As the cost of blue and gray hydrogen increases in lockstep with rising fossil fuel prices, Rystad Energy research predicts that the feasibility of green hydrogen as an affordable and secure source of renewable energy in Europe will grow.
Globally, green hydrogen production was already on track to begin this year and reach the 1-GW mark in 2022. However, the conflict in Ukraine has accelerated the sector’s growth. Green hydrogen’s potential victory comes at the expense of its fossil fuel-based blue and gray alternatives, whose prices have risen by more than 70% since the outbreak of the Ukraine war, rising from about $8/kg to $12/kg in a matter of days.
The EU has announced plans for a €300 million hydrogen funding package, as well as the REPowerEU-led Hydrogen Accelerator initiative, aimed at reducing the region’s reliance on Russian gas, with a second wave of support packages for green hydrogen likely to emerge. Additionally, individual member states have accelerated their domestic agendas. Since Russia’s invasion of Ukraine, green hydrogen’s economics have become more attractive, with production costs of $4/kg (particularly in the Iberian Peninsula) compared to $14/kg for blue hydrogen and $12/kg for gray hydrogen in the rest of Europe.
Green hydrogen enables both energy security and the creation of new regional economies based on renewable energy. While some countries prioritize domestic consumption, others prioritize exports, suggesting that we are transitioning from a world where energy is concentrated in a few key regions to one where production is more distributed. The next decade will determine whether the green hydrogen sector succeeds or fails – if production can be increased to more than 10 million tons globally by 2030 at a cost of less than $1.5/kg, the industry will become a permanent fixture of the global energy mix.
“While industry and governments are heading in the right direction, their challenge is to lower the risks for green hydrogen investors and create incentives necessary to scale up quickly both the demand and supply. Fundamentally, a world where green hydrogen fulfills the role currently played by oil, gas and coal will look very different,” says Minh Khoi Le, head of hydrogen research with Rystad Energy.
Green hydrogen is an attractive alternative for Europe in particular, with Germany planning to produce 25 gigatonnes (GW) by 2040 and Spain on track to produce more than 4 GW by 2030.
Apart from industrial applications where hydrogen is already a critical feedstock, the amount of hydrogen required to replace gas and coal in Europe’s power sector is enormous – its own gas and coal consumption is projected to be 1,020 TWh and 602 TWh in 2030 and 2040, respectively, under Europe’s base case power mix. If this were to be accomplished solely through hydrogen generation, it would require approximately 54 million tons of hydrogen in 2030.
Europe is currently on track to produce 3 million tons of green hydrogen annually by 2030, indicating a significant gap. According to the new RePowerEU target of 15 million tons for Europe, a significant ramp-up is expected. While it is difficult and unlikely that hydrogen will completely replace fossil fuels in thermal power plants, combining hydrogen with natural gas or co-firing ammonia and coal to generate electricity can be a step toward fossil fuel reduction. This approach has been successfully tested in Europe, China, and Japan and would require no significant changes to existing infrastructure as long as the hydrogen content is less than 20%.
India has announced a new policy aimed at increasing production of green hydrogen. Costs are already low, ranging between $5 and $6 per kilogram, and are expected to fall by 40% under the country’s new guidelines, eventually reaching $1 per kilogram by the end of the decade. Domestic consumption is the intended use of the planned production.
Mauritania is establishing a regional leadership position in Africa with its 40 GW AMAN project, which aims to export hydrogen and derivatives to Europe and other markets. Chile, too, plans to become a major exporter by 2030, with a capacity of 24 GW, and Kazakhstan, in Central Asia, is planning a 30 GW facility. Foreign direct investment and financial support will be critical to getting these projects off the ground, despite abundant renewable energy potential, ample space for mega-projects, and low labor costs.
Hydrogen in its natural state dominates
With carbon capture and storage, green hydrogen is set to supplant fossil-fuel-derived production (blue hydrogen). In 2021, 188 electrolysis projects were announced, compared to 24 for low-carbon fossil-fuel-based methods.
Turquoise hydrogen, which is produced by converting natural gas or biomethane to hydrogen and solid carbon, does not require significant capital investment in carbon capture and storage. Despite having only a handful of commercial-scale projects in the pipeline, the sector has been promised more than $1 billion in funding.
Ammonia as a solvent
Ammonia is rapidly establishing itself as a critical carrier of hydrogen. Existing infrastructure for the fertilizer industry’s annual consumption of 150 million tons can facilitate global trade. With the advent of ammonia engines, demand for ammonia as a shipping fuel is expected to rapidly increase, more than doubling from the current 150 million tons by 2040.
The power sector’s demand is less certain. China Energy, a state-owned utility, successfully trialed a 35 percent ammonia mixing ratio for a 40 MW coal-fired boiler. Japan and South Korea have set a goal of mixing ammonia at a rate of 20% by 2025 and 2035, respectively. If this figure is increased to 35%, global demand for ammonia could double to more than 300 million tonnes by 2030.
