Renewable hydrogen production costs in Europe could fall to Eur2.50-Eur3.50/kg ($2.75-$3.85/kg) by 2030 but targets in the Eur1.50/kg range were "not manageable" in the timeframe, hydrogen investment fund Hy24 CEO Pierre-Etienne Franc said.
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Several hydrogen projects in Europe have ambitious targets to hit production costs of below Eur1.50/kg -- a price that would make low-carbon hydrogen cost competitive with conventional production -- with some aiming for that level by mid-2020s.
S&P Global Commodity Insights assessed the cost of producing renewable hydrogen via alkaline electrolysis in Europe at Eur13.42/kg ($14.96/kg) March 29 (Netherlands, including capital expenditure), based on month-ahead power prices.
"I don't believe the projects talking about green hydrogen at Eur1.5/kg in the next decade," Franc said in an interview with S&P Global March 28. "I don't think that's manageable."
Production costs of Eur3.50/kg and below would already be an "impressive move" that would be almost fully compensated by CO2 costs of about Eur100/mt, Franc said.
EU carbon allowance prices for the December 2022 contract were Eur80.81/mt on March 28, down from highs of over Eur95/mt in early February.
"Even if there is a premium" for renewable hydrogen, "it will set a new normal for green energy, which is bringing more than energy -- it's bringing quality and sustainability," Franc said.
Hydrogen was also critical for enabling the build-out of renewable-based power grids, he said.
"Hydrogen is not a tiny piece of a marginal niche market. It's an enabler of the energy transition to work properly globally," he said. "Hydrogen is fundamental to debottlenecking fully the renewables potential."
European energy security
Russia's military invasion of Ukraine and the resulting turmoil in global energy markets has exposed Europe's dependency on fuels and gases beyond just electricity, Franc said.
"This is where hydrogen comes into play, as it's the only low-carbon gas substitute in many segments," he said.
At 15 million mt of new hydrogen generation -- imported or locally generated -- the sector would be adding about 500 TWh of energy to the European mix, or around 10% of Russian imports.
"But if we look at the share of European energy use that is difficult to electrify, we probably need 3,000 TWh of hydrogen-based solutions -- which is six times the 2030 targets," he said.
The EU had two options to reach the required levels of hydrogen production, Franc said. The EU could develop a centralized agency to process large project support schemes, or it could simplify the rules for large state aid programs.
"The bottleneck is primarily on decision making, not on technology or on finance," he said.
European countries should also support downstream infrastructure projects to boost demand, Franc said, adding that passing the alternative fuels infrastructure regulation would be the best way to accelerate infrastructure rollout.
Franc said renewable hydrogen could be priced at Eur6-Eur8/kg at the pump by 2030, compared with typical pump prices for grey hydrogen above Eur10/kg.
He said production costs for renewable hydrogen would have to drop across the supply chain by about half, which was not as abrupt as the cost reduction in the renewables space in recent years.
"There's no chance for transport decarbonization without hydrogen," he said, highlighting its role in decarbonizing trucks, trains, shipping and possibly aviation.
The EU has committed to deploying hydrogen refueling stations every 150 km along the core European road network. But there was no mechanism to support this, according to Franc.
He said the EU and member states should look at minimum capacity payments to enable the development of hydrogen refueling stations in early stages.
The Hy24 fund is a joint venture between private investment house Ardian and FiveT Hydrogen.
Franc set up FiveT Hydrogen in 2021 after leaving Air Liquide, where he managed the company's hydrogen energy business unit.
The fund, which is focused on larger hydrogen projects, aims to take stakes of typically up to 30% by making investments of about Eur30 million to Eur150 million.
Hy24, on March 29, invested Eur70 million in German hydrogen refueling station network H2 Mobility Deutschland, which has over 90 stations and aims to expand to 300 by 2030.
The fund aims to deploy a total of Eur1.8 billion. Franc said it is close to achieving that level.
He said Hy24 could support up to Eur15 billion of hydrogen projects with such funds with other partners.
Leading investment decisions with large amounts of money had encouraged other funds to come into the hydrogen space too, according to Franc. The fund's strategy is to invest in key pieces of emerging infrastructure.
"We are building the assets that in 10 years will be the key assets of a port, or a network, or the distribution system for hydrogen, pipelines, export or import projects," Franc said.
The fund will mostly focus on new projects through the development stage, before selling assets on to other parties for ongoing operations.
The fund's key criteria for making investments include having an offtaker lined up for hydrogen production and technology readiness. Hy24 was willing to take some risks associated with scaling established technology.
Franc was not concerned about the lack of projects in Europe that had taken final investment decisions though, saying Hy24 would trigger such investment decisions.
Franc said Hy24 would not invest in fossil fuel-based hydrogen projects with carbon capture and storage.
"We are not going to invest in gas-based hydrogen -- that doesn't make sense with a view for the transition," he said. "You have to move to green for that. It's really a fund focused on greening the system and developing green use for hydrogen."