Oil-rich Abu Dhabi is helping Spain become a green powerhouse

Spain’s government is backing Mubadala’s local refiner Cepsa SA as the Mediterranean country aims to become Europe’s main green hydrogen hub.

The company, which is controlled by Abu Dhabi’s sovereign wealth fund, will earmark €3 billion ($3.1 billion) to build two new production plants in the southern region of Andalusia, Chief Executive Officer Maarten Wetselaar said Thursday. 

Located near the port of Algeciras and in the Huelva province respectively with a capacity of two gigawatts each, they’ll be Europe’s largest green hydrogen facilities. The plants are expected to be operating fully in 2028.

Cepsa’s project will strengthen Spain’s position as energy exporter, contributing to give the country a competitive edge, Prime Minister Pedro Sánchez said at the presentation ceremony for the new plants. 

Spain wants to take advantage of its abundant and low-cost renewable generation, which has accounted for 42 per cent of the country’s energy mix so far this year, to become Europe’s main emissions-free producer of the alternative fuel. 

Around 13 gigawatts of electrolyzer capacity – the device needed to split water into hydrogen and oxygen – have already been announced in Spain, according to BloombergNEF. That easily exceeds the government’s target of reaching 4 gigawatts by 2030.

Sánchez last year announced a €16 billion plan to boost green hydrogen output and create almost 300,000 jobs. Partly funded by European Union recovery funds, it’s expected to lure private investors and save the country around €67 billion in fuel imports, he said at the time. 

Hydrogen and its derivatives represent 12 per cent of final energy use and 10 per cent of CO2 emission cuts by 2050 in the International Renewable Energy Agency’s projections. About 5,000 gigawatts of electrolyzer capacity are needed, up from 0.3 gigawatts in 2021.

The new facilities are part of Cepsa’s green strategy, which involves investing as much as €8 billion. In an attempt to differentiate itself from peers, the refiner will concentrate its efforts on developing energy for heavy industry and transportation. To generate the energy for the new plants, the company will invest an additional €2 billion to develop three gigawatts of wind and solar power. 

Spain is playing a central role in Cepsa’s strategy because its sun-drenched south has Europe’s cheapest solar production, Wetselaar, a former Shell Plc executive, said in March. The company is also working with the port of Rotterdam to create an export corridor and send hydrogen to the Dutch hub.

Local Economy Boost

Last month, Danish transport giant A.P. Moller-Maersk A/S also signed a deal with Spanish authorities to potentially deliver as much as 2 million tons of green fuel a year, exploring large-scale production facilities in the region of Andalusia.

The new investments may help shore up the economy in a low-wage region where per-capita income is the second-lowest in Spain, while the unemployment rate is the third-highest, according to the National Statistics Institute.

Cepsa’s new project may also contribute to business in the port of Algeciras, potentially creating the hinterland it lacks at a time when its most direct competitor, the thriving Moroccan hub of Tanger Med, has been challenging the Spanish port’s hegemony in the trans-shipment business.

© 2022 Bloomberg L.P.

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