H2 - Beyond the Hype

Abstract

Green hydrogen, defined as hydrogen generated with water electrolysis powered entirely by re- newable electricity, is expected to play a pivotal role in transforming the conventional energy and feedstock base in Europe, in line with the European Union’s Net-Zero targets by 2050. Accordingly, from 2020, the EU launched a series of measures aimed at accelerating technical development of hydrogen technologies and their implementation at industrial scale. At the same time, Australia launched its »shipping the sunshine« strategy. In combination with very optimistic assumptions on cost degradation, industry experienced a significant hype. As reality sinks in and the true costs become apparent, it is time to take stock on progress made and challenges encountered on the pathway to green hydrogen. A diverse group of experts from the fields of technology, project development and execution, and financing and legal convened in a workshop entitled »Green H2 – Beyond the Hype« to discuss these issues under the Chatham House Rule. This report is the summary of the outcomes of proceedings that took place at the DECHEMA premises on 20th of February 2025. Green hydrogen has the potential to not only displace fossil derived energy and hydrogen for industrial users. It also enables renewable energy to be made accessible beyond spatial and temporal constraints, strengthening energy security in a low-carbon world based on renewable energies. It plays a vital role in transforming the steel and chemicals sectors which remain crucial industries. However, the envisaged timeline for change is very ambitious especially for strongly industrialized countries. This transformation to a low carbon economy must simultaneously keep the industries globally competitive. Since abundant and cheap green hydrogen will not exist widely for 10–20 years on its own merits in contrast to conventionally produced hydrogen, ongoing government intervention will be required to stimulate the development. There are two main challenges: Firstly, how to close the gap between the high green hydrogen price and ROI required to make an electrolyser project viable? This can only be addressed by a deeper understanding of the electrolyser techno- logy, project EPC and the true costs behind the economics of green hydrogen plants. Secondly, how to win over potential offtakers of green hydro- gen without the need for massive and ongoing government subsidies but preserving industries’ ability to compete globally. Since low-carbon hydrogen will remain more expensive, the free market alone won’t be able to solve this issue. Electrolyser technology cannot hope to demonstrate the same cost reduction curves as seen in wind and PV development, due to it being fundamentally limited to an improvement of a factor of 2. Nor is a comparable economy of scale of conventional gas/oil-based plants expected, due to it being a surface technology scaled-up by module multi- plication. While development of stacks continues at the same time as scaling-up production facilities, field experience and reliable records of extended operation are lacking. This represents a significant project risk for a potential offtaker and may partly explain slow project progression. Some OEMs will likely not survive commercially and this disconnect poses an ongoing economic risk for proposed and built plants at scale. Finally, distribution costs of both power and hydrogen are rarely factored into the overall delivered cost of hydrogen to the offtaker, leading to unrealistic expectations that have materialised in high-cost projects and resulting low FID progression. Greater transparency of the green hydrogen delivered cost is required. Green hydrogen prices can only reduce through higher efficiency technology (under development) or access to lower REN power costs. When con- sidering the risks still present with the large-scale EPC of these plants as of today, and the unknown operational performance of large electrolyser plants, it is strongly suggested that future subsidies should be limited to either OPEX (power price subsidies) or hydrogen production itself (tax credits, subsidy for hydrogen produced). This insulates the tax payer from poor EPC execution or technology risk that should lie with the project owner. From a project development perspective, the lack of experienced and trained labour in key parts of the project chain (engineering, electrical tradespeople, permitting) is an issue that can continue to slow the potential roll out of green hydrogen projects in years to come. Governments are in a strong position to ensure this skill and experience gap can be filled over the next 5 years. Also identified as barriers were the large variation in regulations. Regulation must be harmonised and fit for purpose across states and preferably nations within the EU. There is no shortage of financing available in general, provided the business case is sound and risks are mitigated. Financing conditions reflect the greater unknown risk of the electrolyser projects. While financing is available, its cost will impact the overall business case as much as other factors. Acknowledging the reality of green hydrogen pricing relative to grey hydrogen within Germany, more government engagement to move the green hydrogen market whilst preserving in- dustries’ ability to compete globally is encouraged. Targeted subsidies are requested for the key objective: to drive offtakers for green hydrogen in sectors and applications where it is most appropriate (like for replacement of fossil hydro- gen or imported green chemical product). Two key elements of market knowledge are re- quired: Firstly, a detailed understanding of the breakdown of costs of hydrogen supply at the different scales and purities for each key end user of hydrogen in each industry sector as an input to their production cost. This should be part of a review of the National Energy Strategy used to chart the path to a lower carbon future and the role green hydrogen has in the foreseen applications. It should review in detail the scale of supply and demand for, and the integration of, power, natural gas and green hydrogen products into the economy of today. Secondly, detailed knowledge of the destination of the products (steel, chemicals etc.) into the consumer system is required. This information, in collaboration with industry input, enables projects to be prioritised on cost effectiveness, managed risk and societal needs and delivers higher certainty to project developers. There is a need to align the National Energy Strategy and the National Industry Strategy to ensure that the transformation incorporates the goals and conditions of both strategies like net zero emissions and keeping a competitive industry during the transition. This also allows for greater alignment of measures and regulation in line with industry’s needs and business invest- ment cycles. This enables the government to design regulations and tax incentives to drive industry in a sustainable manner to the Net Zero target at minimum cost and lowest risk. Industry would benefit from a clear roadmap for all industry sectors with incremental quotas and incentives, such as tax credits for those companies that commit to the target. This can be done through a revised mix of regulation and subsidies for OPEX (subsidized power), tax incentives (REDII, tax credits). Enforceable CBAM regulation to maintain EU competitiveness is a must. Next to hydrogen, the potential import of derivatives (methanol, ammonia) to the German market must also be part of the strategy. Such a strategy, starting from today’s position, must:

be realistically achievable, be aligned with constraints of all market aspects including both production, logistics demands and market end users, be aligned with large industry investment cycles and, withstand public scrutiny. The speed and scale of the transformation over merely 25 years is breathtaking and requires a closer collaboration between government and industry to manage this change. More transparency is required to enable project developers to match the demand to supply. Social acceptance requires transparent and reliable information towards the public about the unprecedented social and technical change in the world. The true impact of green hydrogen in its many applications is manage- able in the context of the overall life cycle of products. Detailed recommendations made in and derived from the workshop appear from page 40 onwards. Datei-Upload durch TIB