Governments at federal and state levels must put in place policies to encourage both the supply and demand of green hydrogen simultaneously if a properly functioning market is to develop, according to industry experts speaking at the World Hydrogen Summit yesterday.

Regulators can provide a stable investment environment to ensure production projects go ahead  while also putting in place time-limited subsidies to encourage demand, according to Oliver Bishop, general manager for hydrogen at Shell. “We need to make sure we synchronise the demand piece with the supply—that helps all of us get down the cost curve,” he said.

“We need to make sure we synchronise demand with supply—that helps all of us get down the cost curve ” Bishop, Shell

Imbalances of supply and demand would affect the price of hydrogen—making it hard for suppliers to recoup costs if it is too cheap or impractical for commercial customers to use the product if it is too expensive.

On the supply side, investors in hydrogen projects—both state and private—must adapt the model used to finance the rollout of renewables over the last 20 years, according to Astrid Behaghel, hydrogen coordinator at French bank BNP Paribas.

“For renewables there was a purchase commitment from the state that allowed long-term project financing,” she said. “That is what we are missing at the moment, whether it is from government of from private offtakers.”

Compared to renewables projects, hydrogen production ones have lower capital expenditure but higher operational expenditure. This makes offtake agreements all the more important in ensuring the survival of projects once they are operational.

On the demand side, Behaghel said one of the problems is the “visibility” of green hydrogen, distinct from grey or brown hydrogen, and therefore the ability to secure a premium price for it.

Green guarantees

Guarantees of origin (GOOs), such as those used in the electricity market, would help distinguish the extent to which hydrogen is green, based on the carbon intensity of the grid that produced it, according to Joaquin Narro, managing director of private equity house Alcazar Capital.

“We need a mechanism that can standardise multiple origins within the hydrogen infrastructure,” he said. “Without this, we face severe limitation in the development of an open and competitive market.”

A renewable power GOO provides end-users with proof that the electricity originates from a renewable or low-carbon energy source.

8 – Number of potential hydrogen valleys identified by EU

The EU’s Fuel Cells and Hydrogen Joint Undertaking (FCH JU) has already issued some GOOs for green hydrogen, but uptake until now has been relatively low.

Increasingly, policymakers are coming to the conclusion that defining and standardising the carbon intensity of final products may also help with “market pull” for green hydrogen, according to Shiva Dustdar, head of innovation finance advisory at the European Investment Bank (EIB).

“If there is consumer demand for green cars made with green steel, we may see more demand for those key offtake agreements from OEMs [vehicle manufacturers],” she said.

Utilising policy to stimulate demand from the industrial and transport sectors simultaneously will be vital to ensure that demand growth is smooth, she added.

At the same time as encouraging supply and demand, hydrogen policymakers must also ensure that the correct infrastructure investments are being made to link the two ends, according to Hans Dieter Hermes, project officer from Swedish multinational power company Vattenfall.

“To get to a more liquid market, we need more infrastructure,” he said. “We need storage facilities and pipelines. This will in turn trigger investments.”

Hydrogen valleys

The EU scheme to develop so-called hydrogen valleys—areas where several hydrogen projects are grouped together, will help to ensure that electricity and pipeline infrastructure can be planned and constructed simultaneously, Hermes added.

Hydrogen valleys will also make it easier to match and ensure simultaneous development of the supply and demand sectors, as well as integrate the cluster with road and maritime transport infrastructure, the EU hopes.

The EU’s FCH JU has already identified eight sites with the potential to become hydrogen valleys across the bloc.

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Author: Tom Young