Conor here: More bad news for Europe — and especially Germany — which bet big on this boondoggle to supply energy for sectors where electrification is not an option, such as in parts of industrial manufacturing. The following piece touches briefly on that risky wager, but here’s more from Energy Connects:
Germany plans to build more than 20 power plants much bigger than the one in Leipzig, which it advertises as the continent’s first “hydrogen-ready” facility. They’ll be supplied by state-of-the-art liquefied natural gas terminals equipped to handle niche clean fuels such as ammonia, and a network of special pipes stretching roughly 6,000 miles (9,600 kilometers).
But there were always a lot of buts:
But there’s no official definition of what makes a plant hydrogen-ready, opening the door for greenwashing. For power plants, burning hydrogen hasn’t even been tested at scale.
…Then there’s the problem of moving hydrogen around. The Leipzig plant isn’t hooked up to the grid (and hasn’t yet set up its own electrolyzers), which means the highly combustible fuel will have to be trucked in until the second part of the government’s grand plan comes to fruition. It’s building a €1 billion liquefied natural gas terminal in Brunsbuettel, a town along the North Sea, that will initially import LNG but [could] be designed to also handle futuristic clean fuels.
Hydrogen can only be liquefied at -253C (-423F), well beyond the capabilities of today’s LNG ships. So Germany is planning to import hydrogen in the form of liquid ammonia, a combination of hydrogen and nitrogen that can more easily be turned into a liquid. But ammonia is toxic and handling requires better ventilation systems. Many components in the terminal, including control valves and fire and gas sensors as well as inline devices — most of which have not been tested with ammonia — will also need upgrades, according to Fraunhofer ISI, an energy think tank.
Germany doesn’t have an ammonia pipeline network and there are limitations to moving it via trucks on an industrial scale because it’s hazardous. That means ammonia will have to be converted back into hydrogen, yet there’s no economically viable technology currently available to do that. The terminal’s operator said it will discuss alternative strategies if none emerge by next year.
…The difference is that wind and solar produce clean electricity — a commodity the world already uses. Green hydrogen, on the other hand, will require building more solar and wind farms when, in many cases, it would be simpler to just use that clean energy directly. By the time hydrogen is made, stored and burned to make electricity again, there’s nearly 70% less energy than at the start — and the cost has tripled.
Green hydrogen will probably only be useful towards the end of the energy transition, once primary electricity demand is being comfortably met by renewables, according to Pierre Wunsch, Belgium’s top central banker.
By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at Oil Price.
- The initial excitement surrounding low-carbon hydrogen has faded due to high project costs, regulatory uncertainty, and weak demand.
- Only a small percentage of hydrogen projects in North America and Europe have reached final investment decisions.
- Major energy companies like Shell and Equinor have paused green hydrogen plans in Europe, citing poor project economics and unclear regulatory frameworks.
The low-carbon hydrogen hype has begun to fade in recent months as companies and investors realize that their ambitions face the reality of costly projects amid regulatory stumbling blocks and uncertain future demand.
The momentum behind green hydrogen from two years ago, generated by the U.S. Inflation Reduction Act (IRA), has slowed amid still high costs and macroeconomic headwinds. In addition, regulatory uncertainty and a lack of committed demand are undermining the 2030 production goals for low-carbon hydrogen, both in the United States and Europe.
As a result, investors are re-thinking funding, companies are re-drawing hydrogen production strategies, and share prices of major hydrogen players are crashing.
For example, Denmark’s Green Hydrogen Systems (CPH: GREENH), a provider of standardized, modular alkaline electrolyzers, has plunged by 65% year to date. U.S.-based Plug Power (NASDAQ: PLUG) has seen its stock tumble by 53% year to date, and Ballard Power Systems Inc (NASDAQ: BLDP) has crashed by 58%.
Other firms focused on green hydrogen and technologies have also seen their share prices battered amid signs that despite progress in project announcements, project commitments with final investment decisions (FID) are a fraction of the total pipeline of projects.
Just 18% of U.S. low-carbon or renewable hydrogen projects in North America, and only 5% of such projects in Europe that aim to begin operations by 2030 have reached FID so far, McKinsey & Company and the Hydrogen Council said in a report last month.
“A key sector-specific challenge for the hydrogen industry is uncertainty associated with a number of regulatory frameworks,” including the EU regulatory framework and the rulebook for the investment tax credit in the IRA. All of this “impedes project bankability,” the authors of the report wrote.
“Coupled with cost increases for renewable power and electrolysers, this has led to delays and cancellations of projects – in particular, renewable hydrogen projects,” they added.
In Europe, the European Commission has set unrealistic hydrogen production and import targets—the EU is not on track to achieve them, the European Court of Auditors, the supreme audit institution of the EU, said in a report this summer.
The Commission has been partially successful in creating the necessary conditions for the emerging hydrogen market and the hydrogen value chain in the EU, but it now needs “a reality check,” the European Court of Auditors said.
Even the International Energy Agency (IEA), the most vocal backer of all things renewable, has warned that policy and demand uncertainty are slowing down green hydrogen adoption globally.
According to the IEA, the main reasons for the slow uptake of low-carbon hydrogen “include unclear demand signals, financing hurdles, delays to incentives, regulatory uncertainties, licensing and permitting issues and operational challenges.”
A lack of visibility on demand and regulatory uncertainties have halted several major projects in Europe this year alone.
Spanish energy firms Repsol and Cepsa, for example, are pausing green hydrogen investments in Spain, as one of the most promising EU markets for renewable hydrogen is considering making the windfall tax on energy firms permanent.
The idea that a version of the tax could become permanent infuriates many major companies, including energy firms with plans to invest in green energy projects.
The Spanish firms halting projects are the latest European firms to pause or ditch green hydrogen plans due to either policy or demand concerns.
Most recently, Shell and Equinor have ditched plans for low-hydrogen production and transportation in north Europe due to a lack of demand.
Investors are not rushing to invest in backing green hydrogen projects, either, due to poor economics and potential returns.
“Green hydrogen is still not investable. It’s rubbish in terms of investment,” Mark Lacey, head of thematic equities at UK asset manager Schroders, told the Financial Times.