Catalysts needed for green hydrogen to escape 'valley of despair': panel

Europe's green hydrogen industry is grappling with a persistent cost gap and missing demand, which is freezing investments and keeping projects in a holding pattern, experts said June 12.

The distinct nature of different projects makes it difficult for lenders to determine risk levels, Rabobank senior energy transition specialist Hyung-Ja De Zeeuw said during a webinar hosted by Hydrogen Insight.

"One thing that all hydrogen projects have in common is how different they actually are," De Zeeuw said, pointing to the variety in ownership models, geography and electricity source, among other factors.

"Therefore, there's also no specific price or interest rate that we can put on a hydrogen project," De Zeeuw said.

To secure project finance, where loans are paid back via the revenues of the operational project, suppliers would need firm offtake contracts, "and that is what I think one of the big issues today."

Reflecting on the mood in the hydrogen industry in recent years, panelists concurred that the market is facing a reality check.

"We came from this almost ignorant optimism and now we are in the valley of despair," De Zeeuw said. "We need a catalyst to get us out."

More projects are canceled or dormant globally than are at an advanced stage of planning, much less having taken final investment decisions, data from S&P Global Commodity Insights shows.

Committed volumes do not yet reach 2030 consumption targets in Europe, according to Commodity Insights. While high carbon prices in Europe could increase consumers' willingness to pay, the green cost premium remains an obstacle.

"We do get more confident the more projects we see that really succeed," De Zeeuw said.

Cost gap remains

EU rules on green hydrogen adoption and standards have been a hindrance by adding complexity, Constantine Levoyannis, head of government affairs at Norwegian electrolyzer maker Nel, said.

"Sometimes, perfect ends up being the enemy of the good," Levoyannis said.

Still, complexity is not necessarily the main thing holding the market back, Jonas Moberg, CEO of industry body Green Hydrogen Organisation, said.

"There is still a [cost] delta that can't be closed," Moberg said, and competitiveness with incumbent fuels is not achievable without higher emissions costs for conventional gray hydrogen, made with natural gas.

Platts, part of Commodity Insights, assessed alkaline electrolysis-based renewable hydrogen production in the Netherlands, backed by renewable power purchase agreements, at Eur7.97/kg ($9.20/kg) on June 12, compared with Eur2.73/kg for gray hydrogen.

Emissions costs in potential usage settings such as steel are not high enough, said Magnus Killingland, global segment lead for hydrogen and sustainable fuels at engineering advisory firm DNV.

Natural gas and gray hydrogen are still effectively being used as transition fuels in the conversion away from coal in steelmaking, Killingland said.

With few exceptions, green hydrogen will always be more expensive than gray without abatement, Killingland said. "Gray has to become more costly."

"The weeding out of some of the silly projects has been healthy and good," Moberg noted, referring to a string of projects which have been shelved in recent years as project economics failed to stand up to market realities.

"But there are also many good projects not advancing," Moberg said. Among the use cases most likely to see adoption is green ammonia as a shipping fuel, Moberg said.

Incentives needed

While sticks in the form of renewable fuels mandates and higher emissions costs are important, panelists also pointed to an ongoing need for incentives, especially on the demand side.

The EU is supporting projects with its Hydrogen Bank program, under which developers can bid for subsidies. In a second auction round in May, Eur992 million was awarded to 12 projects for over 2.2 GW of electrolysis capacity.

The projects -- located mostly in Iberia and the Nordics and targeting the transportation, chemical and ammonia sectors -- are expected to produce about 2.2 million mt of renewable hydrogen over 10 years, avoiding over 15 million mt of CO2 emissions. The auction was four times oversubscribed.

When it comes to investor sentiment, Europe could benefit from the withdrawal of interest in the US green hydrogen space, De Zeeuw said. "In general, investments in the US are going down due to volatility," she said.

This is not just because of the removal of 45V tax credits which were introduced as part of the Inflation Reduction Act, but because of a wider sense of stability compared to the US, De Zeeuw said.