2020 might be the year that hydrogen finally made its long-awaited international breakthrough. Over the past few months, countries like Germany and the Netherlands, as well as the European Union, have published ambitious strategies that push the development of hydrogen over the coming decades. However, there is still a lot of uncertainty that must be considered. That is why we at Aurora Energy Research wanted to separate fact from fiction. Backed by a large consortium of industrial players and the German, Belgian and Dutch regulators we have undertaken a large-scale analysis of the factors influencing the future hydrogen market and their implications. Here, we want to highlight some of our findings that are also particularly relevant for the wind industry.By Alexander Esser, Aurora Energy Research, Germany
Before diving deeper into hydrogen specifics, one of the biggest outstanding questions is the applicability of hydrogen as a (carbon-free or neutral) fuel. Hydrogen already plays an important role in many industrial processes. In the case of Germany, this demand alone would be roughly 150TWh in 2050. However, when using hydrogen instead of direct electrification in mobility and heating, we estimate the demand to be at 500TWh, more than three times as high. Particularly when trying to cover such high demand with green hydrogen alone, this can be an extremely costly exercise.
The logic here is quite simple: when demand is low, the electrolysers can make much more frequent use of the low electricity prices in phases of plenty of sun and wind. If, on the other hand, more hydrogen is needed, hydrogen must be produced even at times of higher electricity prices, which increases hydrogen prices. As shipping and intercontinental pipelines are very expensive, our analysis shows that importing green hydrogen from sun-rich non-European regions such as northern Africa is not competitive with domestic production. Import from within Europe is a different story when the already existing gas infrastructure could be converted.
In its hydrogen strategy, Germany paints the picture of a green hydrogen future. Even though green hydrogen will play a very important role in the future, our research finds that blue hydrogen is needed as a transition technology to create scale, increase demand and reduce production costs. Having said that, it is important to note that we expect green hydrogen to play a very important role in the future business cases of (offshore) wind, but we are not there yet. Not without government support at least. Our study shows that green hydrogen needs government support to compete with blue hydrogen. It is currently 50% more expensive, and modelling shows that it will not be competitive without start-up support in a pure market until the 2040s. To speed that up, political measures should ensure that sufficient electrolysers and hydrogen storage facilities are built in the coming years as well as the provision of additional renewable electricity capacities.
We will continue to monitor the developments in the European hydrogen space. At the moment, we are assembling a group of financiers, developers and regulators to drive our research agenda further.
