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Shelved projects knock lofty ambitions for green hydrogen

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Subsidies alone are not enough to drive investment

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Prices remain uncompetitive compared with alternatives

By Pietro Lombardi, Nina Chestney and Riham Alkousaa

MADRID/LONDON/BERLIN, July 23 (Reuters) - Green hydrogen

developers are cancelling projects and trimming investments

around the world, raising the prospect of longer than targeted

reliance on fossil fuels.

The challenges facing the sector have exposed its initial

ambitions as unrealistic.

Hard-to-electrify industries that were seen as ideal

candidates for green hydrogen, such as steelmaking and

long-distance transportation, have found that transition to the

low-carbon fuel looks prohibitively expensive.

The gap between ambition and reality in Europe shows the

extent of the reset happening within the industry, said Jun

Sasamura, hydrogen manager at research company Westwood Global

Energy.

Only about a fifth of planned hydrogen projects across the

European Union are likely to come online by the end of the

decade, he said. That equates to roughly 12 GW of production

capacity against an EU target of 40 GW, Westwood Global Energy

data shows.

"In the current state, I really don't see the EU 2030

(hydrogen production) target being reached," he added.

INFLATED EXPECTATIONS

Companies say that high costs and a lack of demand for green

hydrogen have rendered many plans unprofitable.

"Green hydrogen was an inflated expectation that has turned

into a valley of disillusionment," said Miguel Stilwell

d'Andrade, chief executive of Portuguese power company EDP

.

"What's missing is the demand. There are 400 million euros

($464.2 million) of subsidies for hydrogen in Spain and

Portugal, but we need someone to buy the hydrogen."

The company has several projects in advanced stages but

cannot move forward because of a lack of buyers, said Ana

Quelhas, EDP's hydrogen chief and co-chair of the European

Renewable Hydrogen Coalition.

Across the border, Spain's Iberdrola has shelved

plans to increase capacity at a green hydrogen plant with

electrolyser capacity of 20 MW until it finds buyers for

additional output, company executive Iban Molina said at an

energy event in Madrid.

They are among more than a dozen large companies that have

trimmed spending or shelved projects across Europe, Asia,

Australia and elsewhere in recent years.

Companies had scrapped or delayed more than a fifth of all

European projects by the end of last year, Westwood Global

Energy says.

At Aurora Energy Research, Emma Woodward said: "In 2020-2021

we had this view of hydrogen and the fact it was going to be

used in almost every sector that hadn't been electrified.

"I think we've realised now that there are other, probably

more commercially viable, alternatives for lots of sectors.

Maybe we don't need as much hydrogen as initially expected."

TOO EXPENSIVE

Many governments have long supported development of green

hydrogen - produced through electrolysis that splits water into

hydrogen and oxygen using electricity from renewables - to help

to decarbonise energy, transport and industry.

Countries including Australia, Britain, Germany and Japan

announced ambitious investment strategies they hoped would bring

down costs and eventually create a profitable green hydrogen

sector that would no longer need support.

Production, however, remains more expensive than for natural

gas and other fossil fuel-based alternatives, said Minh Khoi Le,

Rystad Energy's head of hydrogen research.

It is at least three times more expensive than natural gas

as a fuel for power generation, for example, and twice as

expensive as grey hydrogen. The latter is produced from natural

gas and coal and is already used in industries such as oil

refining and production of ammonia and methanol.

Costs could fall by 30-40% in 10-15 years if equipment

prices decline and the broader supply chain scales up, he added,

while Aurora's Woodward and Westwood Global Energy's Sasamura

said that green hydrogen is unlikely to become competitive

before then.

Only 6 million metric tons per annum (mtpa) of low-carbon

hydrogen capacity - including green and blue hydrogen, which is

made from gas - is either operational or under construction

globally, consultancy Wood Mackenzie says.

This is well below the 450 mtpa the consultancy says is

needed as part of the global push for net zero greenhouse gas

emissions by 2050. The EU has committed to reducing emissions by

55% from 1990 levels by 2030, en route to the 2050 target.

BUYERS PRICED OUT THE MARKET

The industry had counted on sectors such as steel, oil

refining, cement and transport to be among the first buyers, but

the expected demand has failed to materialise.

German die forging company Dirostahl, which makes components

for wind turbines, ships and oil and gas drill pipes, is

dependent on furnaces fired by natural gas and is looking for a

replacement.

However, green hydrogen is still too expensive. Offers for

the fuel do not come below 150 euros per megawatt hour (MWh)

while natural gas can be bought for 30-35 euros/MWh, said Chief

Executive Roman Diederichs.

"It simply doesn't work. You might not want to call it

economic suicide, but in practice it would be just that. We'd be

completely uncompetitive," he said.

Prices remain elevated because of the high cost of

electrolysers needed for large-scale production, infrastructure

bottlenecks and increased energy costs resulting from rules on

what constitutes green hydrogen.

Some European countries have scaled back their ambitions.

Italy has recently shifted more than 600 million euros in

post-pandemic funds from hydrogen to biomethane. France lowered

its 2030 hydrogen electrolysis capacity target by more than 30%

in April and Portugal has cut its electrolysis capacity

ambitions by 45%.

The Dutch government last year made sharp cuts to funds it

had originally reserved for green hydrogen projects and battery

development, shifting the focus of its climate fund toward the

planned construction of two new nuclear plants.

Several players in Australia, meanwhile, have scaled back or

withdrawn from projects despite more than A$8 billion ($5.2

billion) of pledged government support.

Projects that are going ahead also face delays. Rystad

Energy analysts estimate that 99% of A$100 billion of projects

announced for the next five years have failed to progress beyond

the concept or approval stage.

INFRASTRUCTURE DIFFICULTIES

Another problem is that hydrogen is difficult to store

because it requires high-pressure tanks, extremely low

temperatures and tends to leak, making for risky transportation

through old gas pipelines while awaiting new infrastructure.

Spain hopes to build a 2,600 km (1,615 mile) hydrogen

network and connect it to another project - the trans-European

H2Med link - from the Iberian region to northwest Europe.

The Spanish network should be operational around 2030, but

delays of two or three years are likely for broader European

infrastructure, said Arturo Gonzalo, CEO of Spanish gas grid

operator Enagas.

"Infrastructure is not something that happens when the

market has already taken off; it is something that has to happen

for the market to take off," he said.

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