The adoption of clean energy sources and the pursuit of carbon neutrality has prompted Europe to seek alternative fuels, including hydrogen, as an alternative to fossil fuels.
This recent report from Aurora Energy Research and Financial Consulting Company predicted a surge in the consumption and demand for hydrogen in Europe, driven by the increasing need for clean energy sources after the Russian-Ukrainian war disrupted supply chains. The company warned of challenges that could threaten Europe’s position as the largest electrolysis project owner in the world by 2025, despite the continent’s current advanced position in the global hydrogen supply chain and the market for the manufacture of electrolysis devices.
Europe remains the most attractive destination for electrolysis projects, with 56% of projects passing the early planning stage. However, it faces challenges to its dominance in the sector globally, which has resulted in a significant decrease of 63%, compared to October 2022. Aurora Energy Research and Financial Consulting expects Europe to lose its position as the owner of the largest electrolysis projects globally by 2025. Moreover, Europe’s low share of electrolysis projects under development and manufacturing capabilities are the direct results of the continent’s slow response to the US inflationary law and the delay in developing a specific renewable hydrogen law.
Despite the challenges, the upward trend in hydrogen demand in Europe has not been affected, and the total hydrogen consumption in Europe is expected to increase by 60% by 2030 and by three times by 2040 compared to 2023. According to Aurora’s forecasts, the flow of both supply and demand over the coming decades and plans to build an extensive network of hydrogen transportation pipelines will allow Europe to develop a wholesale liquid hydrogen market. These factors will also shift price structures from bilateral agreements between producers and consumers to marginal pricing models, determining the price of hydrogen in each region of Europe.
Europe’s lower electricity prices, driven by expanding generation capacity from renewable energy, will drive the average price of low-carbon hydrogen down in the late 2000s. According to Aurora, the average wholesale prices of low-carbon hydrogen are expected to decline from €7 ($7.70)/kg in 2025 to €2.8 ($3.08)/kg in 2050. In the long run, hydrogen prices will decline as hydrogen imports enter the supply mix, replacing more expensive domestic production.
The report expects an increase in the capacity of the planned electrolysis projects globally to 1125 GW, representing an increase from 168 GW, or an increase of 18%, compared to October of last year (2022). However, the report highlighted the difficulties of achieving the goal of reaching electrolysis capacities of 1 terawatt, with 86% of global projects still in the early planning stage of development.
In conclusion, hydrogen offers Europe a promising clean energy alternative, but the challenges to its dominance in the sector are significant. Europe needs to address the slow response to the US inflationary law, delay in developing a specific renewable hydrogen law, and its low share of electrolysis projects under development and manufacturing capabilities. While the hydrogen market is expected to grow, achieving the goal of reaching electrolysis capacities of 1 terawatt will require overcoming challenges in identifying specific locations, availability of technology service providers, and setting target time limits.