Europe Has Thrust Green Hydrogen Into The Spotlight, But Is It Ready For A Starring Role?

By Ben Gallagher, Wood Mackenzie Senior Research Analyst

The European Commission’s (EC) hydrogen strategy paper was released on 8th July. Coming shortly after the EU’s recovery package, the eagerly awaited document looks at the future of hydrogen.

What are the standout milestones from the strategy paper?

The first phase, which runs from 2020-2024, calls for a minimum of 6 gigawatts (GW) of renewable (green) hydrogen electrolysers deployed across the EU, with the production of up to 1 MegaTon per annum (Mtpa) of renewable hydrogen.

EU green hydrogen production today stands at just 1/20th of that, or roughly 0.05 Mtpa. Whilst current pure hydrogen production in the EU is considerably higher at 8 Mtpa, almost all is produced from steam methane reformation (SMR) – often referred to as grey hydrogen.

The second phase (2025-2030) calls for at least 40 GW of electrolysers by 2030, with up to 10 Mtpa of renewable hydrogen.

Is this much different from Wood Mackenzie’s expectations?

No, not really. It is in line with how we assessed hydrogen in the EU following the release of the recovery package in May. Incredibly strong for green, mixed for blue and a focus on industrial end-use as the near-term priority.

Two aspects do stand out, however.

First, the lack of concrete near-term mechanisms to make green hydrogen projects more competitive. As we’ve analysed, the path to cost competitiveness will take a decade or so depending on the end-use, size of project, electricity cost, capex reduction and utilisation. Larger-scale electrolysers will help, but more substance is still needed on how to get there.

The strategy paper explores possible mechanisms – for example, enhancing the EU’s Emission Trading Scheme, the potential for quotas, and carbon contracts for difference – but gives nothing definitive and without any timeline. Perhaps that will come in due course.

Second, we are surprised by how dismissive the paper is regarding natural gas blending – a pathway that has been considered critical given the existing gas infrastructure that could potentially be leveraged.

It is, of course, right to flag issues associated with the technology, however it also underscores how much additional effort is needed to get the hydrogen economy soaring.

How do the green hydrogen projections compare to Wood Mackenzie’s views?

In our accelerated energy transition scenario (AET), we see up to 75 Mtpa of global green hydrogen use by 2040. To reach something consistent with a 2-degree pathway (AET-2), green hydrogen demand would need to be close to 240 Mtpa by 2050.

So, if we assume rapid growth beyond 2030, the numbers projected by the EU are consistent with targeting a pathway towards 2 degrees or below.

What are the main challenges to achieving such heady deployment targets?

There are many challenges, but the pipeline continues to expand in number and the project size continues to get larger.

In the strategy paper, the EC cites our analysis from March 2020: “Green Hydrogen pipeline doubles in five months”. Since then the pipeline has almost doubled again, to around 13 GW of total projects.

This shows the speed of investment and interest flowing into the space. However, the electrolyser manufacturing capacity is still the major impediment at around 150 megawatts today.

Although companies like Thyssenkrupp have outlined plans to get to gigawatt-scale fabrication facilities, there is an enormous amount of scaling in investment and automation that would need to begin almost immediately.