Hydrogen is increasingly recognized as a pivotal element in the transition towards sustainable energy systems in the EU. In 2023, the EU-27’s hydrogen consumption reached 7.3 million tonnes, representing about 2% of the total energy consumption.
The primary consumers of hydrogen include the refining, ammonia, and chemical industries, with respective demands of 57%, 25%, and 11% of the total hydrogen consumption within the EU. Despite its substantial potential, renewable hydrogen remains significantly more expensive than its fossil-based counterpart, posing a barrier to its widespread adoption.
Currently, the cost of producing hydrogen varies by method and geographical factors. By 2023, production costs using steam methane reforming (SMR) were approximately €2.94 per kilogram, not including capital expenditure. In contrast, producing hydrogen through electrolysis, which uses renewable electricity, cost between €4.1 and €12.4 per kilogram across different EU countries, averaging around €7.90. This reflects a decrease from the previous year’s average of €9.80, partially attributed to fluctuations in natural gas prices and the wholesale electricity market. An ongoing challenge is the rising cost of capital, as interest rates increase, affecting the financial dynamics associated with establishing new hydrogen infrastructure.
The EU has been actively establishing a regulatory framework designed to foster a conducive environment for hydrogen market development. The recent legislative package on hydrogen and decarbonised gases enhances regulatory clarity and sets foundations for infrastructural development. As of 2023, there were 512 hydrogen production facilities in the EU, with a combined production capability of 11.2 million tonnes, of which about 71% was utilized. This production capacity predominantly leverages fossil fuel-based processes, specifically grey hydrogen, which accounts for 96% of production and is tied to substantial CO2 emissions currently under the EU’s emissions trading system.
The transition towards renewable and low-carbon hydrogen is anticipated to reduce dependency on fossil fuels, particularly in carbon-intensive sectors such as iron and steel manufacturing. As an example, the adoption of renewable hydrogen could replace coking coal in blast furnaces, offering a substantial reduction in emissions. Efforts to create a market for hydrogen include setting sectoral targets aimed at encouraging usage in industry and transport.
To realize the large-scale integration of hydrogen, fundamental infrastructure improvements are essential. Presently, the EU’s hydrogen pipeline infrastructure remains at an early stage compared to natural gas networks, with a significant portion still in the project development phase. Expansions include repurposing existing natural gas pipelines to accommodate hydrogen flows, which could substantially reduce investment by up to 80%. As of now, about 70 retrofit projects are underway.
Future projections indicate a substantive role for hydrogen within both EU and global energy systems. The EU has set ambitious goals, including producing 10 million tonnes of renewable hydrogen annually and importing an equivalent amount by 2030. However, such targets rely heavily on continuous investment, particularly in infrastructure, ensuring demand alignment, and mitigating investment risks through strategic funding and regulatory support.
The European Hydrogen Bank, established as a financing instrument, plays a crucial role in mobilizing private investments across hydrogen value chains. Recent initiatives, such as the first EU-wide renewable hydrogen auction, awarded funding to projects producing over 1.5 million tonnes of renewable hydrogen over ten years. Nonetheless, achieving competitive parity with fossil-based hydrogen remains tied to advancements in manufacturing efficiencies and the scaling of electrolysis technology.
As hydrogen technologies evolve, the EU’s legal and financial frameworks will need to mature correspondingly. Clarity in regulations, coupled with supportive financial instruments, will be pivotal in overcoming current economic barriers and positioning hydrogen as a cornerstone of the EU’s energy transition strategy.
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