Madrid, November 3, 2022. The Government of Spain summons journalists specialized in energy issues to Moncloa for a big announcement. It has signed an agreement with one of the largest shipping companies in the world, Maersk, whereby the multinational will invest 10 billion euros in Spain to produce two million tons of methanol based on green hydrogen, the sustainable fuel for its ships. In July 2023, without so much fanfare, it is known that the project is postponed. This Friday, at COP28, a minimalist version of that agreement is rescued. Maersk will invest 1 billion together with Cepsa in developing green methanol, but that investment will not be before 2025.
This is just one example of a practice that, according to the International Energy Agency (IEA), has spread dangerously throughout the planet. As stated in its latest report on hydrogen, of the 1,730 green hydrogen projects announced around the world, “barely 4% have real financing allocated” in sufficient amounts to trust that they will actually be carried out. “Barely half are in very early stages of growth,” the study points out.
"There is little doubt that low-carbon hydrogen, in any of its green, blue, pink... forms, is called to be the key technology to achieve the goal of zero emissions in 2050. The problem is that all the good intentions announced so far are being translated into real projects and that is dangerously slowing down,” commented José Miguel Bermúdez, Energy Technologies analyst at the IEA in a meeting with the main executives of the sector organized by the Energy Club in Madrid.
The aforementioned report confirms that only 1% of the hydrogen production that the planet currently demands (95 million tons) is provided by low-emission forms of hydrogen (green and pink from nuclear energy or blue with carbon capture ). The IEA warns that in order to meet the objectives of the zero-emissions environment set for 2050 “this production would have to be multiplied by 100 before 2030.”
A challenge that energy experts and businessmen see as complicated. “Not even the new 3 billion euros that Europe has allocated to the Hydrogen Bank or the new pre-declared projects of priority interest change this analysis,” Bermúdez acknowledges.
If one word can define how the sector is now, it is uncertainty, especially in the short term. In the long term, we could say that there is 'positive uncertainty'. In the case of Spain, it is clear that it can produce the cheapest hydrogen in Europe, but for that to happen, more and more appropriate public aid must be encouraged,” says Miguel Ángel Rodríguez Castellote, head of hydrogen project development at Naturgy.
What is behind this uncertainty? Firstly, there is an overwhelming need for governments to promote projects that guarantee energy self-sufficiency after the war in Ukraine. The European Union alone plans to allocate more than 20 billion euros to promote green hydrogen and, along the same lines, the United States, with its tax incentive plan (IRA).
This aid has unleashed a boom in hydrogen projects. “If all were carried out, the world could produce 38 million tonnes of low-emission hydrogen in 2030,” according to the IEA. But, “there is no translation in real execution of all these projects,” warns Bermúdez.
“There is a lot of interest in exploring options, but there is no urgency. There is a mismatch between decarbonization goals and customer needs. A project takes three years to get underway. Some reason must be established for the demand that is of interest to materialize,” corroborates Roberto Asín, Commercial Director of Acciona Plug.
A gap that only in Spain is shown in that of the 102 projects, only 24 are in production or with enough money to be able to move forward. In terms of projected production capacity for 2030, there is 46.1GW of electrolysis that would produce 7,941 kilotonnes of green hydrogen per year. Of them there is only one investment decision made and, therefore, the money allocated to make it 104 MW of electrolysis with the capacity to produce 17 kilotons of green hydrogen per year.
The reasons that justify this situation are varied. The rise in global prices has directly impacted the cost estimates of these projects; both supplies and transportation have become more expensive. This means that companies must seek more financing to complement public aid and that external money, which they normally request from banks, is more expensive due to the rise in interest rates.
Just an example. “For hydrogen produced from renewable electricity, a three percentage point increase in the cost of capital could increase the total project cost by almost a third. Several projects have revised their initial cost estimates upward by up to 50%,” explains Bermúdez.
But the delays go beyond the budget. “Making the ambitious plans of manufacturers a reality will depend on a solid demand for electrolyzers that is very initial today,” says the IEA report. The announced hydrogen manufacturing capacity worldwide is about 14 GW on the planet by 2030; 50% comes from China. While the production of electrolyzers, necessary to generate this hydrogen, will barely be 1 GW in 2030 and only 8% of these electrolyzer projects have allocated financing.
The IEA leaves no doubt about what the cornerstone of success is. “Without solid demand, green hydrogen producers will not find enough buyers to support large-scale demand and that puts their credits and the viability of the entire company at risk. low-emission hydrogen industry,” the report states. A warning to companies, but above all to governments and their incentive policies, which according to the data, are not on the right track.
Despite the efforts of the US with its IRA, or the European Union with its recovery funds, hydrogen directives or public aid, they have promoted projects to produce between 27 and 35 million tons of hydrogen worldwide in 2050, but Public money to generate demand barely reaches projects that together would amount to 14 million tons. “Even if these targets were achieved, they would only represent a fifth of those needed to meet the zero emissions target that year,” warns the IEA.
It does not seem that this trend will change in the coming years. This last week the European Union has approved a large package of subsidies to promote the energy transition, such as the declarations of Projects of Common Interest, which if successful could provide up to 50% of the necessary financing. In the case of hydrogen, the vast majority are destined for large infrastructures, which in the Spanish case includes the H2Med hydroduct that will connect the Iberian Peninsula with France and a large part of the internal backbone network.
An example of how the incentive continues to focus on infrastructure. “The problem is not only the amount or destination of the aid. You have to act in the bureaucracy. The process to obtain them is very slow, we spend a lot of resources and effort to access the funds and we are also in very small volumes for what is really needed. They are decoupled from cost structures,” comments José Manuel Pérez Rodríguez, head of hydrogen regulation and public affairs at EDP.
But if there is something that slows down both demand and investment, it is regulatory certainty. At the international level there is still no consensus on a definition of low-carbon hydrogen, nor whether aid will reach hydrogen produced only with renewables (green) or that from nuclear (pink). “Regulatory certainty is very important. Without that definition there will still be no demand. Customers recognize that they would take the step to close contracts if they had long-term price visibility and production security. “Regulatory clarity, aid, promotion, demand and international certification are needed,” explains Enrique Iglesias Barbero, director of Commercial Structuring for Cepsa's hydrogen business, one of the companies that is dedicating the most efforts to green hydrogen in Europe.
Josu Jon Imaz himself, CEO of Repsol, asked the Spanish Government for legal clarity last Thursday. Without it, he warned, “investments in hydrogen can even go to Portugal,” Imaz warned.
In short, too much uncertainty for a technology that is presented as a cornerstone in the decarbonization process. “Further advances in technology, regulation and demand creation are needed to ensure that low-emission hydrogen can reach its full potential,” claims Fatih Birol, executive director of the International Energy Agency.
