Author: Luka Dimitrov
LONDON (ICIS)–A review of plans submitted to the European Commission for its recovery and resilience facility (RRF) finds that Europe could miss the commission’s 6GW of installed electrolysis capacity by 2024, ICIS and Hydrogen Europe find.
Following a review of RRF plans, ICIS and Hydrogen Europe data noted that around €12bn of funding could be used for direct hydrogen projects (such as production capacity expansion).
When funding allocations were expanded to include joint endeavours, such as hydrogen fuel cell and electric vehicle infrastructure, Hydrogen Europe noted that hydrogen spending could rise to €54bn.
However, the majority of production capacity targets focused on supporting national strategies, which primarily target 2030, Alexandru Floristean, manager – intelligence at Hydrogen Europe said.
RRF plans for Italy, Germany, Spain, and Portugal link the implementation of funds with the achievement of their national hydrogen strategy.
Floristean said that from talking to renewable developers across Europe he also gathered that only small projects of 5MW or 20MW are expected to be online by around 2024, making it difficult to reach the cumulative 6GW capacity target.
Floristean added that one of the primary reasons the 6GW target was at risk is “mostly because of the additionality principle and how it is implemented.”
The additionality principle outlines that if new electrolyser capacity is brought online then project developers also need to make new renewable capacity available.
This ensures that the increase in power demand from electrolysers is balanced by more zero-carbon supply.
The principle therefore adds increased expenditure and planning time to potential projects that could otherwise come online by 2024.
Achieving the 6GW target using only “additional” renewable electricity is unrealistic as, mostly, only small projects in the tens of MW scale, using mostly renewable electricity supplied from the grid are in development and the big scale projects, connected to new renewable energy sources are planned to come closer to 2030, according to Floristean.
“Unless there is a change in allowing the market to ramp-up grid-connected small projects in a simple way using Guarantees of Origin (GOs) and power purchase agreements (PPAs), the 2024 target will not happen,” Floristean added.
Floristean explained the current project pipeline could easily meet the 2024 target but without a regulatory framework, those projects are at risk.
Alongside the additionality principle, market participants have stressed further concerns surrounding the 6GW target.
Speaking at a hydrogen panel during the Greek renewable and storage forum on 13 October, market participants noted that the maturity and capital expenditure of electrolysers by 2024 could also put the target into question.
As electrolyser manufacturers ramp up production capacity, hydrogen experts said that learning rates will reduce the total cost per unit and support increased efficiency, meaning less power is required per kWh of hydrogen produced.
ICIS data showed that power prices amount to roughly 75% of the final electrolysis-derived cost of hydrogen.
The panel group also indicated a levelised cost of electricity (LCOE) would need to be between €20-30/MWh without government incentives to support near-term electrolyser deployment.
This was something Floristean agreed with, telling ICIS that “at this LCOE, renewable hydrogen actually starts becoming competitive in a number of end-uses e.g. for the use in refineries, to meet the RED II targets, or in mobility applications you can start building business cases”.
Participants also stressed there will be not enough renewable penetration by 2024.
Expanding on this point when talking to ICIS, Floristean said “the issue is with the permitting periods for new renewable sources, and the long development times (7-9 years)”.
Member states are set to receive funding for hydrogen projects from the EU’s €672.5bn recovery and resilience facility (RRF) program.
The European Council has to date approved 16 member state RRF funding packages, amounting to €10bn of funding for hydrogen, with all but two countries focusing exclusively on green hydrogen initiatives, ICIS analysis shows.
Funding requests for hydrogen covered numerous areas, such as European hydrogen backbone infrastructure, supporting large-scale transport, decarbonisation of industry, electrolyser capacity and electrolyser manufacturing capacity. The reforms and investments within member state plans are to be implemented by 2026.
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