Hydrogen Europe | Quarterly

Hydrogen Europe |  Quarterly

The question of FIDs looms large for European hydrogen stakeholders. Legislation has been passed, targets have been set, ambitions have been made clear, but the final step of advancing projects to construction is still somewhat elusive. Complex supply chains in a new sector will always pose challenges, as will a lack of necessary infrastructure, increased cost of capital, and inflation. Some of these issues are to be expected, and some are global factors affecting all industries.

What can be controlled is the regulatory environment but, despite huge progress on that front in the last two years, the job is still not done. “There is no absolute regulatory certainty, and this creates a perception of high risk,” Jose Miguel Menendez, Energy 09 #06 THE HYDROGEN EUROPE QUARTERLY Technology Analyst, Hydrogen and Alternative Fuels at the International Energy Agency (IEA), tells the Hydrogen Europe Quarterly.

This results in an imbalanced approach to supporting projects and stimulating demand: “On the demand side we are seeing a lack of action from policymakers. There’s a complete disconnection between the level of action and the level of ambition,” Menendez added. The IEA Global Hydrogen Review 2023 also shows that Europe’s slow development in hydrogen is allowing global competitors to overtake the bloc. In the report, it reveals that last year China made up more than 40% of electrolysis projects that have reached FID globally, having only accounted for less than 10% of global electrolyser capacity installed in 2020. But the report is not all doom and gloom for European hydrogen. Quite the opposite in fact, as the report identifies hydrogen as a key sector in the energy transition.

“The main message from the IEA report is that interest in low emission hydrogen remains strong, not only in politicians but in industry too,” said Menendez. There are two reasons for optimism. The first is a simple point of arithmetic. While indeed only 4% of announced projects have taken an FID, in real terms this represents a doubling of capacity compared with the previous year, reaching nearly 2Mt. This rise has been masked a greater increase in the number of announced projects, but it still shows positive momentum building despite China taking the lion’s share of it. Poor financial conditions like high inflation are finally plateauing, so this small but important success despite hard times is a good sign that the future is bright. The second reason is that the way forward in Europe and the rest of the world is, while ambitious in scale, eminently achievable in scope. And some of what has already been put in place will soon be paying dividends. “We will see more projects reaching FID in the coming years,” Philip Christiani, Partner at Copenhagen Infrastructure Partners, said bullishly, adding that “I believe as soon as we see the effect of the hydrogen bank, we will see more projects coming into FID simply because of how the auction is defined, including a requirement to secure 60% offtake of the produced amount.”

“The H2 Bank has been created well – an auction system is better than offering a fixed number. From a taxpayer and a competitive perspective, it just makes sense,” he added. The pilot auction of the Hydrogen Bank was launched in November with an €800m budget and received over 132 bids totalling 8.5GW of electrolyser capacity. The amount of appetite for the auction shows how many companies are prepared to invest, if they can get the support they need.

The rest of the solution is multi-faceted, but it involves nothing previously unheard of, and there is plenty of precedent to follow. Focusing on the financing gap, with banks and institutions still reluctant in many cases to take the leap and with project developers working hard to put the economics in place, Christiani preached patience: “I don’t think the financial sector is getting to grips with hydrogen: there are probably still more unanswered questions than answers. It will still take time for the industry to mature, maybe 10 years before we have a consistent business model.

But that’s not any different from the development of offshore wind or other renewable technologies.” CIP, while a relatively young outfit approaching its 12th year, has been involved in a host of major renewable energy and other infrastructure projects since its inception. One of its first funds is on its fifth raise, targeting €12 billion by Q3 2024, demonstrating the faith of investors in CIP’s ability to make a success out of ambitious projects. Its Growth Market Fund 2, part of its focus on new markets including hydrogen, is targeting a hard cap of €3 billion, demonstrating in turn CIP’s belief that hydrogen can succeed alongside other low-carbon technologies

Hydrogen Networks