Our most important findings

Hydrogen

  1. 1

    There is an emerging consensus that the role of hydrogen for climate neutrality is crucial but secondary to direct electrification.

    By 2050, carbon-free hydrogen or hydrogen-based fuels will supply roughy one fifth of final energy worldwide, with much of the rest supplied by renewable electricity. Everyone agrees that the priority uses for hydrogen are to decarbonise industry, shipping and aviation, and firming a renewable-based power system. Therefore, we should anchor a hydrogen infrastructure around no-regret industrial, port and power system demand.

  2. 2

    Financing renewable hydrogen in no-regret applications requires targeted policy instruments for industry, power, shipping and aviation.

    This is critical for incentivising hydrogen use where carbon pricing alone cannot do the job quickly enough. While policy options are available at a reasonable cost for industry, power and aviation, there is no credible financing strategy for hydrogen use by households. Blending is insufficient to meet EU climate targets and carbon prices high enough to deliver hydrogen heating would be unacceptable for customers.

  3. 3

    Gas distribution grids need to prepare for a disruptive end to their business model, because net-zero scenarios see very limited hydrogen in buildings.

    To stay on track for 1.5C, Europe needs to reduce consumption of natural gas in buildings by 42 percent over the next decade, as per the EU Impact Assessment. Similarly, land-based hydrogen mobility will remain a niche application. Any low-pressure gas distribution grids that survive will be close to ports, where refuelling and storage infrastructure could provide an impetus for the decarbonisation of the maritime and aviation sectors.

  4. 4

    Europe has enough green hydrogen potential to satisfy its demand but needs to manage two challenges: acceptance and location of renewables, as each GW of electrolysis must come with 1-4 GW of additional renewables.

    To keep industry competitive, the EU should therefore access cheap hydrogen (green and near-zero carbon) from its neighbours via pipelines, reducing transport cost. Imports from a global market will focus on renewable hydrogen-based synthetic fuels.

From study : 12 Insights on Hydrogen
  1. 1

    There is a limited set of applications in all sectors that urgently need renewable hydrogen to become climateneutral.

    These applications include steel, ammonia and basic chemicals production in the industrial sector, as well as long-haul aviation and maritime shipping. The power sector needs long-term storage to accommodate variable renewables, and existing district heating systems may require hydrogen to meet residual heat load. Accordingly, renewable hydrogen needs to be channelled into these no-regret applications.

  2. 2

    Ramping up renewable hydrogen will require extra policy support that is focused on rapid cost reductions.

    While renewable electricity (the main cost component of renewable hydrogen) is already on track to become cheaper, electrolyser system costs also need to be reduced. Cheaper electrolysers will come through economies of scale and learning-by-doing effects; however, predictable and stable hydrogen demand is prerequisite for electrolyser manufacturers to expand production and improve the technology.

  3. 3

    CO₂ prices in the 2020s will not be high enough to deliver stable demand for renewable hydrogen, underscoring the need for a hydrogen policy framework.

    Even at CO₂ prices of €100 to 200/tonne, the EU ETS will not sufficiently incentivise renewable hydrogen production, making additional policy support necessary for a considerable period of time. Among potential policy options, a general usage quota for renewable hydrogen would not be sufficiently targeted to induce adoption in the most important applications.

  4. 4

    A policy framework to ramp up the market for renewable hydrogen should initially target the applications where hydrogen is clearly needed and a no-regret option.

    Several policy instruments should be deployed in concert to achieve this aim – namely, carbon contracts for difference in industry; a quota for aviation; auctions to support combined heat and power plants; measures to encourage markets for decarbonised materials; and hydrogen supply contracts. These instruments will also need to be complemented by regulations that ensure sustainability, appropriate infrastructure investment, system integration, and rapid renewables growth.

  1. 1

    Hard-to-abate industrial sectors represent a major area of hydrogen demand in the future due to a lack of alternative decarbonization options.

    Steel, ammonia, refineries and chemical plants are widely distributed across Europe. To reduce and eventually eliminate their process emissions, 300 TWh of low-carbon hydrogen are required. This number does not factor in the production of high-temperature heat, for which direct electri-fication should be considered first.

  2. 2

    The investment window for fossil-based hydrogen with carbon capture remains open, but in the long run renewable hydrogen will emerge as the most competitive option across Europe.

    Given the current asset lifecycle and political commitments, fossil-based hydrogen with carbon capture will remain a viable investment until the 2030s, but strong policies for renewable hydro-gen will shorten the investment window for fossil hydrogen, likely closing it by the end of the 2020s.

  3. 3

    We identify robust no-regret corridors for early hydrogen pipelines based on industrial demand.

    Adding potential hydrogen demand from power, aviation and shipping sectors is likely to strengthen the case for an even more expansive network of hydrogen pipelines. However, even under the most optimistic scenarios, any future hydrogen network will be smaller than the cur-rent natural gas network. A no-regrets vision for hydrogen infrastructure needs to reduce the risk of oversizing by focusing on indispensable demand, robust green hydrogen corridors and storage.

