Green Hydrogen: What comes next?

PUBLICAÇÕES SÉRVULO 03 Nov 2021

The Minister of Environment and Climate Action, João Pedro Matos Fernandes, has very recently reaffirmed the Government’s commitment to carry out an auction to support the capex of industrial consumer investments, to be launched in the first quarter of 2022, aimed at the purchase of 100,000 tonnes of green hydrogen, which will subsequently be made available to consumers at the cost of natural gas.

We recall that these auctions are intended to represent mechanisms to support the consumption of green hydrogen, as they will be targeted at potential consumers, as companies that still depend on fossil and polluting energies, such as diesel, mainly in the industry and transport sectors.

In this context, it is worth remembering that the Portuguese Government is clearly active and committed to the incorporation of green hydrogen into the economy, which is primarily reflected in the way the Recovery and Resilience Plan (RRP) was designed, making the production of green hydrogen one of the priorities of the country's energy and industrial policy.

In this framework, the Government intends to allocate more than 2.5 billion euros from the RRP to the so-called "industry mobilization agendas", in which projects related to innovation, energy transition, export capacity and creation of skilled jobs are at the forefront of eligibility. As it is easy to understand, green hydrogen industrial projects make the most of these markers, so it is anticipated that they will grab a huge slice of the public funds.

But other very firm steps have already been taken.

In fact, recently, 13 projects supported with 34 million public euros were approved, for investments of 62 million euros in hydrogen and biomethane production (8,500 T/year/34 MW year), followed by the launch of a tender under the RRP for the allocation of 62 million euros for green hydrogen production projects (up to 10 million per project). The first tender, whose application period remains open until 31 December this year, will be succeeded by two other procedures, which should take place in 2022 and 2023 and which, together with the first, total a funding of €285M.

Finally, it is worth highlighting the Government's focus on projects to be presented to the IPCEI (Important Projects of Common Interest), in the scope of which three projects - Bondalti, Fusion Fuel and 1s1 Energy - have already been approved by the European Commission. 

The Portuguese Government is, therefore, no exception when it comes to the growing consensus that the energy transition cannot only involve the electrification of the economy, because there are consumptions and activities that simply cannot be electrified.  As it is well known, this awareness has led European governments to begin investing in public policies that reflect a commitment to the production and incorporation of renewable gases, with special focus on green hydrogen.

However, although the recognition of the high potential of this gas in the decarbonisation of these consumptions has already sustained the first steps in investment in projects in the production segment and in the conversion of the networks, - as the ones mentioned above, - the truth is that the current moment is still one of expectation (with optimism and apprehension mixed together) as to the future.

This was, precisely, the opinion most shared by the speakers and participants of the second edition of the World Hydrogen Congress 2021, which took place between in October in the Dutch capital, and in which SÉRVULO was present as one of the international sponsors and speakers.

At the end of the three-day congress, where over 800 international green hydrogen experts discussed the challenges and opportunities presented by the growing renewable energy and gas industry, it also became clear that many players in the sector consider that private investment in green hydrogen production is not yet financially sustainable without direct public support, because production costs are much higher than those of the energy sources they are intended to replace. The issue of the current imbalance of the Levelized Cost of Green Hydrogen is, thus, on the critical path of development of the hydrogen industry. At this level, the debate at the Congress made it evident that the technological maturity of the industry still has an important way to go, the most striking example of this reality being the scarcity and high cost of commercialisation of electrolysers, which are the key piece of industrial production of green hydrogen.

In addition, the level cost of green hydrogen also depends on access, at competitive costs, to large amounts of electricity produced from renewable sources needed for the water electrolysis process. But if this can be considered a challenge to the creation of a "hydrogen economy", it is also an advantage for countries that, like Portugal, have excellent endogenous conditions, by high solar irradiation and abundant wind resource. In this regard, it should be noted that the Government recently revealed that it wants to "achieve at least 2 GW of photovoltaic solar energy operating in the National Electric System by the end of 2022.

Furthermore, although several European countries have already approved national strategies for hydrogen that foresee aid mechanisms for projects, in line with European policies, there is still hesitation on the part of financial institutions with regard to the bankability of projects.

Nevertheless, despite these obstacles still to be overcome, the overriding idea is still one of optimism and expectation to the years to come, during which it is expected that governments comply with the ambitious objectives outlined in the national strategies for hydrogen, which will necessarily include the approval of stable mechanisms for public financing of projects, as has happened with renewables since the 1990s.

Against this background, there is no doubt that the coming years, and in particular the decade we are now entering, hold a unique opportunity for investment and growth in the green hydrogen market.

Mark Kirkby | mak@servulo.com

Francisca Mendes da Costa | fmc@servulo.com

Catarina Pita Soares | csg@servulo.com