The growth of Europe’s green hydrogen market could be limited in the near term by shortages of renewable power generation and insufficient import capacity, according to Andrew Doyle, executive director of energy project finance at MUFG, Japan’s largest bank.

EU additionality rules are likely to mean electrolysers must be powered by new renewables capacity, requiring a significant increase in such capacity just for the green hydrogen sector.

 “Just from a capacity perspective, building all that additional renewables capacity is going to be a challenge,” Doyle told Hydrogen Economist’s recent Financing the Hydrogen Economy event in Milan.

Under load-following requirements, operators must also demonstrate that electrolysers are operating while the renewables capacity is actually generating power.

“Just from a capacity perspective, building all that additional renewables is going to be a challenge” Doyle, MUFG

“That adds one complexity but also reduces your utilisation rates as well. These things are a challenge for local production within Europe,” Doyle says.

A number of firms and industry bodies have raised concerns that the rules will impede the development of the sector.

Renewable power generators would tend to prioritise supplying the general power grid over supplying electrolysers, although that could change as renewables subsidies fall away and generators start to see hydrogen as a source of revenue.

Doyle notes the UK is not making additionality mandatory for green hydrogen projects.

“It will be part of the evaluation criteria, but it is not necessarily going to be a firm requirement because I think [the UK] sees the need to just get this stuff built,” says Doyle, who sits on the UK’s Hydrogen Advisory Council, which advises the government on hydrogen strategy.

Import constraints

With local production potentially constrained, Europe will need to turn to imports from regions such as North Africa and the Middle East.

“Where is the import capacity for that?” asks Doyle. “There is some ammonia import capacity, but I think it is going to be limited compared to the potential demand for green ammonia and green hydrogen.”

There are also questions over investment in capacity to crack ammonia back into hydrogen, and whether that infrastructure will be powered by the general good or by renewables.

“Will that infrastructure be itself green? If it is just grid connected, then you have to figure that into your carbon accounting for the molecules as well. All of these things, I think at the moment, are a bit of a barrier to some kind of wider uptake of imports into Europe.”

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Author: Stuart Penson