Johanna Englund: Welcome to Morningstar. While the EU has high hopes and targets for green hydrogen to play a crucial role in the energy transition.
Demand in key sectors such as heavy industry, refineries and long-distance transport appears weak. So what is the future of green hydrogen and why is demand from European companies not increasing?
Marta Mancheva and Amar Causevic, Heads of Stewardship at Morningstar Sustainalytics, thank you both for joining me today. What is your point of view? Will green hydrogen play as important a role as we think in Europe’s energy transition?
Green hydrogen too expensive to produce
Marta Mancheva: That’s one of the big questions we’re asking ourselves, Johanna, and that’s why we went out into the field and met with European companies in November.
There was a time when hydrogen was considered the new oil and a silver bullet for Europe’s clean energy transition. But in reality, the production of green hydrogen from renewable electricity is currently very expensive and is not economically viable without massive subsidies, both on the supply and demand side. In the long term, I believe green hydrogen will play a role in decarbonizing hard-to-electrify sectors, such as steel and cement, but also in industries that already use hydrogen, such as fertilizer production. .
But we don’t really know to what extent and when this will happen on a large scale. I would say that the future of the green hydrogen economy in Europe seems uncertain at the moment, and that we are definitely past the hype phase. 2024 was actually something of a reality check, not only for green hydrogen, but also for Europe’s energy transition as a whole.
Leaders in green hydrogen
IS: All right. Are there any examples of leaders in this area? Are there any European companies using green hydrogen to a large extent at the moment?
Amar Causevic: Johanna, yes, there are three. The first is actually Iberdrola IBE. We visited it during our trip. This is the Puertollano factory, which uses solar energy.
Iberdrola is one of the largest companies specializing in renewable energies. It uses solar energy to produce green hydrogen and power a local factory in Fertiberia. It also produces low-carbon fertilizers.
But this summer, Yara YAR from Norway opened the largest in Europe. If the Iberdrola plant has a capacity of 20 megawatts, this one has a capacity of 24 megawatts. And they use it again for their own production of low-carbon fertilizer.
However, in our vicinity from Stockholm, there is an Everfuel EFUEL HySynergy plant in Frederica, Denmark, which is of a similar size to Iberdrola’s 20 MW. The company plans to expand it to 300 MW within a year or two. It is therefore a large power plant.
These are the three most remarkable examples in Europe at the moment.
Three big challenges for green hydrogen in Europe
IS: Ok. Marta, you talked about costs. Would you say this is the biggest challenge or are there other significant challenges ahead when it comes to green hydrogen?
MM: Let’s clarify a few things first. There are better and worse uses for green hydrogen as a low-carbon technology, because in many cases there are actually cheaper, safer and more practical alternatives. And that should always be the starting point when talking about the viability of green hydrogen.
Coming back to your question, the main challenges are firstly that the cost of renewable energy used in the production of green hydrogen can amount to 60% of the total production cost. It’s a lot. This is what makes the production of green hydrogen very expensive in Europe today.
Second, setting up the infrastructure needed to produce, store and transport hydrogen is complex and expensive.
Third, I already mentioned subsidies. Today, green hydrogen producers in Europe rely heavily on public funding to build production facilities.
At the same time, demand is growing only very slowly, because the companies that are supposed to buy and use green hydrogen simply have no market incentive to pay extra.
In practice, industries are therefore still hesitant to adopt green hydrogen as a decarbonization technology.
Green hydrogen, a growing market despite setbacks
IS: Finally, is there anything you would like to say to investors who might be interested in hydrogen companies?
AC: Above all, you must not give up. A few years ago, it was a real craze. Today we’re in a bit of troubled waters, but it’s still a growing market.
Technology advances and every two or three years we see advancements. And perhaps in the future, new advances will reduce some costs or risks.
Europe is investing a lot in this area. We, especially after the war in Ukraine and the other energy crises that we are facing in Europe, Europe is investing a lot and that means that we will have hydrogen in different applications throughout Europe, and that will be supported through subsidies.
And I would like to add, generally speaking, what we were told when we visited Iberdrola, they told us that in addition to subsidies, access to renewable energy, connection to the grid, access to a stable connection to the network, it is important to have a secure offset taker.
So when investors are planning to invest in these projects, I think they need to make it clear that there needs to be a collateral taker that will be consistent and willing to receive this hydrogen for a period of time, because that simplifies all of that. which makes hydrogen more accessible.
But let’s follow the market, follow what’s happening and keep our fingers crossed.
IS : Thank you so much for joining me today, and until next time, my name is Johanna Englundh and I work for Morningstar.
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