Towards an EU market for clean hydrogen

Hydrogen today represents a tiny fraction of the energy mix but its importance is expected to grow rapidly in the coming years as the European Union aims to create a Europe-wide market for clean hydrogen to drive the decarbonisation of heavy industry.

The price of clean hydrogen can be cut drastically by mid-century if the EU creates a dedicated market structure to develop the fuel, according to the industry. Environmental groups, meanwhile, are sceptical about the emergence of a hydrogen economy.

“We need capital and operating expenditures … to bring the price of renewable hydrogen from champagne to prosecco, and later table water,” said Jorgo Chatzimarkakis, secretary general of Hydrogen Europe, an industry body.

Chatzimarkakis was speaking at the release event of the Hydrogen Act, a new policy roadmap put forward by the industry, which charts a path towards creating a European hydrogen economy.

According to Chatzimarkakis, regulators cannot just copy and paste the laws currently applicable for gas and use them to grow a European hydrogen market. This is because the two markets are fundamentally different, he argues, citing as an example end-use applications like fuel cells used in vehicles.

Instead, Hydrogen Europe proposes a distinct legal framework for hydrogen, based on two pillars – markets and infrastructure – to unlock the necessary investments.

To that end, the report proposes relaxing EU state aid rules for hydrogen, and make them eligible for bigger subsidies from national governments by flagging them as Important Projects of Common European Interest (IPCEI).

Roadblocks to hydrogen

There are plenty of roadblocks ahead, though. Today, hydrogen represents only a tiny fraction of the EU energy mix, and over 95% of it comes from fossil fuels, mainly natural gas.

That will need to change as Europe aims to reach climate neutrality by 2050. First, renewable energy supply will need to double at least by 2030 in order to produce the amount of electricity necessary to power electrolysers and generate sufficient amounts of clean hydrogen.

And that will require faster permitting procedures for wind farms.

Permitting “is the single biggest bottleneck to the expansion of renewables today,” said Giles Dickson, CEO of WindEurope, an industry body.

“Permitting process procedures take too long and they are too onerous,” added Ann Mettler, vice-president for Europe at Breakthrough Energy, an investor-led fund chaired by US billionaire Bill Gates. Mettler called on EU states to simplify procedures and accelerate renewable electricity deployment in order to make sufficient capacity available for clean hydrogen production.

Another major hurdle stymieing investment in hydrogen facilities is the so-called additionality principle, which according to the industry requires electrolysers to run exlusively on dedicated renewable energy infrastructure. According the the industry, this would de facto exclude using excess renewable electricity that would otherwise be curtailed on windy days.

“The bureaucratic and cumbersome additionality principle is a show stopper,” said Chatzimarkakis.

The European Parliament scrapped the additionality principle from its report on the EU hydrogen strategy, adopted on 20 May. In their version of the text, MEPs also sought to accelerate market development by pushing an intermediary phase where “low-carbon” hydrogen would be produced from natural gas, with carbon capture technology to bury the emissions.

But the additionality principle has its supporters too, including the European Commission, which says it will ensure that renewable hydrogen develops in sync with renewable electricity deployment.

That view is also supported by a large range of stakeholders, said Antonio Lopez-Nicolas, head of unit at the European Commission’s energy department.

However, the industry says additionality is difficult to implement in practice and is off-putting for investors because it forces production to rely on dedicated renewable energy capacity.

Green scepticism

Meanwhile, environmentalists have expressed doubts about the emergence of cheap, abundant hydrogen.

“Hydrogen will never be tap water, prosecco at most,” said Dries Acke, director of energy systems at the European Climate Foundation.

“Hydrogen is a highly processed, inefficient energy carrier that will always be scarce and expensive,” said Acke, dampening expecations that hydrogen could one day replace fossil fuels.

“There is no such thing as a hydrogen economy,” he added. “Let’s not forget, hydrogen’s role in the net zero economy will be dwarfed by the actual giants, the actual heroes of climate action being solar, wind and direct electrification.”

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