The European Union this week set ambitious 2024 and 2030 targets for green hydrogen, a big step for the emerging sector. At the same time, Brussels signaled that it will also encourage the development of "blue" hydrogen produced from fossil fuels paired with carbon capture, at least for the time being.
The EU's new hydrogen strategy (PDF), announced Wednesday with coronavirus recovery efforts as the backdrop, sets a green or “clean hydrogen” goal to have 6 gigawatts of electrolyzers installed by 2024, a huge leap on the 250 megawatts in place today globally, according to Wood Mackenzie.
By 2030 the EU wants 40 gigawatts of electrolyzers installed within its borders and another 40 gigawatts in place in nearby countries that can export to the EU — with North Africa one possibility.
European policymakers have determined that hydrogen will be an essential tool to decarbonize industry and transport as Europe aims for a net-zero economy by 2050. (Read GTM's green hydrogen explainer here.)
The EU's strategy says that blue hydrogen will be supported during a "transition phase," although it is not specifically mentioned in the topline targets. Many details are left to fight over.
However, the biggest challenge for blue hydrogen backed by carbon capture and storage (CCS) could be keeping pace with the cost reductions that green hydrogen achieves en route to the 2024 and 2030 targets.
Blue vs. green
In the lobbying battle that led up to the strategy’s rollout, two broad positions emerged. A coalition of utilities and renewable developers, including Enel, RWE, Ørsted and First Solar, called for backing for green hydrogen, which would open up a vast new market for cheap wind and solar power.
On the other side are businesses with natural-gas assets, including Eni, Equinor and ExxonMobil, that have called for a technology-neutral strategy, leaving the door open to support for blue hydrogen.
The EU's strategy does not slam that door shut, but with firm green hydrogen targets for 2024 and 2030, it's unclear how big a role is left for blue hydrogen.
“CCS players are saying that they can have something in operation toward the end of the 2020s,” given the time scale of CCS projects, said Graham Cooley, CEO of green hydrogen player ITM Power, which plans to build an electrolyzer factory in the U.K.
“But there will be 6 gigawatts of electrolyzers deployed in the EU by 2024," Cooley said in an interview. "Even by 2024, the cost reduction will be such that green hydrogen will be lower-cost than blue hydrogen."
Cooley agrees with the European Commission position that by 2030 green hydrogen will be cost-competitive with gray forms of hydrogen, produced via steam methane reformation, but he believes it could happen even sooner in markets with cheap solar power.
Among possible support policies to be developed, a contracts-for-difference program for hydrogen, as discussed in a document leaked in the spring, would help to foster end demand for green hydrogen, Cooley said.
There are some blue hydrogen projects that are slated to come online sooner than the late 2020s. The Acorn project in Scotland hopes to capture carbon in 2024 and deliver blue hydrogen in 2025, subject to “the continued support of governments and industry,” its website states.
Meanwhile, the Northern Lights project in Norway has already reached financial close and could be up and running by 2024 with a cement factory as one initial anchor source of carbon dioxide.
The Global CCS Institute, a carbon capture think tank based in London, called the EU's strategy ambitious but warned against picking winners.
“Given the scale and urgency of ramping up clean and low-carbon H2 production, a genuinely technology-neutral approach that incentivizes all forms of production based on CO2 and cost performances, rather than underlying processes, would be more effective in supporting the EU energy transition within the period critical to achieving net-zero emissions,” Guloren Turan, general manager for advocacy at the Global CCS Institute, said in an email.
Europe's gas sector strikes upbeat tone
The ultimate benefit of the EU's new strategy for blue hydrogen will boil down to policy details that have not yet been revealed, but Europe's natural-gas sector struck an optimistic tone. The shift toward hydrogen would likely benefit existing owners of gas infrastructure regardless of the source, although centralized blue hydrogen would be better for them.
“The strategies adopted are a step-change for the gas sector," the Eurogas trade group said in a statement. "The [European] Commission confirms that the EU will need gaseous molecules to break silos in the energy system and achieve climate neutrality in the most cost-effective way. Commissioner Kadri Simson also confirmed that the gas infrastructure can be easily repurposed to carry hydrogen."
Plans for the world’s largest green hydrogen plant were announced earlier this week. The 4-gigawatt project, led by U.S. industrial chemicals giant Air Products, will be powered by cheap wind and solar resources and is expected to begin exporting green hydrogen, converted to ammonia, in 2025. The next-largest proposed project, devised by BP, would use Australian wind and solar to export ammonia to Asia.
ITM Power plans to open its first electrolyzer factory next year in Sheffield, U.K., and the company is already thinking about additional plants.
"We have a blueprint for a factory. We spent two years working on the design, and we can use that blueprint to put up factories wherever there's the highest demand," said Cooley.
The European Commission has set out along the road to achieving a climate-neutral economy by 2050. But where do the opportunities lie and what technologies are poised to benefit?
Wood Mackenzie has launched a European Green Deal guide to help businesses understand how the European Green Deal will shape the future energy market and evaluate the potential new opportunities. Click here to find out more.