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Spain, Denmark, and the Netherlands: European Hydrogen Hot Spots, Awaiting Investment Wave

18 Oct 2023

The European momentum for clean hydrogen is rapidly gaining pace, marking the precipice of a wave of Financial Investment Decisions (FIDs). The heightened interest in hydrogen is being driven by several key factors, but it's notable that while numerous hydrogen projects have been announced, there's still a significant gap between the total capacity outlined in these announcements and the European Commission's (EC) ambitious targets for 2030. On the national level, Spain, Denmark, and the Netherlands are emerging as standout candidates to become Europe's hydrogen hot spots.

Three Key Factors Behind the Clean Hydrogen Momentum:

1. Energy Independence and Security: The volatile gas prices resulting from the Russian invasion of Ukraine have pushed Europe to seek alternatives to Russian gas, emphasizing the need for energy independence and supply security. Clean hydrogen is seen as a crucial element in achieving this goal.

2. US Investment Boost: The adoption of the US Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) with tax credits has boosted clean hydrogen initiatives in the US, raising concerns in Europe that investments may flow across the Atlantic. This has prompted the European Commission to allocate substantial funds to match or exceed US support schemes for renewable energy, including hydrogen.

3. EU Policy Acceleration: The European Union has set binding targets for renewable hydrogen, aiming to replace at least 42% of gray hydrogen used in various industries with renewable hydrogen by 2030. Specific targets have been outlined for different sectors, driving the demand for renewable hydrogen.

Ambitions and Targets:

To achieve the ambition of producing 10 million tons (Mt) of domestic renewable hydrogen per year by 2030, the EC is calling for the installation of 120 gigawatts (GW) of electrolyzer capacity in Europe, powered by 500 terawatt-hours (TWh) of new renewable power generation sources. The total investment associated with these goals is estimated to range from EUR 335 billion to EUR 471 billion, with significant funding provided, including EUR 72 billion in grants and EUR 225 billion in loans.

Wave of Financial Investment Decisions (FIDs) Expected:

While more than three years have passed since the first hydrogen consortia in Europe announced plans for hydrogen plants, most projects have yet to reach the Final Investment Decision (FID) stage, which is the tipping point for construction and execution. The uncertainties causing delays include regulatory issues and subsidy schemes.

In the past year, many of these uncertainties have been addressed. The definition of renewable hydrogen has been clarified, dedicated subsidy schemes introduced, and binding targets set for renewable hydrogen consumption in industries, transportation, aviation, and maritime sectors. These actions aim to create a demand pull, providing more security for investors.

However, challenges remain, including the need for dedicated infrastructure like pipelines and vessels for long-distance hydrogen transportation. The choice of hydrogen carrier is also a question, as pure hydrogen is difficult to handle and transport.

Gap Between Ambition and Current Plans:

There's still a significant gap between Europe's hydrogen ambition and current national plans. Only 13 of the EU-27 member states have set specific electrolyzer capacity targets, totaling 47 GW. This falls far short of the 120 GW needed to achieve the EC's vision.

Spain's Appeal as a Hydrogen Hub:

Spain emerges as a top location for renewable hydrogen production, with almost 14 GW of announced projects, significantly surpassing its national target. Spain's attractiveness is due to its access to low-cost renewable electricity, a crucial factor in competitive hydrogen pricing. The availability of solar photovoltaic (PV) systems and wind energy in the region allows for cost-effective hydrogen production.

Spain's vast land and low population density provide ample space for renewable energy installations, hydrogen hubs, and pipelines. The construction of a 3,000 km hydrogen backbone across Spain, connecting to neighboring Portugal and France, is set to unlock the potential for hydrogen production sites.

Denmark's Offshore Wind Potential:

Denmark is another hydrogen hot spot, driven by competitive offshore wind costs, phenomenal offshore wind potential, and proximity to Germany. Denmark's national target is 6 GW of electrolyzer capacity by 2030 and 17 GW by 2040. The country's surplus of renewable hydrogen is expected to make it a net exporter, with Germany as a significant importer.

Netherlands: Hydrogen Hub with Ample Storage Capacity:

The Netherlands aims to have 4-8 GW of electrolyzer capacity by 2032, backed by a target of 21 GW of offshore wind capacity by 2030. The country's vast storage potential in underground salt caverns and depleted gas fields positions it as a key renewable hydrogen producer. Existing and planned infrastructure, including an expansive hydrogen backbone, offers promising prospects for the growth of hydrogen initiatives.

Europe's Bright Hydrogen Future:

The growing momentum for renewable hydrogen in Europe and the resolution of numerous bottlenecks set the stage for a wave of financial investments in the near future. However, the current projects are still short of the ambitious goals, leaving room for further growth and development. Spain, Denmark, and the Netherlands are positioned to play a significant role in this hydrogen-driven future, capitalizing on their unique strengths and attributes as European hydrogen hot spots.

In the coming years, these countries are set to play a pivotal role in shaping Europe's hydrogen landscape, as they bring innovative solutions to the table and help bridge the gap between ambition and reality in the hydrogen sector.

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