The European Hydrogen Bank and the process industry
The European Hydrogen Bank and the process industry
Headquarters of the European Commission in Brussels (Source: Pixabay)
800 million € – with this amount of money the European Commission wants to boost the ramp-up of the hydrogen economy. As Vice-President of the EU-Commission and Climate Commissioner Frans Timmermans announced on March 16th, the money will be used for the initial establishment of a European Hydrogen Bank. It will provide financial support for both hydrogen production in Europe and international hydrogen imports. What lies behind this step, and what opportunities does it offer the process industry? An overview.
Franz Timmermanns, First Vice President of the EU Commission and Commissioner for Climate Action, at a speech on the REPowerEU plan in May 2022 (Source: EC - Audiovisual Service/Jennifer Jaquemart)
Criteria for green hydrogen
Important to Timmerman's 800-million-€ pledge are two delegated acts from February 2023. For a long time, it was unclear when exactly hydrogen could be declared "green". Critics spoke of greenwashing, since it would be sufficient to produce hydrogen using an electrolyzer – if need be with electricity from fossil sources. The delegated acts are intended to provide clarity here.
For example, it is stipulated that every hydrogen production plant must be connected to a "new plant for the production of electricity from renewable sources". The reason is that electrolysers consume a lot of electricity: According to the Commission, it will take 500 TWh to reach the production target of 10 million tons by 2030. That would be 14 % of the EU's total electricity demand. With the "additionality" criterion, the Commission thus wants to ensure that the expansion of renewable energies grows in proportion to that of hydrogen production plants. Brussels hopes this will not only have a noticeable climate effect, but also relieve the strain on the grids.
Glass manufacturer SCHOTT is investigating how special glass can be melted with the help of hydrogen (Source: SCHOTT)
What can the hydrogen bank do?
In his announcement, Timmermanns also specified the function of the bank: it is to pay producers of green hydrogen a fixed amount per kilogram of hydrogen produced for a maximum of ten years. The payment is to compensate for the price difference that exists compared to the production of fossil-generated, gray hydrogen. The subsidy is thus intended to make green hydrogen competitive and, in the long term, to drive gray hydrogen out of the market.
In fall, the hydrogen bank will begin its work with an auction of the 800 million €: "The green hydrogen producers who need the least support in euros per kilo of hydrogen produced will be awarded the contract at the auction," Timmermanns said. The bank's resources are fed by the EU's Innovation Fund, which is supplied by the sale of CO2 certificates, among other things.
In the future, the hydrogen bank will also subsidize the import of green hydrogen. How exactly, however, is still unclear. A solution is to be found by the end of the year.
The EU wants the expansion of hydrogen production to go hand in hand with the expansion of renewable energies in the future (Source: Andreas Gücklhorn/Unsplash)
Opportunities for the heat processing industry
For the process industry, this development offers a variety of opportunities. Two important ones are:
Growth: according to a 2021 study by business consultants Oliver Wyman, the hydrogen equipment market offers potential of up to €350 billion by 2030, of which up to €200 billion could come from "traditional mechanical and plant engineering." In September 2022, the VDMA also commissioned a study on the potential of hydrogen in the process industry. It states that there are "considerable growth opportunities" for a large number of companies in newly emerging supply chains. The EU also plans to push the production of electrolysers and fuel cells: At least 40% of the technology needed annually by 2030 is to be produced within the EU. Good times, then, for producers of hydrogen technology.
Defossilization: Until now, SMEs in particular feared that the lion's share of the hydrogen produced or arriving in Europe would go to large consumers such as the steel industry. The subsidies should provide so much cheaper hydrogen available that even smaller companies can defossilize their processes. In addition, thanks to the delegated acts, there should be more electricity from renewable sources that can also be used in the process industry in the event of overproduction.
Security of supply: (Subsidized) hydrogen would be a relatively low-cost option due to its high energy density, especially for metallurgy, where it is used in steel refining and processing, for example. Green hydrogen could cost between €3 and €5 per kg in 2030, according to a study by Aurora Energy. The exact price depends on whether the hydrogen is produced in the EU, comes by ship or flows through a pipeline. Regionally, a price of around €2.50 could be feasible. In addition, domestic production would reduce dependence on problematic exporters of fossil energy.
