Discover the Untapped Potential: Clean Hydrogen Projects Demand Funding for Liftoff!

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In today’s note, I look at new research from the International Energy Agency to separate the hype from reality around the growth of clean hydrogen.

At Data Drill, I look at ongoing risks to European gas markets, amid warnings that further cuts in Russian gas supplies cannot be ruled out.

Thanks for reading. — Rachel

Can clean hydrogen come to the rescue?

Hopes for the success of clean hydrogen have never been higher, with governments around the world relying on the fuel to decarbonise their economies.

Projects are revealed all the time. Lhyfe last week laid out plans for a 70 megawatt green hydrogen plant in Perl, Germany, one of several similar projects announced this year, including BP’s plans for a low-carbon hydrogen “cluster” in Valencia, Spain. BP’s plan could see the London-listed company invest up to €2 billion.

However, separating the noise from the action can be difficult.

In fact, according to data released last week by the IEA, only 5% of global clean hydrogen projects announced by volume have received the official green light with a final investment decision.

The IEA estimates that by 2030, 70 million tonnes of clean hydrogen will need to be produced annually with net zero targets. Currently less than 1 million tons are produced.

All announced projects would bring this to 30 million tonnes a year by 2030. But if you count only those that have blocked investments, the figure drops to less than 2 million tonnes.

What holds the rest?

The IEA points to a combination of political and regulatory uncertainty, high costs, lack of infrastructure to move hydrogen and, underlying it all, an uncertain demand for the end product.

Most of the hydrogen produced today is used by refineries and chemical plants. It’s made almost entirely using fossil fuels, with no effort to capture the carbon dioxide emissions from this process.

Replacing it with cleanly produced hydrogen, such as using electrolysis with low-carbon electricity, is an obvious first step. But high costs can put off potential customers.

Meanwhile, there is still a long way to go before other cases projected below net zero, such as in steelmaking or long-lived electricity storage, are developed to large scale.

Last week the UK government had no doubts about the challenges ahead, when abandoned a trial of hydrogen home heating in the village of Whitby, near Chester, due to local objections.

The demand side “needs to be addressed as soon as possible,” says Jose Miguel Bermudez, a technology analyst at the IEA. “Without [committed demand] it is very difficult to convince investors”.

A $1 billion “demand support facility” announced this month by the US government is a step in the right direction. In the UK, government-owned National Highways last week announced plans to fuel excavators and dump trucks with hydrogen rather than diesel.

Daryl Wilson, executive director of the Global Hydrogen Council, says the small percentage of final investment decisions is “completely normal” for such a fledgling industry.

“It happened in the wind and solar industries; Initially there were a large amount of announcements and not a large amount of final investment decisions,” he notes. “Then gradually things came back into balance.”

He believes things are starting to move, with regulations supporting supply and demand becoming clearer in many markets. These include, for example, efforts to expedite the authorization of new projects, the Inflation Reduction Act providing financial support in the United States, and clean energy mandates for some industries.

“We are trying to build a fully decarbonised energy system, which will require many, many different facets to materialize,” Wilson added. “We’re in that phase of rapid growth.”

Joe Davis, associate director of clean energy investor Foresight Group, which is backing the green hydrogen production site planned by German energy company HH2E in Lubmin, Germany, agrees.

“The policy is becoming clearer and as a result, I would expect more projects to be done [final investment decisions] keep going,” he said.

“There have been low numbers in the past due to regulatory uncertainty; that’s slowly being removed and so I expect that number to go up.

The HH2E project will reach the final investment decision by the end of the year. According to plans, it will be able to produce more than 6,000 tons of green hydrogen in its first phase.

China is one of the strongest areas for new clean hydrogen projects. Sinopec in June announced the start of its project in Kuqa city, Xinjiang. He says this has the capacity to produce 20,000 tons of green hydrogen per year, through electrolysis using solar energy.

Despite the challenges, the IEA ranked hydrogen among “more efforts needed” in its clean energy progress report, rather than “not on track,” as with carbon capture development and exit efforts. the coal.

“It’s very difficult to work out the growth velocity for nascent markets and when they might hit a tipping point and start going much faster,” Bermudez says. Hopes about hydrogen could still turn into action.

Data tutorial

Cuts to Russian gas supplies to Europe last year wreaked economic havoc, triggering a cost-of-living crisis and pushing businesses to the brink.

After a relatively mild winter and energy saving efforts, gas storage levels in Europe are well above average for this time of year and the IEA says storage facilities could be nearly full by mid-September .

Prices fell, with the TTF, the European benchmark, falling to 24.63 euros per megawatt hour on Monday.

But has complacency outweighed future risks?

In his latest relationship on the gas market, the IEA warns of price hikes and supply disruptions if Russia cuts supplies again and the winter is cold.

“Full storage sites are no guarantee against winter volatility,” he said.

Strengths

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Energy Source is written and edited by the FT Energy and Natural Resources team. Reach us at energy.source@ft.com and follow us on Twitter at @FTEnergy. Stay updated on past editions of the newsletter Here.