How to Take the Risk out of Hydrogen Investments

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Final Up to date on: 4th February 2025, 12:37 am

“Hydrogen’s moment is here at last” proclaimed The Economist again in 2021. At the moment, the bubble has burst.

“Hydrogen’s moment is here at last” proclaimed The Economist again in 2021. At the moment, the bubble has burst. A current report by BNEF mentioned inexperienced hydrogen would stay much more expensive than beforehand thought for many years to return. The € 2 per kilogram Ursula von der Leyen touted in a 2021 speech appears far-fetched now.

We’ve proven in 2020 and 2023 that hydrogen isn’t any swiss-knife, miracle answer. Our graph visualising the inefficiencies of hydrogen manufacturing is known. We imagine “electrification first” needs to be the EU’s new vitality motto.

And but, we don’t need it to be “game over” for hydrogen. Hydrogen-based fuels stay an indispensable vitality vector for ships, planes and fertilisers the place electrification isn’t doable and bioenergy isn’t scalable.

That requires a brand new strategy. To get e-ammonia, e-methanol or e-kerosene initiatives off the bottom requires billions of euros in capital funding. Oil firms may make these investments however they aren’t. New entrants with out limitless pockets can not get financing with out the assure that somebody will purchase their product at a value that helps their enterprise case. The danger is just too nice.

Final yr T&E recognized 56 e-kerosene projects for the aviation sector and 61 e-fuels projects in improvement in Europe that might provide the delivery trade. However only a fraction of those have acquired a ultimate funding choice (FID). Even then, flagship initiatives having acquired FIDs can nonetheless get cancelled.

How do you repair this?

The EU’s response was the Hydrogen Financial institution (EHB). The concept was to make use of a aggressive public sale to allocate mounted subsidies per kilogramme of renewable hydrogen produced in Europe. After the primary spherical of bidding, seven initiatives had been chosen for a complete of €720 million.

The hydrogen financial institution was an amazing innovation. However it’s not working.

The hydrogen financial institution’s aggressive bidding mechanism led to successful subsidies averaging at round €0.50 for each kilogram of hydrogen — in opposition to an anticipated 2030 value of not less than 6/kg in Spain, one of many international locations with essentially the most potential due to an abundance of solar and wind. The public sale design led to a race to the underside the place firms simply wished to be on the successful record, and subsequently made bids that had been far too low to make their mission economics viable.

Why? Seemingly, the mission builders hope that having a stamp of approval from the EU will enhance the mission visibility, and that needs to be enough to boost non-public financing to bridge the hole. However with out addressing the chance and offtake challenge danger it’s unlikely that any Hydrogen Financial institution successful initiatives may have long run viability and danger repeating the destiny of the Orsted’s Flagship Onewhich was cancelled even after receiving a ultimate funding choice (FID).

The issue isn’t simply value. Present ship and airline bunkering practices are primarily based on short-term or spot contracts. They don’t purchase gasoline for the following ten years. Actually, neither are airways or shippers topic to mandates requiring them to burn efuels. Oil majors are topic to an e-kerosene quota, however massive oil is betting they’ll kill the EU’s mandate earlier than it kicks in. Small subsidies received’t change any of that.

H2 international, a German initiative, gives a unique strategy. It’s primarily based on the “double-auctions model”. First, there’s a authorities backed public sale to purchase for instance e-ammonia. The perfect provide will get a long run contract with H2 international guaranteeing offtake. That provides the developer the arrogance to go and lift capital and perform the mission. Then a second public sale is held, this time making an attempt to promote the e-ammonia, e.g. to the fertiliser or delivery trade.

How a lot these “demand” sectors are keen to bid for inexperienced ammonia is dependent upon their regulatory and market dynamics. The stronger the regulatory strain, the extra e.g. gasoline suppliers or shipowners are keen to pay for hydrogen primarily based fuels, and the decrease the subsidy. The perfect is a straightforward quota like we’ve for aviation gasoline suppliers however issues like multipliers and pooling which exist in fuelEU maritime additionally assist – though a quota on delivery gasoline suppliers can be even higher!

So the purpose is not to utterly offset the inexperienced premium via taxpayers subsidies — finally delivery and aviation customers must pay for clear gasoline — however to make multibillion euro investments rather a lot much less dangerous. What’s attention-grabbing is that H2 international began as a German scheme however has now attracted Dutch funding too (€300 million). It is usually opening its tendering to European projects.

The EU’s carbon marketplace for delivery and aviation is more likely to increase over €10bn/yr, with a few of the cash earmarked at EU stage for funding in clear fuels, however many of the money held by nationwide governments. Why not use a part of this cash to construct a H2 World fashion EU hydrogen financial institution, or to ask H2 international to organise tenders for the EU?

Ursula von der Leyen was all the time a powerful believer and promoter of hydrogen. She was the architect of the hydrogen financial institution 1.0. To save lots of the helpful bits of the hydrogen dream we’d like a H2 financial institution 2.0 If the EU succeeds in taking the chance out of investments, hydrogen’s second may nicely be right here finally. Europe’s delivery and aviation sectors are counting on it.

Initially revealed on T&E website. By William Todts, Govt Director, Brussels (EU)