The Iberian green industrial opportunity: Green hydrogen – McKinsey & Company
As the energy transition gathers pace, decarbonization is a growing priority across sectors. While electrification and renewable energy are likely to play a major role in this process, these levers may have limitations in abating emissions in certain industries. In these hard-to-abate industries,
In this article—the fourth in our series looking at the Iberian green industrial opportunity—we draw on insights from McKinsey research and members of our Industry and Energy Transition Initiative (see sidebar “The Industry and Energy Transition Initiative”) to explore how Spain can take advantage of its green hydrogen potential to achieve decarbonization, while also creating significant value.
Here we discuss how Spain is in a favorable position to become a major green hydrogen producer in the European Union due to its natural and technical endowments, which create a unique window of opportunity for green hydrogen development. Spain’s ambition of 11.0 gigawatts (GW) of installed electrolyzer capacity by 2030 could translate into the annual production of around 1.1 megatons of green hydrogen, requiring a total investment of about €20,000 million for the electrolyzers alone, with additional investment required for renewable energy.
However, green hydrogen faces several challenges that would need to be addressed for Spain to realize its ambitions. Recent cost increases and limited commitment shown so far from potential offtakers have reduced the speed at which green hydrogen is being developed in Spain compared to expectations.
In this article, we highlight how demand for green hydrogen could be attracted through public–private partnerships and mechanisms to foster and underpin offtake agreements. Production could be accelerated by supporting large-scale green hydrogen production projects to demonstrate technology at scale. Planning grid capacity upgrades in line with advancement of green hydrogen projects would also be a key unlock.
Public stakeholders could facilitate green hydrogen development by defining RFNBO quota quota penalties under the EU Renewable Energy Directive (RED) III, streamlining renewable energy source permits or creating an RFNBO credit market. The availability of soft loans and guarantees offered by public institutions (such as multilateral development banks and export credit agencies) may be fundamental to improving bankability and kick-start large green hydrogen projects. It would also be critical to find the most efficient distribution of public incentives both at the EU and Spanish levels.
Spain’s green hydrogen potential
Spain currently produces around 0.6 megatons per annum (Mtpa) of hydrogen, all of it grey, which accounts for around 8 percent of the European Union’s total hydrogen production.
However, Spain is well-placed to become a leader in green hydrogen production. A ready supply of cost-effective renewable energy is a crucial component in producing green hydrogen, and Spain has the potential to produce abundant, low-cost renewable energy, thanks to its unique natural and technical endowments.
Spain has around 300 sunny days per year, resulting in a levelized cost of energy (LCOE) for solar that is approximately 40 to 50 percent lower than the EU average. Although LCOE does not directly translate into levelized cost of hydrogen (LCOH), a lower cost of electricity is key to cost-competitive hydrogen production. Furthermore, Spain has one of the world’s most mature power purchase agreement (PPA) markets. Thanks to all these factors, green hydrogen could be produced for €4.0 to €5.5 per kilogram in Spain by 2030, around 10 to 20 percent below the projected production cost in Central Europe.
Additionally, Spanish demand dynamics are already strong, with around 0.6 Mtpa of hydrogen consumed in 2023. Refining currently accounts for around three-quarters of the Spanish hydrogen demand, with chemicals production accounting for the remaining quarter. Within chemicals, ammonia production for fertilizers accounts for 60 percent of hydrogen demand, while methanol and other chemicals represent around 40 percent. These sectors currently largely consume grey hydrogen but could switch to green hydrogen as production ramps up. Spain also has a well-established industrial and transport footprint with the potential to drive new hydrogen and synthetic fuels demand in applications where electrification is not feasible or efficient.
Hydrogen-based fuel production requires large amounts of CO2, and Spain (together with Portugal) is the fifth largest emitter of biogenic CO2 in the European Union due to its large pulp and paper industry and bioenergy power plants. Spain currently emits approximately 9.0 Mtpa of biogenic CO2, which, if captured, would be sufficient to cover the expected CO2 demand coming from synthetic fuel production by 2030 (0.6 Mtpa CO2) or even 2040 (3.6 Mtpa CO2). This, combined with an abundance of low-price renewable energy, positions Spain as a potential synthetic fuel powerhouse with the ability to supply other synthetic fuel-demanding countries that don’t have access to large amounts of biogenic CO2 or competitive renewables.
Regarding the transport of hydrogen, Spain has the potential to retrofit its existing network of gas pipelines for the transportation of green hydrogen, both for domestic consumption and for export. Additionally, Spain enjoys an advantageous geographical position for maritime trading routes. Its large liquefied natural gas (LNG) regasification terminals, if retrofitted, could be leveraged to export hydrogen and its derivatives.
Together, these factors put Spain in a strong position to become a leader in green hydrogen production in Europe. However, the country must act fast to take advantage of this window of opportunity, as other regions, such as Germany, Sweden, and the United States, are already competing to fill the green hydrogen space.
Spain could install 15 to 20 percent of the total EU electrolyzer capacity target by 2030
The European Union aims to increase green hydrogen consumption to 20 Mtpa by 2030, with half produced domestically and the rest imported from countries outside the region. To meet this domestic production target, member states would need to reach 65 GW of installed electrolyzer capacity, based on EU estimates. However, the necessary total installed electrolyzer capacity could be higher depending on the actual electrolyzer utilization and efficiency.
In an aspirational scenario based on the targets laid out in the nonbinding National Integrated Energy and Climate Plan 2021–2030 (PNIEC), Spain could install 11 GW of electrolyzer capacity by 2030, reaching 15 to 20 percent of the total EU target and producing around 1.1 Mtpa of green hydrogen (Exhibit 1). In September 2024, the Spanish government published an updated target of 12 GW of electrolyzer capacity by 2030 in Boletin Oficial del Estado (BOE). However, in the analyses included in this paper, we will refer to the previous target of 11 GW when referring to PNIEC.
READ the latest news shaping the hydrogen market at Hydrogen Central
The Iberian green industrial opportunity: Green hydrogen – McKinsey & Company, source
