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'As important as oil was in the past': Hydrogen rises up the agenda in Q2

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A gas compressor station in Italy, owned by grid utility Snam, which could one day be processing a hydrogen blend. Like many of its peers, Snam ratcheted up its focus on hydrogen during the second quarter.
Source: Snam SpA

Considered a distant dream by many just a year ago, hydrogen has reached the European utility mainstream in recent months. Evidence of a gear change shone through in recent second-quarter earnings calls, as power generators and network operators outlined their planned involvement in a future market for the fuel.

Policy certainty is responsible for much of the hype, with the EU's hydrogen strategy setting out the blueprint for 40 GW of installed electrolysis capacity by 2030 and national governments following suit with their own targets.

Hydrogen did not feature on RWE AG's first-quarter earnings call on May 14 but came up 11 times during its second-quarter update, as the company laid out its strategic positioning, including the supply of renewable energy for green hydrogen production, as well as logistical and storage solutions.

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Uniper SE is eyeing the hydrogen boom as an opportunity for greening its gas-fired power generation fleet, but is not planning to build its own renewable power capacity to produce the fuel. Between Uniper executives and utility analysts, hydrogen was mentioned 84 times on the company's recent earnings call, compared to three times in the first quarter. "In a couple of decades, hydrogen could be as important for the world as oil was in the past," CEO Andreas Schierenbeck said Aug. 11.

On Ørsted A/S's second-quarter call, hydrogen came up 28 times, compared to 10 in the first quarter. The wind giant has announced plans for several pilot projects in northwest Europe, including "Westküste 100" at a refinery in Germany, and a transport fuel hub in Copenhagen that will serve off-takers in the shipping, aviation and trucking sectors.

Italian grid utility Snam SpA gave the most airtime to hydrogen, dedicating a large portion of its second-quarter earnings call to the subject. The company is hoping to carve out a role in Italy's hydrogen deployment as well as in facilitating imports of green hydrogen from solar-rich nations in the Middle East and North Africa, according to CEO Marco Alverà. Spanish utility Iberdrola SA meanwhile announced a collaboration with fertilizer maker Fertiberia SA, which will involve a new solar plant feeding a 20-MW electrolyzer at an industrial site.

An uptick in time spent by executives talking about hydrogen, as well as analyst interest in the subject, was in fact visible almost across the board, with Electricité de France SA the only major European utility not to address the topic in the second quarter.

Not everyone is fully on board, however. Executives at Spain's Naturgy Energy Group SA struck a more skeptical tone on the hype, saying the switch from natural gas to alternatives produced from renewables is a long path to commercial viability.

British utility Centrica PLC also has no plans to enter the hydrogen game just yet. "We are not going to throw our weight behind any technology over the other, because I don't think we know any better than anybody else," CEO Chris O'Shea told analysts July 24.

Is it different this time?

The idea of hydrogen as a widely used fuel source was already floated in the early and mid-2000s, where an industry push for scale ultimately failed. This time, industry and policy leaders say, it will be different.

For Francesco Starace, CEO of Italian utility Enel SpA, which is placing its strategic chips on green hydrogen as an off-take sink for its renewable power, the business case for hydrogen now looks promising. "In 2002, renewables did not exist the way they exist today. They didn't exist at all. And those that existed were a joke. Today, renewables are cheap, fast-growing, and they are displacing the rest of energy generation worldwide, bringing the cost of electricity to levels that were unthinkable at that time," Starace said on the company's July 29 earnings call.

"To a large extent we are witnessing a break-through moment for hydrogen," Enass Abo-Hamed, CEO and founder of hydrogen technology startup H2GO Power Ltd., said in an email.

Abo-Hamed pointed to several recent developments to underpin her sentiment: the public listing in June of zero-emission vehicle business Nikola Corp.; the EU and German hydrogen strategies announced in the second quarter; a notable increase in valuations of the publicly listed electrolyzer and fuel cell companies; increased oil and gas company involvement in feasibility projects; and hydrogen technologies being floated as a solution for decarbonizing aviation.

"We have never seen anything at this scale before," she said.

Companies in the power generation and transmission sectors are now using the moment to declare their intent, even if final investment decisions have not been made. "Obviously, when there is ... momentum like that out there in the market, corporates that are competing for a larger share of the same cake will be driven by the announcements of their competitors in hydrogen as a positioning exercise," Abo-Hamed said.

That said, the cost of producing renewable hydrogen is still too high compared with fossil fuels used in the same applications, according to Lee Wilkinson, senior consultant at advisory firm BVG Associates.

"It hinges largely on government policy," Wilkinson said in an email. To sustain momentum and achieve economies of scale and cost reductions, governments will have to support research and development, set hydrogen production targets and provide revenue support mechanisms, he added.

Beyond Europe

While specific hydrogen road maps are most advanced in Europe, there is movement elsewhere, too.

U.S. utility AES Corp. is dipping its toes into the technology through pilot projects at old coal plants and sees off-take opportunities in the trucking sector. When it comes to power storage solutions, the company favors batteries over hydrogen, however. Too much energy is wasted in the molecule-to-electron conversion process to make hydrogen a viable option at this point, CEO Andrés Gluski said Aug. 6 on the company's second-quarter earnings call.

San Diego-headquartered Sempra Energy is also working on pilot projects with a focus on heavy transport, blending in the power generation segment and co-location with natural gas facilities. "We're quite bullish on the role of hydrogen and renewable natural gas, particularly here in California," CEO Jeffrey Walker Martin said Aug. 5.

Meanwhile, a consortium of U.S. gas and electric utilities is combining forces for a research project aimed at advancing the development of low-carbon molecule solutions including hydrogen, ammonia and biofuels. Participants include American Electric Power Co. Inc., Duke Energy Corp. and Tennessee Valley Authority. Many of the utilities involved conduct business in states like California, New York and Virginia that have passed laws to fully decarbonize their economies by or before 2050.