From this point of view, it can be stated: The more inexpensive green hydrogen is in circulation, the better it is for the process industry – provided it makes the appropriate preparations early on. Production equipment must be H2-ready, and the product portfolio should also be oriented toward the new energy carrier. In any case, the EU's will is clear: Hydrogen shall be available in large quantities; The EU is prepared to spend a lot of money on it. How did this come about, and how does the hydrogen bank fit into the political debate?
Hydrogen pipeline (Source: Markus Kießling/Zukunft Gas)
By 2050, Europe should be the world's first climate-neutral continent. This is the vision of the European Green Deal presented by the EU Commission in December 2019. In July 2020, hydrogen was cited as a key lever for achieving the climate targets: With 75% of greenhouse gas emissions coming from the energy system, it needs to become more integrated and sustainable, it said. Green hydrogen was said to play a "key role" in a "paradigm shift".
A European hydrogen strategy
In this context, the EU presented its hydrogen strategy called "A hydrogen strategy for a climate-neutral Europe". According to it, an electrolysis capacity of 40 GW should be installed between 2025 and 2030, producing around 10 million tons of green hydrogen annually. The European Clean Hydrogen Alliance was also launched in July 2020. The alliance of policymakers and industry was a first attempt to coordinate investments in hydrogen ramp-up.
An important stage for the Green Deal was presented in September 2020. The "Climate Target Plan for 2030" calls for a 55% reduction in European greenhouse gas emissions by the end of the 2020s compared with 1990 levels. This was concretized in a legislative package in July 2021, with the declared aim of the EU Commission being to promote demand for and production of hydrogen. In December 2021, the EU Commission presented its "Hydrogen Package," which primarily aims to build a hydrogen infrastructure.
Ursula von der Leyen at the presentation of the EU plan "Save Gas for a Safe Winter" in July 2022 (Source: Lukasz Kobus/EC - Audiovisual Service/European Union)
Catalyst Ukraine War
Better known is a March 2022 decision: under the impression of the Russian attack on Ukraine, the Commission announced its "REPowerEU" plan. It marked a turnaround: From now on, the discussion about hydrogen focused not primarily on sustainability, but on security of supply. "Energy independence" became the buzzword.
Plans to diversify energy imports, including through LNG, coincided with this period. But which energy carrier is better suited to establishing energy independence than hydrogen, which can potentially be produced everywhere and was a core component of the Green Deal anyway?
The chicken-and-egg problem
While hydrogen has since experienced increasing publicity throughout Europe, the demand for concrete measures has also become louder. The industrial and energy sectors in particular are faced with the question of whether and when it is worth investing in hydrogen. The dilemma is what many call the chicken-and-egg problem:
If potential producers and grid operators invest in hydrogen production, storage or transport, there might end up being no or insufficient demand for their supply – not to mention unresolved legal issues, especially in the transmission grid sector. Producers and grid operators fear losing a lot of money on such stranded assets. Conversely, many municipalities and companies that could use hydrogen are hesitant to invest in corresponding infrastructures and technology because it is unclear whether there will be enough hydrogen available in the future. This particularly affects the process industry.
A European hydrogen bank
To solve this Gordian knot, EU Commission President Ursula von der Leyen surprisingly floated the idea of a European hydrogen bank in September 2022. With an endowment of up to €3 billion, it would subsidize the "two pillars" of the hydrogen economy: European hydrogen production on the one hand, and the import of an additional 10 million tons of hydrogen per year on the other. But von der Leyen did not give many details.
EU Climate Commissioner Timmermans reiterated her push in his keynote address at the Brussels "European Hydrogen Week" in October 2022, saying the hydrogen bank would be the "jumpstart" for the hydrogen economy. Whether this is true? We will see.
Author: Magnus Schwarz, Vulkan Verlag GmbH
Oliver Wyman study: https://www.oliverwyman.de/media-center/2021/apr/wasserstoff-boom-wachstumschancen.htm [retrieved 03/22/2023]
Roland Berger study: https://www.rolandberger.com/en/Insights/Publications/It-s-time-to-industrialize-manufacturing-tech-for-equipment-in-the-hydrogen.html [retrieved 03/23/2023]
Aurora study on costs of green hydrogen in 2030: https://auroraer.com/media/renewable-hydrogen-imports-could-compete-with-eu-production-by-2030/ [retrieved 03/23/2023]