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European Commission Releases Strategic Roadmap on Developing an EU Hydrogen Economy

  • United Kingdom
  • Europe
  • Energy and infrastructure - Clean energy

08-07-2020

On 8 July 2020, the European Commission released its eagerly awaited strategic roadmap for the development of a European hydrogen economy. The roadmap complements the sustainability policies of the ‘European Green Deal’ and sets out the framework for a coordinated approach to achieving some very ambitious targets for hydrogen deployment. This article provides an overview of the roadmap and is the second in our series exploring hydrogen policies in Europe following our recent review of the German national hydrogen strategy. Interestingly, the roadmap is the first major EU energy policy development in the wake of the Covid-19 pandemic and the European Commission has expressly linked recovery plans to the growth of the hydrogen economy.

The Role of Green Hydrogen and Strategic Targets

In order to achieve the EU’s climate change aspirations of carbon neutrality by 2050, the European Commission has noted that the development of a pan-European hydrogen economy will be essential. The roadmap therefore sets out the proposed policy measures and action items that the European Commission considers will be necessary along the entire hydrogen value chain in order to promote rapid market development and meet its decarbonisation goals over the coming decades.

Central to the European Commission’s approach is the widespread use of green hydrogen (i.e. produced with renewable energy) and electrolyser technologies. However, the roadmap expressly recognises that ‘low-carbon fossil fuel based hydrogen’ associated with steam methane reforming and carbon capture and storage technologies will play a crucial transitional role. This is largely in recognition of the cost disadvantage of green hydrogen at current pricing of €2.5-5.5/kg versus €1.5-2/kg for low-carbon hydrogen and the role that low-carbon hydrogen can play in accelerating decarbonisation in the near term.

Given the importance of rapidly scaling green hydrogen technologies to achieve cost efficiencies, the roadmap sets out strategic targets divided into three separate phases that are intended to drive policy responses in the near and long term:

  • Phase 1 – 2020 to 2024: establishing the framework for a hydrogen economy with production of 1 million tonnes of green hydrogen with at least 6 GW of installed electrolyser capacity;
  • Phase 2 – 2025 to 2030: hydrogen shall become an intrinsic part of the EU’s integrated energy system with production of 10 million tonnes of green hydrogen with at least 40 GW of installed electrolyser capacity; and
  • Phase 3 – 2030 to 2050: green hydrogen technologies should reach maturity and be deployed at large scale to reach all hard to decarbonise sectors while comprising approximately 13-14% of the overall energy mix.

Creating the Policy Conditions to Develop the Value Chain

To foster the development of the hydrogen economy, the European Commission has recognised that the right policy conditions must be established to stimulate market supply and demand and ensure the integrity of critical infrastructure.

Stimulating Demand

The roadmap acknowledges that the industrial and transport sectors are two of the key end-use markets that provide opportunities for scaling up of hydrogen deployment. However, in the absence of demand side intervention, the roadmap notes that the higher costs of hydrogen technologies are a key limiting factor. The roadmap therefore proposes the introduction of quotas and minimum shares as mechanisms to drive demand in a targeted manner over the near term.

Another demand side intervention that is identified by the European Commission is the strengthening of the existing Emissions Trading System as a means of incentivising decarbonisation efforts. The roadmap notes that the ‘ETS Directive’ already contemplates a revision of the Emissions Trading System at the end of 2020 that will likely increase the price of carbon through reduction in free allocations. The European Commission nevertheless concedes that further consideration needs to be given to balancing the cost impost on end-use sectors exposed to carbon leakage with incentivising the uptake of green hydrogen.

Encouraging Production

With the need to scale-up low-carbon and green hydrogen before it is cost-competitive, the roadmap notes that support schemes are likely to be required for some time. State aid guidelines will therefore need to be revised in line with the strategic goals for developing a hydrogen economy. In this regard, the roadmap notes that further work will be required to develop minimum common thresholds to define relevant hydrogen production technology outputs and certification criteria which may be used for hydrogen guarantees of origin. This will assist in establishing certainty for investors in terms of support eligibility requirements and aligns with the decarbonisation linked demand side mechanisms discussed above.

To further incentivise production of green hydrogen and bridge the cost-competitiveness gap, the roadmap also highlights the potential for a tendering system of carbon contracts for difference (also foreseen, as a pilot project, in the German national hydrogen strategy) as well as market support-based schemes providing investment or operating aid.

Use of Infrastructure and Market Competition

The availability of regional, national and pan-European transport infrastructure to connect supply and demand centres will be a key condition to the widespread use of hydrogen within the EU. The roadmap therefore proposes that integrated infrastructure planning measures will be required and that the ‘Trans-European Networks for Energy’ and ‘Ten Year Network Development Plans’ should be revised to include hydrogen infrastructure.

In the near-term, the roadmap recognises that initial hydrogen demand may be met by on-site production within closed distribution systems. Dedicated hydrogen infrastructure is therefore not likely to be required on a large scale until the later phases of the development strategy, and the roadmap proposes that significant cost savings could be achieved by repurposing existing gas transmission infrastructure. Regardless of the longer-term outlook for hydrogen infrastructure, it is noted that issues of quality standards and blending feasibility would need to be examined further. Many of the concerns raised by the European Commission in this respect were recently addressed in the UK context by the Energy Networks Association in their ‘Gas Goes Green’ strategic review.

