Hydrogen Central

Europe Must Match US Hydrogen Ambition After ‘Game Changer’ Legislation – Hycap

us hydrogen ambition

Europe must match US hydrogen ambition after ‘game changer’ legislation – Hycap.

The US has upped the ante in the global quest to decarbonise the economy by mass producing clean hydrogen.

The Inflation Reduction Act became law on Aug. 7, providing $369 billion for energy and climate projects, including a subsidy of as much as $3/kg for clean hydrogen.

The subsidy works on a sliding scale, so that the cleaner the end product, the bigger the tax credit it receives, starting at 60c/kg. That means support for a variety of clean hydrogen technologies, including blue, which is made by capturing the carbon dioxide produced during traditional production.

It also makes green hydrogen, created by splitting water with electrolysers powered by renewable energy “immediately cost-competitive” with unabated traditional grey hydrogen, made with natural gas and steam reformation, according to S&P Global Commodity Insights.

How cost competitive depends on the cost of electricity on any particular day. S&P’s calculations show a PEM electrolyser producing hydrogen on the US Gulf Coast with the maximum $3/kg tax credit applied would have been cheaper than grey production 54% of the time in the year through August 2022.

However, those calculations assume taking power from the grid, but many green hydrogen projects will have dedicated renewable energy supplies, reducing the cost of electricity significantly.

The cost of electrolysers and of renewable energy are predicted to continue to decline rapidly over the coming years, providing further downward pressure on the price of green hydrogen.

Even after sharp declines in the cost of renewables over the past couple of decades, electricity costs from both onshore and offshore wind fell by a further 15% since 2020, while rooftop solar PV dropped by 13%, according to data from the International Renewable Energy Agency.

The Inflation Reduction Act is an unalloyed good for the global hydrogen economy, providing a huge injection of cash into clean production in the world’s largest economy.

Andrew Marsh, CEO of Plug Power, said:

With the passage of the Act, we expect a boom for our electrolyser and green hydrogen business.

“All applications that use grey hydrogen today, such as fertiliser manufacturing, will now be able to buy green hydrogen at a competitive price.”

For European projects, however, the Act provides something of a challenge. With such large incentives in place to invest in US projects, money could be drawn away from Europe, Mark Hutchinson, head of Fortescue Future Industries and former head of GE Europe, told the Financial Times this week.

If Brussels is to be successful in replacing Russian gas it will need to provide more competitive incentives, he said.

Mark Hutchinson, head of Fortescue Future Industries and former head of GE Europe, said:

Otherwise, what’s going to happen? All the green capital is going to be flowing into the US and you’re just going to miss out.

Fortescue signed a non-binding deal earlier this year to sell Germany green hydrogen equivalent to about one third of its gas imports from Russia by 2030.

The EU’s energy strategy, RepowerEU, predicts the consumption of 20 million tonnes of clean hydrogen by 2030, of which half will come from domestic production with the remainder imported from low-cost producers such as Australia, the Democratic Republic of Congo and Brazil.

RePowerEU relies on incentives based around contracts for difference, similar to the UK’s system, but the details are yet to be fleshed out. However, what is clear is that, while the US will provide differential levels of funding for projects based on how clean they are, in the EU, as of 2026 it will only provide support for green hydrogen projects powered by new wind and solar plants.

Clean hydrogen has the potential to decarbonise industries from steel manufacturing to chemical production, transport to energy storage. Burning produces no greenhouse emissions, such as carbon dioxide, while using it in fuel cells emits nothing but water vapour.

Green hydrogen could meet 24% of the world’s energy demands by 2050 while cutting CO2 levels by 34%, according to Bloomberg New Energy Finance’s Hydrogen Economy Outlook.

Billions of dollars of investment is pouring into the hydrogen sector at all stages of the supply chain from both government and private investors.

“The US has changed the game,” according to Hutchinson. “They have created an industry out of nowhere.”

Europe must match US hydrogen ambition after ‘game changer’ legislation, August 23, 2022

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