While Europe has opted for stringent standards to produce renewable hydrogen, upcoming US regulations may prove decisive for the EU electrolyser industry.
Electrolysers, which turn water into hydrogen, are considered a cornerstone of a future net-zero world. As such, the technology has been at the heart of the EU’s green industrial policy push, the Net-Zero Industry Act.
However, as of 2023, “electrolyser manufacturing for use in hydrogen production is still a nascent industry,” notes the International Energy Agency, which projects that US, Chinese and European manufacturers will dominate the world market by 2030.
But who will take the lead?
Already, Europe is expected to produce more electrolysers than it aims to install, setting the scene for exports.
“EU electrolysers are among the best in the world,” said Jorgo Chatzimarkakis, the lobby chief of Hydrogen Europe.
Yet, European electrolyser manufacturers warned in January that China and the US threatened to eat their lunch. “Already, the first electrolyser project with stacks made in China has been installed in Europe,” an industry coalition warned.
Three technologies
The business environment remains uncertain, with three technologies competing to dominate the electrolyser market.
Broadly speaking, cheaper Alkaline electrolysers work best uninterrupted, while Proton exchange membrane (PEM) electrolysers are more expensive but can operate more flexibly. Solid oxide cell electrolysers – the third variant – rely on high-temperature waste heat from industry to be efficient.
China has focused its production on the cheaper Alkaline variant, while Europe opted for the more expensive but flexible PEM sort.
In the EU, manufacturers of PEM electrolysers received a boost when Brussels adopted production standards for hydrogen made from renewable electricity.
To qualify for the “renewable” label, electrolysers must be supplied by dedicated solar or wind power installations. Compliance with this rule will initially be measured every month, then hourly as of 2030.
This means that electrolysers must be flexible enough to catch the time windows when production is possible, a rule that favours the PEM variant.
The US, meanwhile, is sitting on the fence. Will Washington opt for a similar production standard as the EU, opening the door for flexible electrolysers or for Chinese products?
Waiting for the US
But while Europe leads on PEM electrolysers and is the leader of the pack on technological innovation, the industry’s fate may be decided in Washington.
With its green subsidy legislation, the Inflation Reduction Act, the US has positioned itself to become a world leader in hydrogen production.
With straightforward subsidies of up to $3 per kg of hydrogen on offer – helping the commodity break through the elusive market barrier of $1 per kg – and consistently low energy prices, the future for US producers looks bright.
Unlike for electric vehicles, there are no “Made in America” clauses tied to the IRA’s hydrogen subsidies, and EU manufacturers were initially looking to Washington to reap the benefits of American cash.
But that is far from certain. While Europe has settled for strict hourly correlation rules to ensure electrolysers run on newly installed green power, the US is still deliberating which standard to opt for, with a decision expected to be made soon by the US Treasury.
“A lot hinges on the upcoming guidance from the US Treasury regarding the accounting rules for clean hydrogen,” Gniewomir Flis, a hydrogen analyst, told EURACTIV.
Some US companies argue that opting for a similar standard as the EU would choke the nascent industry. On the other hand, environmentalists insist that strict rules are needed to prevent electrolysers from capturing scarce renewable electricity capacity that could otherwise be fed straight into the grid.
Europe has a lot to win. If the US rules are aligned with those set out in the EU, “European companies will have a technological edge as they have been working on getting their products to operate more flexibly to comply with provisions in EU regulation such as hourly correlation,” says Flis.
“However, should the US Treasury decide on lax rules such as annual temporal matching, then cheap but inflexible electrolysers like those produced by Chinese companies would be well positioned to benefit,” he added.
India’s standards for green hydrogen, for instance, favour cheaper electrolysers due to its wholesale approach of simply setting a lax limit of 2 kg of CO2 per kg of hydrogen.
The treasury declined to comment for this story.
New research
Meanwhile, new research has questioned the positive climate impacts of stringent hydrogen regulation.
“Europe’s decision to insist on matching renewables to hydrogen on an hourly basis comes at the cost of economic efficiency,” Oliver Ruhnau, professor of energy market design at University of Cologne and research scientist at EWI, told EURACTIV.
As a consequence, he added that investors would invest in overcapacity to meet their hydrogen production targets. This would be costly, both for businesses and taxpayers, who are subsidising the nascent industry.
In a case study in Germany, Ruhnau found that green hydrogen without hourly matching does not necessarily lead to increasing power sector emissions. Similar results should be expected in other EU countries, he noted.
SOURCE: EURACTIV
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