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How to ensure an economically viable hydrogen development while avoiding market fragmentation

Hydrogen’s importance has been rising recently due to the fact that we must ease dependencies on fossil fuels and energy imports. Over the past couple of years, there have been clear signs from the European Union, like the hydrogen strategy, the European Hydrogen Bank and more recently, the two delegated acts adopted in June, covering renewable fuels of non-biological origin (RFNBOs) and how to calculate the life-cycle emissions of renewable hydrogen and recycled carbon fuels.

Let’s keep in mind what the goal is: the European Commission has proposed to produce 10 million tonnes of renewable hydrogen by 2030 and to import 10 million tonnes by 2030. Still, there are uncertainties.

During an event organised in Brussels by Business & Science Poland, Ruud Kempener, Member of Cabinet of the Commissioner for Energy Kadri Simson said they are very proud of the milestones achieved so far and of the steps taken, especially if we take into account that there are 27 Member States with very different energy mixes, with very different regional or local conditions in terms of energy sources and being able to come together and build something should be remarkable.

A key element that Mr Kempener highlighted is the importance of making investments today, so as to reach our goal of climate neutrality by 2050.

“Hydrogen, as everyone knows, is one of those key enablers, so our role really is to give regulatory certainty about the role that hydrogen can play and how businesses, the industry, the transport operators can play their roles within this market,” he said. “Of course, one of the key aspects is that we can’t do it by ourselves but it’s really a call also to the Member States and the European Parliament to get all of those legislative pieces of regulation finished by the end of the year.”

One of the major bottlenecks often underlined is the lack of proper infrastructure, a concept that according to Kamila Waciega, Director of Energy and Infrastructure Policy at Hydrogen Europe includes an impressive ensemble of things that need to be there for the market to emerge in a couple of years.

Event organised by Business & Science Poland in Brussels.

“We focus mainly on the emergence of the market, looking at the supply and the demand, which sectors should we prioritise, which type of hydrogen will come first,” she said. “Very often we forget that none of that will happen if we don’t have infrastructure and when we talk about infrastructure it’s quite a comprehensive notion because we have to think about pipelines, both landline pipelines and subsea pipelines, we have to think about ports, about shipping, about the equipment in ports that will enable us to convert important derivatives into hydrogen and we also have to think about storage.”

Indeed, as Ms Waciega pointed out, storage will be a key element in our energy future. Hydrogen is not only useful for the industry but also for the power sector, especially when we talk about renewables and long-term inter-seasonal storage.

“Hydrogen storage will be the equivalent of hydropower which is not available in every country,” she stated.

Exactly because of these regional differences, hydrogen cannot be looked at as the one single tool to achieve decarbonisation, but just one piece of the puzzle. Ms Waciega mentioned a recent study prepared by Artelys and Fraunhofer IEE for the European Commission, according to which two scenarios were foreseen: a high electrification scenario and a high hydrogen-share scenario.

“Even in the electrification scenario, 20 per cent of energy was coming from hydrogen and its derivatives,” she explained. “So it’s not about making the entire economy hydrogen-based but it’s about finding the way we can find synergies.”

Thus the link with storage, which is not only for the power sector but also to avoid energy losses when integrating renewables into the grid. Ms Waciega mentioned that, for example, Germany lost 4.2 billion euros last year for energy that could have been used to produce hydrogen and store it instead of being lost.

“If that’s not energy sector integration, I don’t know what it is,” she said.

The other side of the coin is market fragmentation, a fear that countries have if the EU doesn’t take into account the regional differences. Michał Grzybowski, Project Manager for Hydrogen and Synthetic Fuels at ORLEN underlined how the hydrogen market is highly influenced by local and regional factors, like geographic location, weather conditions, wholesale electricity prices, carbon intensity, availability of renewables and so on.

“Due to all these factors, probably we will have some challenges meeting the future demand for RFNBOs using only domestic supply, so we will have to consider imports of different fuels and technologies and the first that comes to mind today is of course ammonia, but we could also include in the discussion methanol and liquid organic hydrogen carriers (LOHC),” he said, quoting the example of Japan and Australia as a successful cooperation for the commercialisation of liquid hydrogen.

Of course, to realise all of this financing will be key. Mr Grzybowski said that ORLEN positively welcomed the creation of the European Hydrogen Bank, however, also this tool should take into account local differences, creating regional pillars for a truly level playing field.

On this note, Ruud Kempener mentioned how important is cross-border cooperation, in addition to financing and regulatory frameworks.

For Rheanna Johnston, Policy Advisor for EU energy transition on the Climate Neutral Energy Systems at the think tank E3G, there are two things we should focus on when talking about the hydrogen market: first, we should learn to prioritise and second, the planning aspect.

“There are various studies and estimates and different numbers from different groups on how much demand of hydrogen we’ll actually see in 2030 and it probably won’t be the 20 million tons foreseen in the REPowerEU, so I think it’s important to be clear and honest about that,” she stated. “We have existing hydrogen demand that currently is mostly dirty so starting with decarbonising that is a pretty clear starting point that we haven’t prioritised as much.”

The same goes for the prioritisation of the sectoral uses of hydrogen, as there are sectors for which electrification will be a better option.

“The second aspect is the planning one,” she continued, “because hydrogen is going to be such a complex space as it cuts across so many different sectors, electricity generation, the power sector, storage, industry, mobility and so on, so we need to think across all of those and plan very holistically in a way that we haven’t maybe up until this point in our energy system planning.”

She quoted the UK as a good example when it decided to launch a ‘future energy system operator’, a fully independent agency that will be able to plan across the electricity sector, the gas market and in the future also the hydrogen one, taking into consideration what the future energy mix will be like and the challenges related to digitalisation, flexibility and demand management.

Indeed, there are still some challenges to address, like the full implementation of the regulations already in place and how they will be translated into national policies or the parts still open in the Fit-for-55 package; the development of the infrastructure and the logistics aspect or the connection into the grid. All keeping into account the differences between each Member State’s energy mix.

“There is still some uncertainty about how rules and regulations are going to be implemented,” Ruud Kempener concluded. “ But I already see big announcements coming from the industry, in terms of billions of euros, irrespectively of the implementation of the regulations. So looking at these calls and how projects are actually being implemented is a very positive development within the EU.”

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