Green hydrogen just got more pricing friendly
Source: Sean Keating · PROXIMO WEEKLY · | March 11, 2022
The impact of the war in Ukraine on gas prices may cut years off of the gestation originally predicted for the development of a global green hydrogen market – and with it, green hydrogen project bankability.
Source: Proximo
Even allowing for the global energy security concerns spawned by Vladimir Putin’s war on Ukraine – concerns that are already proving a far greater political driving force for energy transition than any COP event to date – there have been some extraordinary plans and pricing events this week in the energy space that signal the gestation period for a bankable green hydrogen project market is going to be shorter than anyone would have predicted at end of 2021.
According to estimates from Morgan Stanley the current $150 billion global hydrogen market, of which green hydrogen accounts for less than 1%, is expected to grow to $600 billion by 2050. But with oil and gas prices at record levels, and unlikely to go down any time soon (courtesy of President Putin), the business case for green hydrogen, and hence its bankability, just got a lot stronger. Grey hydrogen produced from unabated fossil gas now has a levelised cost of $6.71/kg in the EMEA compared to $4.84-6.68/kg for green hydrogen, according to a BloombergNEF report (Ukraine War Makes Green Hydrogen Competitive). Similarly, the cost of green hydrogen in China is now down to $3.22/kg (using Chinese electrolysers), compared to $5.28/kg for grey.
In Europe, the hydrogen project pipeline implications of the EUs new energy security plan – REPowerEU – for private sector project borrowers and lenders could become significant very quickly given the timescale proposed. According to the European Commission: “Phasing out our dependence on fossil fuels from Russia can be done well before 2030. To do so, the Commission proposes… diversifying gas supplies, via higher liquefied natural gas (LNG) and pipeline imports from non-Russian suppliers, and larger volumes of biomethane and renewable hydrogen production and imports; and, reducing faster the use of fossil fuels in our homes, buildings, industry, and power system, by boosting energy efficiency, increasing renewables and electrification, and addressing infrastructure bottlenecks.”
REPowerEU ripple effect
While the immediate focus is on the LNG and traditional renewables sectors, the energy security impetus also looks set to have a ripple effect on pace of development in the fledgling hydrogen sector. REPowerEU proposes a ‘Hydrogen Accelerator’ programme to spur an additional 15 million tonnes of renewable hydrogen by 2030 on top of the 5.6 million tonnes already foreseen under its existing hydrogen strategy. That would comprise 10 million tonnes imported from “diverse sources” and an extra five million tonnes made in the EU. The Commission has also pledged to fast-track market reforms to promote development of hydrogen projects and infrastructure such as storage.