To facilitate unhindered cross-border hydrogen trading the roadmap also identifies the need to design an enabling and supportive regulatory framework based on existing gas transmission arrangements. Hydrogen infrastructure would therefore be accessible to all on a non-discriminatory basis and network operators would remain neutral to prevent market distortion.

Investment Agenda and the Clean Hydrogen Alliance

The European Commission estimates that total investment of between €320 billion to €458 billion will be required along the entire hydrogen value chain over the next decade in order to achieve the roadmap’s strategic targets. To support such investment, the roadmap notes that the mobilisation of both public and private funds will be required and that the targeting of large-scale projects will unlock the greatest potential for the hydrogen ecosystem.

To this end, the roadmap establishes the ‘Clean Hydrogen Alliance’, an industry leader and policymaker platform that will be responsible for putting forward an investment agenda and pipeline of viable projects along the hydrogen value chain which may benefit from state aid. It is also expected that the ‘Clean Hydrogen Alliance’ will facilitate cooperation regarding cross-border hydrogen projects under the auspice of the ‘Strategic Forum for Important Projects of Common European Interest’.

While the roadmap acknowledges that EU funding will be directed towards boosting investment in the hydrogen economy, there is very little detail provided at this stage. However, the roadmap does identify several funding measures which may be available including:

  • support for the deployment of green hydrogen by ‘InvestEU’ as part of the €750 billion Covid-19 stimulus programme;
  • approximately €10 billion under the ‘Innovation Fund’ of the EU’s Emission Trading System for first-of-a-kind hydrogen demonstration technologies, with first call for proposals issued on 3 July 2020;
  • Member State funding through the ‘Recovery and Resilience Facility’ and ‘HyNet’ network;
  • green transition support under the ‘European Regional Development Fund’ and ‘Cohesion Funds’; and
  • funding support for dedicated hydrogen infrastructure or repurposing of gas networks under the ‘Connecting European Facility Energy’ scheme.

Supporting Research and Innovation

In order to achieve carbon-neutrality goals by 2050 and ensure the EU’s technology leadership across the entire hydrogen value chain, the European Commission recognises the need to increase support for research and innovation through existing EU funding programmes. The roadmap therefore identifies a number of areas of immediate priority:

  • upscaling of production capacity and efficiency in electrolyser technology;
  • development of hydrogen distribution and storage technologies at scale, including solutions for the repurposing of existing gas infrastructure;
  • advancement of end-use applications at scale in the industrial and transport sectors, including in respect of ‘clean steel’, renewable electrosynthesis, hydrogen bunkering and hydrogen aviation fuels; and
  • development of material reduction and recycling technologies.

The roadmap also notes that it will be necessary to conduct research into the environmental impacts and required safety standards of new hydrogen technologies to ensure the efficacy of sustainability and trade policy.

Few details on the actions required to give effect to such priorities are set out in the roadmap, although it does note that submissions will be called in Q3 2020 under the ‘Horizon 2020’ funding programme for the development of a 100MW electrolyser and green airport/port projects. It is also highlighted that a ‘Clean Hydrogen Partnership’ will be launched in 2021 as part of the €100 billion ‘Horizon Europe’ research and innovation programme which will succeed ‘Horizon 2020’. While the priorities in the roadmap are fairly broad, we expect that further details on specific opportunities and funding requirements will be rolled out over the coming months as the European Commission and European Parliament finalise the multiannual strategic plans for ‘Horizon Europe’ and Covid-19 stimulus arrangements under the ‘Next Generation EU’ package.

Opportunities for International Cooperation

The European Commission has made it clear that hydrogen will be high on its external energy policy agenda. While research and innovation have traditionally characterised the EU’s international cooperation efforts on hydrogen, the roadmap highlights potential new opportunities in regulatory policy, direct investment and trade. In particular, the roadmap notes that areas of high renewable energy generation potential in the Balkans and North Africa may provide supply diversification opportunities. Trade dimensions with Australia, Norway, South Korea and Canada were also identified. The roadmap stresses the importance of the EU promoting hydrogen standards in multilateral forums and expanding ties with partners through technology exchange in an effort to position itself as a global hydrogen leader.

In a similar vein, the roadmap also proposes the development of a structured international hydrogen commodity market to be denominated in Euro. Given that such a pricing arrangement would not be linked to underlying gas prices (cf. the US dollar Platt’s ‘Hydrogen Netherlands SMR’), the proposal would seem entirely viable in the context of regional trade. However, given the nascent trade in green hydrogen between Japan, South Korea and Australia is likely to be US dollar denominated and be subject to different pricing signals, it remains to be seen whether the Euro will be established as a truly global hydrogen benchmark.

Looking Forward

Many of the policy measures identified in the roadmap reflect suggestions and approaches that have been outlined in the national hydrogen strategies released by a number of member states over recent months, including those of the Netherlands, Portugal and Germany. This would appear to suggest that there is a high degree of consensus on the strategic priorities and future direction of the hydrogen economy within Europe.

Nevertheless, further detail will need to be discussed among the member states and key actions identified for implementation. The European Commission has also called for interested stakeholders to participate in public consultations and impact assessments to be conducted at the end of the year.

This article is part of our ongoing series looking at hydrogen and will be followed by further updates on emerging regulatory frameworks and opportunities for de-risking investments in the hydrogen economy.