Attendees at COP29 would have had to have kept their eyes tightly shut not to have noticed the prominence given to hydrogen. The annual summit this year concluded with what the event’s presidency deemed a Hydrogen Declaration, calling for increased production of hydrogen and its use on an industrial scale, supported by demand creation, standards and certifications, financing, capacity building and research and development.
As so often seems to be the case for COP, closing statements were marred by controversy and finger-pointing, but the Declaration was one of a handful of pledges and binding agreements that delegates agreed on. Despite this, those in attendance were left acutely aware of the challenges they faced to succeed, with the Declaration itself concluding that actions thus far “remain insufficient”.
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A prime example of the difficulties in hydrogen deployment came in the form of Germany’s Kraftwerksstrategie, or KWS, which caused a stir across Europe when it first came to light in February. Announced – without fanfare – by the Federal Ministry for Economic Affairs and Climate Action, the plan included constructing 10GW of hydrogen-ready, gas-fired power plants, with gas to be replaced with 100% hydrogen between 2035 and 2040.
Critics have repeatedly questioned the feasibility of the gas-to-hydrogen transition. Jonathan Bruegel, power sector analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), tells Energy Monitor’s sister publication Future Power Technology that Germany, the second-largest producer of gas-fired power in Europe with 70TWh generated in 2023, has become reliant on the fossil fuel since the country’s 2011 nuclear phase-out plan was announced. He says that although renewable power has grown significantly over the past decade, now supplying around half of Germany’s electricity generation, gas will likely remain a source of dispatchable generation and grid balancing for the next decade at least.
With Germany’s plans raising an eyebrow and the COP29 commitment remaining vague, is hydrogen a realistic proposition for the energy transition?
Financial barriers to hydrogen
Francesca Gregory, senior energy transition analyst at Future Power Technology’s parent company GlobalData, explains that Germany’s pipeline includes 11 projects that use hydrogen as a secondary fuel (currently in development) and one hydrogen-only project at the permitting stage, all set to go online by the end of the decade. Globally, the use of hydrogen for power generation – both retrofitted and new build – remains limited, with approximately just 30 projects operational.
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By GlobalData“These projects are almost exclusively examples of co-firing, where hydrogen is used as a secondary rather than stand-alone fuel,” Gregory says. However, she adds that this is set to change, with a further 65 projects in development, according to GlobalData’s power plants database.
However, these figures somewhat mask the difficulties hydrogen faces, not least the capital expenditure (capex) needed. For instance, retrofitting open or combined-cycle gas turbines to hydrogen-ready is financially significant. “To make the investment profitable, with the low expected load factor of future gas plants, assets would need to be operational for another decade at least, which will push beyond the plan to be carbon neutral by 2045,” Bruegel says.
Even once plants are converted or newly constructed, financing remains troublesome. Gregory says continued high-levelised production costs have bred a reluctance for purchases to commit to offtake agreements, creating a ‘chicken-and-egg’ situation for supply and demand. “A lack of hydrogen-ready pipeline and storage infrastructure also complicates the extent to which low-carbon hydrogen can provide a cost-effective and readily available alternative to natural gas-fired generation, or generation using grey hydrogen,” she continues.
Brown, grey, blue and green are all types of hydrogen, categorised by their source. Green hydrogen is the only one produced with zero emissions – the one COP has pinned its hopes on.
With governments committing to green hydrogen, Gregory says low-carbon hydrogen production on a commercial scale is set to experience accelerated growth, with the current project pipeline translating to an annual increase of 56% between 2021 and 2030. “However,” she caveats, “this pipeline strongly relies on projects in the feasibility stage, which typically exhibit lower rates of completion, adding uncertainty surrounding the levels of expected supply”.
This was a concern noted in the Hydrogen Declaration which, quoting International Renewable Energy Agency and International Energy Agency estimates, said that zero-emission and low-carbon hydrogen and its derivatives account for less than one million tonnes (mt) of hydrogen produced globally each year, with 96mt produced from unabated fossil fuels, resulting in more than 900mt of CO₂ emissions annually.
COP29 ambitions may be further sidetracked by market forces; the EU Agency for the Cooperation of Energy Regulators (ACER) previously warned that Europe’s hydrogen projects are at risk due to uncertainties surrounding hydrogen demand and those high costs, with its first hydrogen monitoring report, published in November, noting that low demand, limited electrolyser capacity and costs remain a challenge.
Infrastructure and transportation unprepared
Adding to financial challenges is a lack of developed infrastructure. ACER’s report said that “42,000km of hydrogen pipelines, numerous storage projects and terminals are planned for the next decade, but only 1% has reached final investment decision, as future hydrogen demand uncertainties pose significant challenges to project promoters”.
Bruegel adds: “Regarding logistics, hydrogen transport is a main challenge. Transportation by pipeline will be viable only from EU countries, while for most of the imports, transportation by ship will be the only option. This is costly and technologically yet unproven.”
Referencing ACER, he further explains that electrolyser availability is limited, with just 216MW of operational capacity in Europe recorded this year. While 70GW is planned for 2030, he says that not only are most projects at a nascent stage, but the target itself is inadequate as 100GW is needed to meet the EU’s 2030 10mt green hydrogen production goal.
ACER also noted that integrated planning and careful consideration of electrolyser locations were necessary to ensure grid development at a sufficient pace alongside the growing hydrogen market.
Hydrogen is certainly an emerging area of interest across Europe, with Spain and Sweden emerging as major players in hydrogen production, the German Government taking steps to nurture the sector, and Italy, the UK, the Netherlands and Denmark among a growing cohort seeking to transition at least some of their energy supply.
However, despite this hype, the creation of a mature and capable sector remains patchy.
Right now, only one thing is certain: nothing is certain. Projects are progressing, but with mixed fortunes; financing remains hard to secure; green hydrogen supply is questionable; and infrastructure is only slowly progressing. Undeveloped regulations and standards further add to the potent mix of hurdles.
Although the Hydrogen Declaration is a step in the right direction, if we have learned anything from COP, it is that the transition from words to actions can often faulter.
Bruegel’s final note of caution is that green hydrogen is energy-intensive and expensive to produce and transport, and therefore should be used wisely.
“IEEFA follows the logic of the ‘hydrogen ladder’, which recommends that green hydrogen be prioritised for uses that give maximum decarbonisation impact and have no better alternatives,” he says. “In particular, green hydrogen should first be used to decarbonise existing grey hydrogen consumption.”
