INTERVIEW: Renewable hydrogen below Eur1.50/kg unlikely by 2030: Hy24 fund

Renewable hydrogen production costs in Europe could fall to Eur2.50-Eur3.50/kg ($2.75-$3.85/kg) by 2030 but targets in the Eur1.50/kg range were "not manageable" in the timeframe, hydrogen investment fund Hy24 CEO Pierre-Etienne Franc said. 

Several hydrogen projects in Europe have ambitious targets to hit production costs of below Eur1.50/kg -- a price that would make low-carbon hydrogen cost competitive with conventional production -- with some aiming for that level by mid-2020s.

S&P Global Commodity Insights assessed the cost of producing renewable hydrogen via alkaline electrolysis in Europe at Eur13.42/kg ($14.96/kg) March 29 (Netherlands, including capital expenditure), based on month-ahead power prices.

"I don't believe the projects talking about green hydrogen at Eur1.5/kg in the next decade," Franc said in an interview with S&P Global March 28. "I don't think that's manageable."

Production costs of Eur3.50/kg and below would already be an "impressive move" that would be almost fully compensated by CO2 costs of about Eur100/mt, Franc said.

EU carbon allowance prices for the December 2022 contract were Eur80.81/mt on March 28, down from highs of over Eur95/mt in early February.

"Even if there is a premium" for renewable hydrogen, "it will set a new normal for green energy, which is bringing more than energy -- it's bringing quality and sustainability," Franc said.

Hydrogen was also critical for enabling the build-out of renewable-based power grids, he said.

"Hydrogen is not a tiny piece of a marginal niche market. It's an enabler of the energy transition to work properly globally," he said. "Hydrogen is fundamental to debottlenecking fully the renewables potential."

European energy security

Russia's military invasion of Ukraine and the resulting turmoil in global energy markets has exposed Europe's dependency on fuels and gases beyond just electricity, Franc said.

"This is where hydrogen comes into play, as it's the only low-carbon gas substitute in many segments," he said.

At 15 million mt of new hydrogen generation -- imported or locally generated -- the sector would be adding about 500 TWh of energy to the European mix, or around 10% of Russian imports.

"But if we look at the share of European energy use that is difficult to electrify, we probably need 3,000 TWh of hydrogen-based solutions -- which is six times the 2030 targets," he said.

The EU had two options to reach the required levels of hydrogen production, Franc said. The EU could develop a centralized agency to process large project support schemes, or it could simplify the rules for large state aid programs.

"The bottleneck is primarily on decision making, not on technology or on finance," he said.

Transport applications

European countries should also support downstream infrastructure projects to boost demand, Franc said, adding that passing the alternative fuels infrastructure regulation would be the best way to accelerate infrastructure rollout.

Franc said renewable hydrogen could be priced at Eur6-Eur8/kg at the pump by 2030, compared with typical pump prices for grey hydrogen above Eur10/kg.

He said production costs for renewable hydrogen would have to drop across the supply chain by about half, which was not as abrupt as the cost reduction in the renewables space in recent years.

"There's no chance for transport decarbonization without hydrogen," he said, highlighting its role in decarbonizing trucks, trains, shipping and possibly aviation.

The EU has committed to deploying hydrogen refueling stations every 150 km along the core European road network. But there was no mechanism to support this, according to Franc.

He said the EU and member states should look at minimum capacity payments to enable the development of hydrogen refueling stations in early stages.