  4. 4

    Hard-to-abate industrial sectors represent a major area of hydrogen demand in the future due to a lack of alternative decarbonization options.

    Steel, ammonia, refineries and chemical plants are widely distributed across Europe. To reduce and eventually eliminate their process emissions, 300 TWh of low-carbon hydrogen are required. This number does not factor in the production of high-temperature heat, for which direct electrification should be considered first.

  5. 5

    The investment window for fossil-based hydrogen with carbon capture remains open, but in the long run renewable hydrogen will emerge as the most competitive option across Europe.

    Given the current asset lifecycle and political commitments, fossil-based hydrogen with carbon capture will remain a viable investment until the 2030s, but strong policies for renewable hydrogen will shorten the investment window for fossil hydrogen, likely closing it by the end of the 2020s.

  6. 6

    We identify robust no-regret corridors for early hydrogen pipelines based on industrial demand.

    Adding potential hydrogen demand from power, aviation and shipping sectors is likely to strengthen the case for an even more expansive network of hydrogen pipelines. However, even under the most optimistic scenarios, any future hydrogen network will be smaller than the current natural gas network. A no-regret vision for hydrogen infrastructure needs to reduce the risk of oversizing by focusing on indispensable demand, robust green hydrogen corridors and storage.

From study : No-regret hydrogen
  1. 1

    Offshore wind energy, which has an installed capacity potential of up to 1,000 GW, is a key pillar of the European energy transition.

    The net-zero decarbonization scenarios contained in the European Commission’s Long-Term Strategy assume some 400 to 450 GW of offshore wind capacity by 2050. Additional demand of up to 500 GW may be created by dedicating offshore farms to electrolysis for renewable hydrogen production.

  2. 2

    Scenarios projecting near climate neutrality by 2050 assume an installed capacity of 50 to 70 GW of offshore wind in Germany, generating some 200 to 280 TWh of electricity per year.

    Given the 8 GW of installed capacity today and current plans for 20 GW by 2030, the pace of spatial planning for offshore wind deployment needs to pick up significantly. The slowing of onshore wind development could further enhance the importance of offshore wind in achieving net zero.

  3. 3

    Offshore wind power needs sufficient space, as the full load operating time may otherwise shrink from currently around 4,000 hours per year to between 3,000 and 3,300 hours.

    The more turbines are installed in a region, the less efficient offshore wind production becomes due to a lack of wind recovery. If Germany were to install 50 to 70 GW solely in the German Bight, the number of full-load hours achieved by offshore wind farms would decrease considerably.

  4. 4

    Countries on the North and Baltic Seas should cooperate with a view to maximizing the wind yield and full-load hours of their offshore wind farms.

    In order to maximize the efficiency and potential of offshore wind, the planning and development of wind farms – as well as broader maritime spatial planning – should be intelligently coordinated across national borders. This finding is relevant to both the North and Baltic Seas. In addition, floating offshore wind farms could enable the creative integration of deep waters into wind farm planning.

  1. 1

    Synthetic fuels will play an important role in decarbonising the chemicals sector, the industrial sector, and parts of the transport sector.

    Synthetic fuel production technologies can be used to manufacture chemical precursors, produce high-temperature process heat, as well as to power air, sea and possibly road transport. Because synthetic fuels are more expensive than the direct use of electricity, their eventual importance in other sectors is still uncertain.

  2. 2

    To be economically efficient, power-to-gas and power-to-liquid facilities require inexpensive renewable electricity and high full load hours. Excess renewable power will not be enough to cover the power demands of synthetic fuel production.

    Instead, renewable power plants must be built explicity for the purpose of producing synthetic fuels, either in Germany (i.e. as offshore wind) or in North Africa and the Middle East (i.e. as onshore wind and/or PV). The development of synthetic fuel plants in oil- and gas-exporting countries would provide those nations with a post-fossil business model.

  3. 3

    In the beginning, synthetic methane and oil will cost between 20 and 30 cents per kilowatt hour in Europe. Costs can fall to 10 cents per kilowatt hour by 2050 if global Power-to-Gas (PtG) and Power-­to-Liquid (PtL) capacity reaches around 100 gigawatts.

    The aimed-for cost reductions require considerable, early and continuous investments in electrolysers and CO2 absorbers. Without political intervention or high CO2 pricing, however, this is unlikely, because the cost of producing synthetic fuels will remain greater than the cost of extracting conventional fossil fuels.

  4. 4

    We need a political consensus on the future of oil and gas that commits to the phase-out of fossil fuels, prioritises efficient replacement technologies, introduces sustainability regulations, and creates incentives for synthetic fuel production.

    Electricity-based fuels are not an alternative to fossil fuels but they can supplement technologies with lower conversion losses, such as electric vehicles and heat pumps. Application-specific adoption targets and binding sustainability regulations can help to ensure that PtG and PtL fuels benefit the climate while also providing a reliable foundation for long-term planning.

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