‘Made in Europe’ Hydrogen is possible – in the North Sea – Euractiv
Europe stands at a critical juncture in its energy transition, highlighting the urgency of a clean energy shift at competitive prices.
Bernd Weber is founder and director at EPICO Climate and Innovation; Alex Barnes is visiting fellow at the Oxford Institute for Energy Studies; Matthias Janssen is associate director at Frontier Economics.
Among the many avenues, renewable hydrogen made in Europe from the wind-swept waters of the North Sea offers a once-in-a-generation opportunity to build a new pillar of European energy resilience, while also boosting Europe’s industrial competitiveness.
However without an ambitious integrated action plan, matched with smart support, this vision will remain out of reach
North Sea countries aim to scale offshore wind capacity from under 30 GW to 120 GW by 2030 and 300 GW by 2050, which can be partly used for hydrogen production.
Offshore wind farms in the North Sea have a capacity factor of 50%, significantly higher than onshore farms, becoming ideal for consistent electricity generation, and powering hydrogen electrolysers.
Producing hydrogen offshore alleviates the need for costly electricity grid expansion, both onshore and offshore, whilst enabling the exploitation of additional offshore wind far from land.
In Germany, for example, TSOs and regulator BNetzA anticipate electricity network extension costs of €320 until 2045, of which €160 billion for offshore electricity lines alone.
For distances of 100km or more, it is much cheaper to transport hydrogen by pipeline, than to transmit electricity by cable. For far-offshore wind parks, this benefit outweighs the cost required for electrolysers and for energy losses of converting electricity to hydrogen.
A dnv study, for example, estimates that connecting a 14 GW far-offshore wind park in Germany via electricity cables costs €44 billion, while a hydrogen pipeline costs €1.2 billion, plus €26 billion for the electrolyser.
Considering that we need renewable hydrogen to decarbonise hard-to-electrify sectors, and that electrolyser cost and any electrolyser losses occur anyway, offshore electrolysis makes economic sense, saving high offshore electricity transmission costs.
However, the development of Europe’s hydrogen market is facing headwinds in meeting ambitious targets.
According to a recent BCG study, not even two percent of the production capacities for green hydrogen announced for 2030 in Europe have progressed beyond the planning stage, and the European Court of Auditors called for a hydrogen ‘reality check.’
Hydrogen made in Europe must be more than a slogan; it must become a reality. This means overcoming regulatory, financial, technical, and spatial barriers.
Developing necessary infrastructure in the North Sea requires significant investment. Public and private sectors must create robust financial mechanisms that de-risk investments and incentivize private capital.
This is where innovative financing models come in.
‘Hydrogen Purchase Agreements’, long-term offtake agreements between hydrogen producers and hard-to-abate off-takers, backed by government support, can provide much-needed certainty, ensuring stable revenue streams for investors.
Beyond traditional state aid, the EU must unlock private capital. Public financing will play a crucial role in de-risking hydrogen projects in the early stages, but investors are understandably cautious.
One promising approach is Germany’s ‘intertemporal cost allocation’ enabling the construction of the recently approved 9,000+ kilometre German hydrogen core grid.
This mechanism sets pipeline network tariffs at an acceptable level for users, and provides state-backed loans and state guarantees to bridge the time until utilisation rates rise and tariff revenues exceed cost.
With similar innovative financing mechanisms, Europe can make the upfront capital investments less daunting and more attractive to private investors.
In parallel, integrated cooperation remains essential.
Governments need to create common structures across borders. Harmonizing and simplifying permitting processes and applying common regulatory standards will help ensure that investments can be realised quickly and with lower costs.
EU-wide integrated planning for electricity and hydrogen is necessary from a systemic perspective on the internal energy market.
The choice of a Danish European Commissioner-designate for Energy can help.
Demark has ambitious targets for offshore wind capacity and energy islands in the North Sea, which can support offshore wind energy generation and electrolysis. This regulatory framework makes Denmark an attractive location for investors.
READ the latest news shaping the hydrogen market at Hydrogen Central
‘Made in Europe’ Hydrogen is possible – in the North Sea – Euractiv, source
