NOVEMBER 15, 2023

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Europe to find out true price of renewable hydrogen

BY: ANCA GURZU

The European Union is about to embark on a financing experiment that could determine the true price of renewable hydrogen in the bloc.

A first-of-its-kind pilot auction, meant to ensure there will be users ready to buy renewable hydrogen, will begin on November 23.

The months-long process will see project promoters competing to receive European subsidies intended to help kick off a nascent sector.

The success of the auction is paramount, experts say, as it could lay the foundation for a new funding mechanism that could potentially help scale up other clean technologies as well.

The auctioning system’s goal to bridge supply and demand is drawing praise from both industry players and environmental nonprofits. As Cipher reported last week, the lack of robust demand for clean hydrogen is hindering the market’s development.

“This is one of the first steps to create a real market for renewable hydrogen,” said François Paquet, impact director of the Renewable Hydrogen Coalition, which includes utilities and solar and wind technology providers. “It’s aiming to solve the classic chicken and egg dilemma by trying to reconcile supply with demand.”

To bid, hydrogen producers will need to show they have a deal in the works with users who will purchase their product. Projects will need to come online five years after the award.

Funding for the pilot auction, worth €800 million, will come from the EU’s Innovation Fund, the bloc’s financial vehicle meant to help commercialize low-carbon technologies. The auction, a new tool to complement the Fund’s largely grant-based financing, is set to close in early February 2024.

Winning projects will receive support in the form of a fixed price premium per kilogram (kg) of renewable hydrogen produced over up to ten years of operation. The exact premium amount will be determined through the bidding and will represent the gap between how much it costs to produce the hydrogen and how much the user wants to pay for it.

Projects with the lowest cost gap will be awarded the money.

“We will have a better idea of how far producers are willing to go to slash production costs and how far consumers are willing to go to pay for it,” said Marta Lovisolo, senior policy adviser at Bellona Europe, an environmental nonprofit. “It’s the green premium in a sense.”

Renewable hydrogen, seen as key in decarbonizing carbon-intensive sectors like steel and cement, is produced by splitting water molecules with renewable electricity in a process known as electrolysis.

The vast majority of hydrogen used today is made from fossil fuels. Renewable hydrogen represents just a tiny fraction of the market — primarily because it’s quite expensive to produce in comparison to its dirtier alternative.

Another way to make cleaner hydrogen — from natural gas with carbon capture technology — doesn't receive any subsidy in the EU, though it does in the United States.

Right now, no clear price for renewable hydrogen exists since there isn’t an established market to assess. The International Renewable Energy Agency places it at around $4 to $6 per kg, while the NGO Transport and Environment cites a price of €12 per kg for production in Europe. Boston Consulting Group places production prices in Europe at €5 to €8/kg by 2030, up from the original expectation of €3/kg.

The €800 million for the pilot auction is part of the Hydrogen Bank, a new financing mechanism from the European Commission with a current budget of €3 billion announced earlier this year to help kick off the renewable hydrogen market.

The funding for the first auction is not considered a lot, but there’s more at stake.

“We need to make sure this auction works,” said Paquet, who described the financing tool as a game changer. “We need to show support by bidding, even though the budget for this pilot is a joke.”

Read the full article on Cipher’s website.

Lunchtime Reads and Hot Takes

China’s Spending on Green Energy Is Causing a Global Glut — The Wall Street Journal
Bill’s take: A similar glut of panels in China wound up overseas back in 2015, driving the cost of solar power ever lower but putting German, Japanese and American makers out of business.

Siemens Energy’s €15bn rescue package underwritten by German government — Financial Times (paywall)
Anca’s take: The rescue package is vital to sustaining a €110 billion portfolio of clean energy projects planned by the company, including what will be Europe’s largest electrolyzer manufacturing factory.

How soon do you have to buy heat pumps and EVs to avoid climate catastrophe? — The Washington Post

Amena’s take: This is a great read because it helped me understand how adoption rates for technologies differ. It included a quiz where I found out whether I am an early adopter, a mainstream buyer or a laggard.

What to know about today’s three big climate reports — The Washington Post

Jillian’s take: The reports, which could influence the talks at COP28 in just a few weeks, show the world is very far from meeting its climate goals. One report highlights climate impacts in the U.S. specifically.

China sets out methane plan, but no reduction target — Climate Home News
Amy’s take: Interesting that much of China’s methane emissions come from coal (we typically associate it with natural gas). Expect methane to be a big focus of COP28 in Dubai.

Exclusive: Exxon aims to begin lithium production by 2026 in Arkansas — Reuters 
Amena’s take: ExxonMobil's foray into lithium mining indicates the oil major wants to be a key player in the clean energy revolution.

Oil and gas ‘not the problem’ for climate, says UK’s net zero minister — The Guardian
Anca’s take: The phrasing not only suggests that tech to capture and store carbon could play a bigger role, but also illustrates the fault lines in the narratives set to define key debates at COP28.

U.S. Bets on Small Nuclear Reactors to Help Fix a Huge Climate Problem — The New York Times
Bill’s take: Nuclear may be giving investors, ratepayers and industry advocates fits in the United States, but the technology is steadily gaining real momentum overseas, from China to India to the Middle East.

