Berlin, November 3, 2020
Europe has set itself the goal of decarbonizing its economy by 2050. Hydrogen is likely to play an important role in achieving net zero, especially in hard-to-abate sectors – those where decarbonization is difficult or impossible. This includes certain industrial activities such as steel production and segments of the chemical industry, as well as segments of the heating market and the transportation sector.
As part of a pan-European study, the energy market experts at Aurora Energy Research analyzed the hydrogen market and modelled its development until 2050. According to their findings, the demand for hydrogen in Europe is expected to grow to 2,500 terawatt hours (TWh) per year by 2050, an eightfold increase that would nearly equal the current size of the European power supply system. “This would result in a market volume with annual sales of 120 billion euros,” says Alexander Esser, an energy market expert at Aurora Energy Research. “The potential for further investment is correspondingly high.”
Industrial demand expected to more than double
Currently, large-scale hydrogen use is almost exclusively limited to industry, in particular refineries and the production of ammonia. According to the Aurora analysis, industrial demand alone is expected to more than double to as much as 700 TWh by 2050. In the 2030s and 2040s, there will also be significant potential for deploying hydrogen in the transportation sector – particularly in heavy-duty vehicles, trains and potentially in airplanes – and to replace natural gas for generating heat.
Europe currently consumes a total of 327 TWh of hydrogen annually, with consumption concentrated in Germany, the Netherlands and France. “Thus far, hydrogen has been produced almost exclusively by steam reforming natural gas,” says Esser. “This results in significant greenhouse gas emissions. Since setting the goal of net zero, the focus has shifted to the question of which method of producing carbon-neutral hydrogen should be used and how it can be made economically viable.” Discussion centers on two alternatives to the traditional method of reforming natural gas: One approach involves electrolyzing water using renewable power (“green hydrogen”); in the other approach, hydrogen is derived from natural gas, but carbon emissions are captured and stored (“blue hydrogen”).
Germany is the most attractive market for hydrogen
In early July, the European Commission presented its hydrogen strategy, which provides for the addition of 40 gigawatts of electrolyzer capacity by 2030. Member states such as Germany, the Netherlands, France, Spain and Portugal have also defined national hydrogen strategies, with Germany pursuing the most ambitious goals for this technology. As a result, not all of the European markets are equally attractive for investments in hydrogen technology. The experts at Aurora have therefore supplemented their evaluation of the European market as a whole with an analysis and ranking of individual countries, which takes into account national hydrogen policies along with potential supply and demand as well as the availability of infrastructure such as pipelines and hydrogen storage.
According to their analysis, Germany currently ranks first among European countries as the most attractive market for hydrogen development, followed by the Netherlands, the UK, France and Norway. “Germany has taken a pioneering role in the up-and-coming hydrogen economy in Europe,” says Richard Howard, Research Director at Aurora Energy Research. “It enjoys a supportive policy environment, the demand for hydrogen for industrial applications is high, and the amount of renewably generated power is growing and could be used to produce hydrogen.” At more than 70 TWh per year, Germany currently accounts for more than one fifth of Europe’s total hydrogen consumption. In addition, the German government’s ambitious hydrogen strategy provides subsidies for low-carbon hydrogen production as well as for decarbonizing industry. Analysts also see the availability of salt caverns, which can be used for hydrogen storage, as another positive factor.
The Netherlands, the UK and Norway were identified as strong markets for both green and blue hydrogen, given that unlike Germany, they have not focused their hydrogen strategies solely on green hydrogen. All three countries have a long history of natural gas production and significant potential for carbon capture and storage (CCS). While the United Kingdom has yet to define a hydrogen strategy, it is already discussing potential business models and incentive programs for CCS and hydrogen. Further details are expected to be announced in early 2021. Norway leads Europe in adopting fuel cell vehicles and is the first country to operate a fleet of hydrogen trucks.
France, Spain and Portugal offer good prospects for green hydrogen. All three countries should see strong growth in solar and wind generation by 2050, with solar capacity in Spain expected to increase fivefold by 2040. This will likely lead to longer periods of low electricity prices, which will result in lower operating costs and make producing hydrogen through electrolysis more profitable. France plans to deploy 6.5 gigawatts of electrolyzers by 2030 and is exploring the use of nuclear power to produce hydrogen. The country has earmarked a total of 7 billion euros for hydrogen projects.
Based on the study, Esser concludes, “Hydrogen has the potential to become a key component of the European energy supply. Not only does it offer a chance to eliminate greenhouse gas emissions from our economy, it is also emerging as an interesting market with a significant volume. However, establishing a hydrogen economy requires early support from governments, systematic changes to the energy system and considerable investment from the private sector. That’s why it’s important that we steer the growing enthusiasm for hydrogen in the right direction and build upon this momentum.”
Source: Aurora Energy Research
Aurora Energy Research is a leading independent European energy market analytics company founded in 2013 by University of Oxford professors and economists. Aurora provides deep insights into European and global energy markets supported by cutting edge models to help its clients navigate the global energy transition and make bankable investment decisions. The company’s services include: subscription-based forecasts, reports, forums and bespoke consultancy services. Aurora Energy Research has offices in Oxford, Berlin and Sydney. Further information is available at www.auroraer.com
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