Hydrogen fuel derived from green sources encounters significant obstacles
The pursuit of green hydrogen as a key player in the energy transition faces significant hurdles in the European Union (EU). Despite ambitious goals and substantial financial support, the implementation of green hydrogen projects is falling short of expectations.
The gap between ambition and reality is enormous. With only six million tons of climate-friendly hydrogen facilities in operation or under construction worldwide, far from the 450 million tons needed to achieve global net-zero greenhouse gas emissions by 2050, the EU's target of 40 gigawatts (GW) by 2030 appears unreachable. Spain, aiming to have an operational hydrogen network by around 2030, faces European infrastructure delays of 2-3 years, translating to a production capacity of around 12 GW.
One of the main challenges hindering widespread adoption is the energy-intensive process of producing green hydrogen. This increased energy consumption, coupled with the high production cost, makes cost-effectiveness a significant challenge, even with abundant sun and wind resources. Green hydrogen, produced through electrolysis using electricity from renewable sources, is currently priced at 150 euros per megawatt hour (MWh), significantly higher than traditional alternatives like natural gas at 30-35 euros.
Regulatory barriers, lack of strong enforcement mechanisms, and market hesitancy around the green premium for renewable hydrogen are also key challenges. The EU's current Renewable Fuels of Non-Biological Origin (RFNBO) regulations impose strict conditions that create uncertainty and complexity for project developers. Without meaningful enforcement, such as penalties for non-compliance or stronger incentives, targets as outlined in RED III risk being ineffective.
Despite the EU establishing an extensive hydrogen policy framework, these regulatory tools have not yet fully translated into large-scale project deployment. The European Hydrogen Bank auction has provided substantial funding, but the low premium levels accepted by developers suggest market players remain cautious about profitability and risk.
Governments are scaling back their hydrogen ambitions due to financial constraints. Italy is shifting funds from hydrogen to biomethane, France is reducing its 2030 electrolysis target by more than 30 percent, Portugal is reducing its plans by 45 percent, and the Netherlands is focusing on building two new nuclear power plants. Even in countries with abundant renewable energy resources, such as Australia, hydrogen projects have been scaled back or abandoned due to financial constraints.
The hope for green hydrogen as a beacon of the energy transition is fading due to high costs and insufficient demand. Analysts expect green hydrogen to be competitive only by 2035-2040. In the meantime, the likelihood increases that fossil fuels will continue to dominate longer than planned.
References: [1] European Commission. (2021). Hydrogen: A European industrial strategy. Retrieved from https://ec.europa.eu/info/strategy/priorities-digital-and-sustainable-growth/sustainable-growth/climate-change-and-environment/hydrogen/hydrogen-strategy_en
[2] European Commission. (2020). Delegated Act on the methodologies for the calculation of the GHG emissions and removals for the EU Emissions Trading System. Retrieved from https://ec.europa.eu/clima/policies/ets/ets_regulation/ets_delegated_acts/2020_2021/docs/delegated_act_2020_2082_20201027_en.pdf
[3] European Commission. (2020). Hydrogen and Decarbonized Gas Market Package. Retrieved from https://ec.europa.eu/info/strategy/priorities-digital-and-sustainable-growth/sustainable-growth/climate-change-and-environment/hydrogen/hydrogen-and-decarbonized-gas-market-package_en
[4] European Commission. (2021). European Hydrogen Bank auction results. Retrieved from https://ec.europa.eu/info/publications/european-hydrogen-bank-auction-results_en
- To effectively promote green hydrogen, it is crucial for the European Union to address regulatory barriers mentioned in the Community policy and Renewable Fuels of Non-Biological Origin (RFNBO) regulations, strengthening enforcement mechanisms for better compliance and implementation.
- As the finance sector plays a significant role in the energy transition, it is imperative to provide stronger incentives and invest in renewable-energy projects to lower the cost of green hydrogen production, making it more competitive with traditional alternatives like natural gas in the industry.
