Green Hydrogen’s Uncertain Future
- Green hydrogen expanded rapidly during the pandemic but has struggled to maintain momentum amid rising costs and limited renewable power availability.
- Europe’s ambitious hydrogen targets have been undermined by regulatory uncertainty and slower-than-expected project development.
- New EU funding mechanisms and cross-border infrastructure projects could revive the sector, though long-term success remains uncertain.
During the Covid-19 pandemic, when oil prices fell to a record low, governments and energy companies worldwide began to shift their focus to green alternatives. Many governments introduced ambitious climate pledges and introduced decarbonisation targets, encouraging industries to explore ways to cut carbon. One of the most promising energies for reducing emissions in hard-to-abate industries is green hydrogen, as it can be used for a variety of applications. However, the race to develop commercial green hydrogen seems to have lost momentum as the sector faces several challenges.
Unlike grey and blue hydrogen, which are produced using natural gas, green hydrogen is made using renewable energy to power an electrolyser, which splits water into hydrogen and oxygen. The gas is then burned to produce power and emits only water vapour and warm air, making it carbon-free. Several energy companies announced plans to invest in green hydrogen production during the pandemic, as it aligned with plans to diversify their portfolios to support a gradual green transition.
The green hydrogen industry rapidly expanded in several parts of the world, such as Europe and the Middle East, as governments and energy companies invested heavily in the sector. Europe and the Middle East were vying for the top spot as green hydrogen producers, as global demand increased in line with aims to decarbonise industry. In 2022, Spain announced a €50 million green hydrogen plant in Puertollano and the U.K. revealed a £150 million plant in Felixstowe.
However, as several energy companies, such as BP, have backtracked on their renewable energy pledges, the development of the green hydrogen industry is faltering. Several more challenges stand in the way of sectoral progress, such as the need to use renewable energy for power rather than for green hydrogen electrolysis, and the high cost of production. At present, Europe’s green hydrogen output is forecast at around 1.7 million tonnes by 2030, compared to the previous target of 10 million tonnes mentioned in the European Union’s REPowerEU.
The growing need for renewable electricity to power data centres supporting advanced technologies is making it harder to justify the use of clean energy to power green hydrogen operations. In addition, the cost of producing green hydrogen remains extremely high as the industry has not scaled at the rate needed to drive down prices. The current cost of producing green hydrogen stands at between $5.78 and $23.27 a kilogram, compared to roughly $2 to $3.50 per kg of blue hydrogen.
In April, the announcement of the signing of a joint development agreement on the “world’s first” liquid hydrogen corridor, connecting Oman, the Netherlands, and Germany, provided greater optimism around a major advancement in green hydrogen connectivity. The corridor is expected to connect Oman’s Port of Duqm with the Port of Amsterdam in the Netherlands and the Port of Duisburg in Germany. In total, 11 parties entered the deal, including Oman’s national green hydrogen orchestrator Hydrom and Dutch steel producer Tata Steel.
However, in September, Oman called on the EU to halt ongoing changes to its renewable hydrogen definition, stating that the regulatory uncertainty was deterring final investment decisions in major export projects. Oman’s Energy and Minerals Minister, Salim bin Nasser Al Aufi, said, “Oman is ready to deliver clean hydrogen globally, forging partnerships that drive decarbonisation and sustainable economic prosperity… Do not change the EU's green hydrogen definition while projects are still under development.”
This is not the first time that the EU has been criticised for stalling progress because of its inability to define green hydrogen. In January, German Chancellor Olaf Scholz called for the EU to relax its stringent definitions of the fuel, suggesting that the existing standards were too strict and hindered the competitiveness of planned projects.
Nevertheless, recent developments offer hope for sectoral advancement. In December, the European Commission announced the approval of 100 cross-border hydrogen and electrolyser projects as part of a $1.75-trillion energy infrastructure investment pipeline between 2024 and 2040. The selected projects will be eligible for EU financing from the Connecting Europe Facility and will be provided with more streamlined approval and regulatory processes. “These cross-projects will strengthen energy connectivity across the continent, bringing nearer the completion of the Energy Union,” the Commission stated.
Spain’s government also announced a $483.3 million contribution to the European Hydrogen Bank's community auction-as-a-service (AaaS) scheme to support the development of new domestic green hydrogen projects. The country’s Deputy Prime Minister, Sara Aagesen, said, “With this contribution, we have reached the figure of €3.155 billion to make hydrogen a reality.”
Since the pandemic, the outlook for green hydrogen has yoyoed. Initially, several companies seemed highly optimistic about an accelerated rollout of green hydrogen projects, backed by major investments. However, ongoing challenges to the commercial deployment of the clean fuel and complex regulatory standards in the EU have stalled progress. Now, with a fresh promise of investment from the European Commission and several state governments, there is still potential for the green hydrogen industry to grow over the coming decades.
By Felicity Bradstock for Oilprice.com
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