The UK and Europe have set challenging targets for Net Zero emissions by 2050, which involve switching energy consumption across the whole economy to zero-carbon sources. Hydrogen could play an important role in reducing emissions particularly in ‘hard to abate’ activities in industry, heating and heavy-duty transport.
Hydrogen is already used extensively in industrial processes such as ammonia production and refineries, with total European demand of 327TWh concentrated in Germany, the Netherlands and France. However, this hydrogen is produced from natural gas, producing significant greenhouse gas emissions. Since defining Net Zero targets in legislation, Governments around Europe have turned significant attention to the potential of shifting towards low carbon sources of hydrogen, which can be produced either from electrolysis of water (‘green hydrogen’) or from natural gas with CO2 capture (‘blue hydrogen).
The European Commission published a hydrogen strategy in July 2020 setting out a vision for widespread use of hydrogen in meeting Net Zero targets, including a target for 40GW electrolysers by 2030. Member States including Germany, the Netherlands, France, Spain and Portugal have also defined national strategies for hydrogen, with Germany displaying the most ambition for the technology to date.
A new research report by Aurora Energy Research, the leading European energy market analytics company, provides analysis of the overall potential for low carbon hydrogen in Europe, assessing the likely extent of market growth to 2050. Aurora’s analysis suggests that hydrogen demand could grow significantly from 327TWh today to up 2,500TWh by 2050. The Aurora analysis suggests that there could be significant demand for low carbon hydrogen in industry, with this alone doubling current demand to up to 700 TWhs by 2050. In the 2030s and 2040s there is significant potential for hydrogen use in transportation (particularly in heavy duty vehicles such as buses, trucks, trains and potentially planes) and heating (replacing natural gas).
As well as establishing the likely scale of hydrogen demand, Aurora’s analysis identifies the most attractive markets for hydrogen market development across Europe – based on analysis of the policy, demand and supply drivers as well as availability of necessary infrastructure such as pipelines and hydrogen storage. This is drawn together in Aurora’s Hydrogen Market Attractiveness Rating (HyMAR), which ranks countries according to this cross-section of indicators on a biannual basis.
Aurora finds that Germany offers the most attractive market for hydrogen development at present. Germany currently has the highest usage of hydrogen across Europe at more than 70TWh (more than one fifth of the European total). Germany released an ambitious hydrogen strategy earlier in 2020, with planned incentives for hydrogen production and usage in industry and a focus on renewables-derived hydrogen. Germany also has access to significant salt cavern capacity, which can be used for hydrogen storage, and is already a cornerstone of the European gas grid. Future growth in green hydrogen production will be facilitated by strong growth in solar and wind capacity in the coming years. Although, until the coal phase out is completed in Germany (by 2038), it remains the case that hydrogen produced from grid electricity represents a relatively carbon intensive fuel, and there is a risk that rapid growth in hydrogen uptake in the short term could perversely increase emissions.
The Netherlands, UK and Norway are identified as strong markets for both green and blue hydrogen – taking a more technology-agnostic stance than Germany or the European Commission on how hydrogen should be produced. All three countries have a long history of natural gas production, whilst the UK and Netherlands have extensive usage of natural gas in heating – which could in the future be shifted towards hydrogen. All three countries have significant potential for carbon capture and storage (CCS), and a supportive policy environment towards this technology. The UK is yet to define a hydrogen strategy but has already consulted on possible business models and incentive schemes for CCS and hydrogen – and further details are expected to emerge in early 2021. Norway is furthest ahead within European in terms of the adoption of Fuel Cell Electric Vehicles, including Europe’s first fleet of hydrogen trucks.
France, Spain and Portugal look likely to emerge as leaders in green hydrogen production, facilitated by a rapid and extensive rollout of wind and solar generation capacity. Aurora expects solar capacity in Spain to increase more than five-fold between 2020 and 2040. This is likely to lead to longer periods of low power prices, which improves the economics of hydrogen production through electrolysis by lowering running costs. France is targeting 6.5GWs of electrolysers by 2030, with €7billion earmarked for green hydrogen projects, and is exploring hydrogen production from nuclear.
Anise Ganbold, Head of Global Commodities at Aurora Energy Research commented:
“In the last year and a half, the buzz around hydrogen has been picking up quickly. Hydrogen from low-carbon sources could play a key role in decarbonising Europe’s heaviest polluters, and some projects are already underway. However, there is huge potential for more investment – we estimate the market size of the hydrogen economy in Europe at up to EUR 120 billion by 2050.”
“Currently, the European market for hydrogen is small, and limited largely to oil refineries and ammonia for fertilisers. Aurora’s analysis suggests the market could grow eightfold by 2050, to 2,500TWh per year. At this size, the market value of hydrogen sales could reach EUR 120 billion by 2050.”
“Some projects are already underway to scale up hydrogen production, particularly for ‘green’ hydrogen production, which uses renewable electricity to split water. To decarbonise Europe by 2050, significantly more investment will be needed into all segments of the hydrogen supply chain. Aurora Energy Research in October launched its Hydrogen Market Attractiveness Rating (HyMAR), which assesses and ranks countries in Europe by their hydrogen investment potential. Our analysis concludes that Germany is now the leader in Europe, based on its developed policy, strong hydrogen demand outlook and significant growth in renewable electricity generation.”