Too much green hydrogen in Europe could add cost for decades

Project to convert a Dutch power plant from gas to hydrogen. Image: Koos Boertjens / Vattenfall

Producing hydrogen from renewable power only could drive up its price over the coming decades as the gas becomes the low-carbon fuel of choice for the European Union.

As the EU moves to aggressively cut carbon emissions across all sectors in order to hit climate neutrality by 2050, green hydrogen is seen as key to achieving that goal.

Should the bloc shun the use of hydrogen made from fossil fuels completely then using the green version of the gas across all sectors will become more costly as demand grows over the coming decades, according to analysis by Aurora Energy Research.

Governments are preparing to spend billions to ramp up the use of the fuel while companies across the energy sector are preparing to invest in its production and distribution. Hydrogen could be used to eliminate emissions from heavy industrial processes like steel and chemical production, as well as transportation and heating buildings.

A key debate is whether to use hydrogen from renewable electricity, known as green hydrogen, or a version known as blue hydrogen that’s made from natural gas with a process that captures and stores CO2 emissions.

Producing hydrogen from renewable power could be a boon to developers of solar and wind farms. Electrolyzers, the machines that split hydrogen out of water, could turn on when there is little demand elsewhere and power prices are cheap.

However, if European governments decide only to focus on green hydrogen, that could have drawbacks for the industry, according to Aurora’s research, that focused on Germany and the Benelux region.

Should green hydrogen be used beyond heavy industry, trucks and buses to also heat homes and fuel cars, planes and ships, then the demand would require electrolyzers to run at times of the day when the power price is higher.

That would drive the price 37 per cent up on average from 2030 to 2050 compared with a scenario where blue hydrogen is used as well, Aurora said.

“If the government wants both, only green hydrogen and a high penetration of hydrogen even in the heating sector and transportation, then it risks a higher price,” Alexander Esser, project manager at Aurora Energy Research, said in an interview.

Still, it’s difficult to predict the price of green hydrogen with certainty. The amount of spending currently being planned in Europe is far beyond what most expectations were for the industry even a year ago.

A more aggressive build-up of renewable power could change the calculus of the Aurora analysis. It’s noteworthy that even under current expectations, the Aurora research shows that green hydrogen alone could satisfy demand from all of heavy industry and some transportation at a competitive price in the coming years.

© 2020 Bloomberg L.P.