The Netherlands is making bold strides towards a more sustainable future by embracing green hydrogen as a key element of its decarbonization strategy. However, the road to achieving this vision is encountering a significant obstacle – the rapidly increasing costs associated with using the electricity grid. These rising expenses have the potential to undermine ambitious plans for large-scale green hydrogen production, a critical component in the nation’s efforts to reduce carbon emissions.
The Netherlands, in alignment with its Climate Agreement, has committed to significant reductions in CO2 emissions. To achieve this, the country aims to shift from hydrogen produced using natural gas to hydrogen produced from water and green electricity. This ‘green hydrogen,’ devoid of CO2 emissions, is viewed as a vital component of the country’s future energy landscape.
Green hydrogen offers a multitude of benefits. It holds the promise of making industries and transportation more sustainable, and its eco-friendly credentials make it a frontrunner in the global race for clean energy alternatives. However, this innovative solution is still in its nascent stages, and the practical prerequisites, including infrastructure, are actively being developed.
The Netherlands has set ambitious targets for domestic green hydrogen production, with aims to achieve 3 to 4 GW by 2030, ultimately rising to 8 GW by 2032. Unfortunately, this promising path is now under threat due to the growing concerns about the skyrocketing costs associated with using the electricity grid. This alarming challenge has prompted a coalition of parties, including industry giants like Uniper, NLHydrogen, Ørsted, HyCC, RWE, Shell, BP, and Engie, to issue a warning.
The root of the problem lies in the overreliance of the revenue model for Dutch green hydrogen production on soaring electricity transport expenses. Alice Krekt, the director of NLHydrogen, aptly noted, “The revenue model for the Dutch production of green hydrogen has become far too dependent on high and possibly further rising electricity transport costs.” This overreliance raises concerns that companies looking to embark on large-scale green hydrogen projects may be compelled to freeze their construction plans if a solution is not found.
The surge in grid costs is particularly striking, with an astonishing increase of up to 332 percent over two years for those connected to the high-voltage grid. This can be attributed, in part, to the Dutch grid operator TenneT incurring additional expenses to expand the electricity grid, coupled with the complexity of balancing supply and demand due to the growing mix of energy sources. Renewable energy’s dependency on weather conditions adds another layer of complexity to grid management.
The situation might deteriorate further. The decision by the Dutch government in 2022 to no longer fund investments connecting offshore wind farms, roughly costing 2 billion euros per year, from the sustainable energy storage (ODE), further complicates matters. The costs for expanding the offshore network are now included in the network rates, and TenneT is passing on these expenses to all connected parties.
Green hydrogen projects are not the sole victims of these high grid rates. Other sustainable technologies, including industrial e-boilers and heat pumps, are also at risk of being hamstrung by these significant cost burdens.
Industry stakeholders suggest potential solutions to address this pressing issue. In the short term, the outgoing Dutch cabinet could grant flexibility within the OWE (hydrogen scale-up instrument) to cover grid costs. Additionally, they propose exploring options for different rates, such as reduced grid rates for applications that contribute effectively to the efficient integration of sustainable energy.
Two more long-term solutions are on the table. First, to ensure the Netherlands remains competitive with neighboring countries in terms of green hydrogen production costs, stakeholders propose the introduction of a partial exemption, similar to what exists in Germany, for electrolysers operational by 2026. Second, there is a call for a more equitable distribution of infrastructure costs for renewable energy, storage, and electrolysers, aligned with the benefits for the energy system. The European Commission is currently evaluating possibilities for cost sharing.
Dyonne Rietveld, the Country Chair of Uniper Benelux, highlights the significance of reducing grid costs, noting that it would encourage more investment decisions. She emphasizes the missed opportunity, stating, “Freezing the plans for green hydrogen factories in the Netherlands now means that the climate goals are not achievable. A missed opportunity, because together we can make the production of green hydrogen in the Netherlands a success.”
The rising grid costs issue is an urgent concern and presents a formidable challenge to the green hydrogen dreams of the Netherlands. It underscores the need for innovative solutions, collaboration between stakeholders, and a dedicated approach to overcome this obstacle, ensuring that the country can stay on track to meet its climate goals and successfully integrate green hydrogen into its energy future.