it would be just that. We'd be completely uncompetitive," he said.
Prices remain elevated because of the high cost of electrolyzers needed for large-scale production, infrastructure bottlenecks and increased energy costs resulting from rules on what constitutes green H2.
Some European countries have scaled back their ambitions. Italy has recently shifted more than €600 MM in post-pandemic funds from H2 to biomethane. France lowered its 2030 H2 electrolysis capacity target by more than 30% in April and Portugal has cut its electrolysis capacity ambitions by 45%.
The Dutch government last year made sharp cuts to funds it had originally reserved for green H2 projects and battery development, shifting the focus of its climate fund toward the planned construction of two new nuclear plants.
Several players in Australia, meanwhile, have scaled back or withdrawn from projects despite more than A$8 B ($5.2 B) of pledged government support.
Projects that are going ahead also face delays. Rystad Energy analysts estimate that 99% of A$100 B of projects announced for the next five years have failed to progress beyond the concept or approval stage.
Infrastructure difficulties. Another problem is that H2 is difficult to store because it requires high-pressure tanks, extremely low temperatures and tends to leak, making for risky transportation through old gas pipelines while awaiting new infrastructure.
Spain hopes to build a 2,600-km (1,615-mi) H2 network and connect it to another project - the trans-European H2Med link - from the Iberian region to northwest Europe.
The Spanish network should be operational around 2030, but delays of two or three years are likely for broader European infrastructure, said Arturo Gonzalo, CEO of Spanish gas grid operator Enagas.
"Infrastructure is not something that happens when the market has already taken off; it is something that has to happen for the market to take off," he said.
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