Q&A: The role of hydrogen in European energy transition

: Electricity, Hydrogen
20/12/18

A number of European countries have laid out their hydrogen strategies this year while allocating sizeable budgets to projects promoting electrolysis and the transport of hydrogen as part of stimulus packages.

Hydrogen targets were adopted mostly to align with EU climate ambitions set out in the Green Deal. French hydrogen developer Lhyfe's founder and chairman, Matthieu Guesne, discussed with Argus the role of hydrogen in Europe's energy transition. Edited highlights follow:

Is hydrogen — green hydrogen in particular — on track to become cost-competitive against other fuels?

This will depend on where you are based in Europe, but the goal is the same. The hydrogen price at the pump should be roughly €10.5/kg to beat petrol and about €9/kg to beat diesel. However, we believe the green hydrogen technology is mature enough that these price levels are achievable, even without or with very limited subsidies.

The transport of hydrogen is not as easy as oil and is even harder than gas as it is much lighter and larger in volume. However, with economies of scale and by limiting the transport of hydrogen to a perimeter of 150km, production costs can be reduced significantly.

Does Europe need diversified hydrogen production with part of the output deriving from gas-fired generation (blue hydrogen) or nuclear plants (yellow hydrogen)?

There is no need to go through a transition phase. Europe already boasts a high installed renewable capacity and it is competitive enough to allow the commissioning of large-scale green hydrogen production facilities as early as next summer.

Nearly 75pc of hydrogen electrolysis costs are related to electricity. This means countries or territories with lower power procurement costs will also have access to cheaper hydrogen.

Green hydrogen has seen some boost from the ever-declining costs of renewable projects and should see further support from the development of offshore wind capacities across Europe. Our analysis shows the continent's offshore wind production potential is 11 times higher than its total power demand. This means hydrogen production powered by offshore wind could be three times cheaper than nuclear and 32 times cheaper than thermal.

Have market dynamics shifted since the announcements of national hydrogen strategies in Europe earlier this year?

We have clearly seen an acceleration of hydrogen projects across Europe since the announcements.

We need more regulation and incentives in Europe compared with the US, where the private sector is capable of launching initiatives on its own. Most European regions and large cities now have developed a hydrogen strategy and it has become mainstream for industries and regional authorities to invest in hydrogen projects. About three-quarters of our own projects have been developed since the announcement of national strategies.

However, the sudden interest could be a cause for concern. We cannot have hydrogen projects everywhere, using any type of renewable technology — they have to make financial sense. The load factor of a photovoltaic solar plant in the UK or northern France would be about just 5pc in the winter. Any hydrogen project linked to such plants would have considerably high production costs.

Are European hydrogen capacity targets realistic? How does the French plan compare with its European counterparts?

Considering the budgets allocated across Europe, I would say the targets are realistic and achievable.

I am quite happy with the French hydrogen strategy as it is immediately making available €2bn in 2020-22, out of a total of €7bn. This will immensely boost hydrogen projects compared with Germany, where the government will start investing in hydrogen at a later stage.

Do you see any trading opportunities for hydrogen? Will there be a European hydrogen market?

I do not see market maturity before 2025.

Hydrogen projects will mostly remain local, feeding into ecosystems that will operate in isolation. Both production and consumption will be at a close proximity. Given the physics of hydrogen and, unless its transport improves, there may never be a European hydrogen market. Nonetheless, there could be a market for products deriving from hydrogen, such as green ammoniac.

What's Lhyfe's current project pipeline in Europe?

We have more than 40 projects across Europe, with about a dozen now in the funding stage.

We aim to commission 60MW of hydrogen production capacity in the next four years. Our first project will be in Vendee, western France. Earlier this year, we started construction of a hydrogen production complex — the first green hydrogen site in France — that will be powered by the nearby Bouin wind farm. We are looking to commission the facility next year.

By Bilal Muftuoglu

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