EU Quarterly Energy Report 2nd Quarter 2020 – on European Gas Markets with special focus on the role of hydrogen in the future EU energy mix
Section 1.6 Focus on: The role of hydrogen in the future EU energy mix
On 8 July 2020 the European Commission has adopted its hydrogen strategy for a climate neutral Europe25. This strategy will explore how clean hydrogen can help reduce the EU economy’s carbon emissions, and make the EU climate-neutral by 2050. Continuous research and development is required to ensure that hydrogen technologies are technically improved, highly efficient, and as competitive as possible. The EU framework programmes have supported research and innovation on clean hydrogen for many years, and it is intended that support continues in the future.
Hydrogen is enjoying a renewed and rapidly growing attention in Europe and around the world. Hydrogen can be used as a feedstock, a fuel or an energy carrier and storage, and has many possible applications across industry, transport, power and buildings sectors. Most importantly, it does not emit CO2 and almost no air pollution when used. It thus offers a solution to decarbonise industrial processes and economic sectors where reducing carbon emissions is both urgent and hard to achieve.
Renewable electricity is expected to decarbonise a large share of the EU energy consumption by 2050, but not all of it. Hydrogen has a strong potential to bridge some of this gap, as a vector for renewable energy storage, alongside batteries, and transport, ensuring back up for seasonal variations and connecting production locations to more distant demand centres. Furthermore, hydrogen can replace fossil fuels in some carbon intensive industrial processes, such as in the steel or chemical sectors, lowering greenhouse gas emissions and further strengthening global competitiveness for those industries. It can offer solutions for hard to abate parts of the transport system, in addition to what can be achieved through electrification and other renewable and lowcarbon fuels.
According to the recently adopted Commission strategy ‘Stepping up Europe’s 2030 climate ambition – Investing in a climate neutral future for the benefit of our people, the share of the hydrogen is expected to reach around 9% in different policy scenarios by 2050. The policy scenarios considered see a ramp up of the installed electrolyser capacity between 37-66 GW by 2035, responsible for a production of up to approximately 8 Mt of hydrogen in 2035.
Investment in hydrogen will foster sustainable growth and jobs, which will be critical in the context of recovery from the COVID-19 crisis. Europe is highly competitive in clean hydrogen technologies manufacturing and is well positioned to benefit from a global development of clean hydrogen as an energy carrier. Therefore, the priority for the EU is to develop renewable hydrogen, produced using mainly wind and solar energy. According to market analysts, cumulative investments in renewable hydrogen in Europe could be up to EUR 180-470 billion by 2050, and in the range of €3-18 billion for low-carbon fossil-based hydrogen. Clean hydrogen could meet 24% of energy world demand by 2050.
For broader deployment of hydrogen, production costs need to decrease, as today generating green hydrogen has an estimated costs of 3..3 €/kg, which is about six times higher than the price of natural gas. According to current estimations, costs reductions in hydrogen generation and the costs of electricity used for producing hydrogen will fall below 1 €/kg by 2050, which would make green hydrogen competitive vis-à-vis natural gas. However, some estimations reckon with a cost falling to 1.5-1.6 €/kg even by 2030. The costs of hydrogen is different across countries, highly depending on the costs of energy used for producing (e.g.: in Germany it is highly probable that offshore wind energy will largely be used to produce hydrogen).
Different Member States in the EU announced different plans on the deployment of hydrogen. Germany, the Netherlands and Portugal announced plans to build out electrolyser capacities, resulting in 10 GW additional capacities by 2030 and 16 GW by 204029. France wants to focus on achieving a given share of clean hydrogen in its energy mix instead of setting electrolyser capacity targets. In October 2020, Spain presented a roadmap aiming at electrolyser capacities of 4 GW by 2030.
Currently hydrogen price assessment by some agencies (e.g. S&P Platts) already exist in the Netherlands. However, creating a liquid market for hydrogen, also involving cross-border trade, will be gradual with broader deployment of hydrogen in various sectors and the necessary infrastructure.
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