First U.S. direct air capture plant opens in California — E&E News (paywall) 
Amena’s take: The facility's success will pave the way for the two other direct air capture facilities expected to come online in the next couple of years.

Germany agrees tax subsidies for industry worth up to €28bn by 2028 — Financial Times (paywall)
Anca’s take: Germany's competitiveness is in danger and the huge subsidy package shows industry's challenge to adapt to a world without cheap Russian gas.

Indonesia’s president pushes US over delayed $20bn funding for green transition — Financial Times (paywall) 
Bill’s take: Indonesia is one of several Southeast Asian countries looking to play the U.S. and China off each other to get the best deal for themselves as clean energy industries gain momentum globally.

Nuclear Is Out, Hydrogen Is In: Where Countries Put Energy R&D Money — Bloomberg
Amy’s take: It’s surprising how much funding nuclear energy has received historically, and I expect the categories to shift significantly in coming decades.

More of what we're reading:

• US, China pledge cooperation on climate following California talks – Reuters

• The $2 Million Coal Mine That Might Hold a $37 Billion Treasure — The Wall Street Journal
• Fossil fuel interests have large, yet often murky, presence at climate talks, AP analysis finds — AP News

Carbon markets seek a reboot in the face of existential challenges

BY: BILL SPINDLE

Carbon markets are at a crossroads. For entrepreneur Vahid Fotuhi, what happens next will influence the fate of a vast stretch of degraded mangroves along the coast of Mozambique.

A former BP executive and solar power developer based in the United Arab Emirates, Fotuhi wants to help restore these coastal wetlands and their ability to soak up carbon dioxide emissions. Done right, he believes the restoration would help reverse global warming, improve the lives of villagers living in the area and revive an invaluable natural ecosystem.

He needs a lot of money to do this and plans to get a chunk of the necessary cash from carbon offsets.

Offset agreements allow carbon dioxide emitters anywhere — from companies to consumers — to pay others, like Fotuhi’s company Blue Forest, to eliminate carbon dioxide from the atmosphere. Those eliminated emissions are represented by carbon credits, also called offsets, that can be bought and sold on exchanges, more simply known as carbon markets.

Trouble is, carbon markets are a mess, some say an unfixable one. The notion that carbon emitters — be they countries, companies or individuals — can help solve climate change by paying someone else to reduce or avoid emissions is fatally flawed, critics say.

Read the full article, the fourth in our series about climate financing ahead of the United Nations climate summit, on Cipher’s website.

Massive scale-up of hydrogen needed for net-zero goals

Source: DNV • The chart refers to global production of hydrogen and its derivatives, like ammonia and methanol. Dedicated renewable electrolysis refers to hydrogen made from energy generated at a renewable energy plant. Grid-connected electrolysis refers to hydrogen made from grid power, which could include a mix of energy sources. CCS stands for carbon, capture and storage.

BY: ANCA GURZU

The world would need to more than double its forecasted production of hydrogen by 2050 — and make the vast majority of that hydrogen directly from renewable power — if it wants to achieve net-zero emissions by mid-century and keep warming below 1.5 degrees Celsius.

That’s one of the main takeaways from a report released earlier this month by Oslo-based consulting group DNV.

The Pathway to Net Zero report outlines how our energy system would have to transform to keep temperature increases within the limit set by the 2015 Paris Climate Agreement.

DNV described the goal as a “possibility” but also “highly improbable.”

Under the net-zero scenario, total hydrogen production volumes in 2050 would have to reach about 820 million metric tons (Mt) per year. That’s more than twice the forecast from a separate DNV report released earlier this year, outlining probable hydrogen output, which places that number at 350 Mt per year by 2050.

In the net-zero scenario, dedicated renewable electrolysis, which takes electricity directly from a renewable energy plant and uses it to power a machine called an electrolyzer to generate hydrogen gas, represents 74% of all production.

Powering hydrogen production with dedicated renewables is considered the lowest carbon way to produce hydrogen because electricity from the grid will inevitably come from a mix of sources, some potentially fossil-powered.

The share of fossil-based hydrogen (currently how the world gets most of its hydrogen) declines from almost 100% to about 15% by 2050 in the net-zero scenario. Emissions from remaining fossil-based hydrogen production, the report suggests, would be dealt with via carbon capture technology.

AND FINALLY...
Hauling hydrogen

Cipher reader and senior manager and development team lead at Vestas, Jared Cherni, quickly snapped this photo of a compressed hydrogen truck on Interstate 25 in Colorado. Although Cherni doesn’t know for sure, he said it’s likely it was conventional hydrogen made with fossil fuels, given how tiny clean hydrogen production is currently.

Each week, we feature a photo that is somehow related to energy, the thing we all need but don’t notice until it’s expensive or gone. Email your ideas and photos to news@ciphernews.com.

Editor’s note: In addition to supporting Cipher, Breakthrough Energy also supports and partners with a range of entities working to tackle climate change, including nonprofits, corporations, startups and research firms. For more information on Cipher’s editorial policy, click here.