The decarbonisation of the European energy system faces the challenge of how to integrate an increasing share of intermittent renewable energies. Hydrogen energy storage is one of the options that may facilitate this integration. With a favourable policy framework in place, hydrogen storage may become a viable option for large-scale electricity storage, particularly in Germany where there are also excellent geological conditions for underground storage of hydrogen across its Northern part.
To use its full potential, though, hydrogen needs to become an integral part of the energy system as a universal energy carrier next to electricity, with its additional capability of electricity storage: hydrogen enables sector coupling, a key prerequisite for decarbonizing not only the power generation sector, but also transport, industry and heating. For instance, the final report of the German Coal Commission about phasing out coal fired power stations places great importance on the role of hydrogen for the energy transition. A key building block for this is hydrogen electrolysis from renewable electricity.
Currently, beyond various “R&D type” programs at European, national or regional level, there is no legal or regulatory framework in place, that enables a business case for green hydrogen energy projects (beyond demonstration) – both at European and national level; be it for mobility applications (passenger cars or trucks) or for use in industry as a substitute for fossil hydrogen. At European level, the RED II Directive in principle paves the way for rewarding the use of renewable hydrogen in refineries, however, relevant details for implementation are still pending. Also, despite the recent surge in CO2 prices, the European ETS still does not provide sufficient economic stimulus for green hydrogen projects. In particular in Germany, the (partial) reduction of levies and taxes on electricity and/or dedicated incentive schemes will be a key enabler for the cost-competitive production of hydrogen from green electricity, all the more for energy storage applications.
Germany is among the countries most actively looking into hydrogen energy. Notable initiatives include H2Mobility Germany, an industry consortium building a network of hydrogen refuelling stations, or the recent ideas competition organized by the Federal Ministry of Economics and Labour “Reallabore der Energiewende” aimed at showcasing hydrogen-based sector coupling on an industrial scale. In addition, there have been recent announcements for large-scale electrolyser projects by gas and electricity infrastructure companies, as well as by companies from the refinery and steel sectors. After earlier demonstration projects had not been realized, there is also renewed interest in exploring options for underground hydrogen storage. Lately, there are also considerations for hydrogen production from offshore wind in Germany (as well as in the neighbouring Netherlands).
Because of the “chicken and egg problem” of hydrogen and hence the risk of market failure, hydrogen projects (will) struggle to attract third-party financing. In the absence of a national hydrogen strategy and without an appropriate political and regulatory framework, there is currently no viable business case for hydrogen applications – be it in the mobility sector, for use in industry or admixture into the gas grid. Given the market uncertainty, funding for hydrogen (infrastructure) projects comes primarily from national or European R&D institutions (like NOW or FCH JU), with co-funding from industry; for instance, H2Mobility was not able to raise external financing because of the inherent market failure risk. Especially during the early transition and introduction phase, all hydrogen applications and markets are in need of favourable policy and regulatory frameworks with high level of continuity, in order to reduce early investment risks.
The technical feasibility of hydrogen energy projects (or more broadly speaking, power-to-gas projects) has been demonstrated for some 10 years in various demonstration projects, in Germany and elsewhere. First electrolyser projects >10 MW for industrial applications are being built by the refinery and steel sectors, with concrete plans to construct facilities >100 MW in the next years, among others for injection into the gas pipeline network.
Profitability correlates with scale, which is needed to drive down the costs of electrolysers for hydrogen production. To achieve scale in the short term, industrial applications and admixture to the gas grid are most promising. However, to enable scale, the right policy framework needs to be put in place first to enable the most promising early business cases for hydrogen energy (storage) projects. In a highly decarbonised energy system and with appropriate support mechanisms, hydrogen has the potential to grow into a GW scale market by 2030.