Despite leadership in its hydrogen strategies and goals, the European low-carbon hydrogen and carbon capture, utilisation and storage (CCUS) industries have in the last few years suffered from inertia. The US on the other hand has attracted significant investor interest. 2023 was therefore a critical year for Northwest Europe to ensure it could also entice investors; and it did not disappoint. There was a raft of policy and funding announcements both at an EU and country level as well as significant project progress. But as we reflect on 2023, it’s important not to look back through rose tinted glasses.
While progress has been made, some deadlines were taken to the wire, while others have been delayed. In the UK, the government left it to the last few weeks of the year before releasing promised plans for the expanded Track-1 and Track-2 Cluster Sequencing Process. For UK hydrogen, the results of the first Hydrogen Allocation Round (HAR1) were announced in late-December 2023, with offers of contracts totalling only half of the planned 250MW capacity. The EU also saw delays, with key announcements expected in 2023 slipping to 2024; the EU industrial carbon management strategy and announced winners of Germany’s first tenders for hydrogen imports scheme being prime examples.
On reflection, it would seem the key theme of 2023 for the hydrogen and CCUS industries was patience. Industry and project developers have waited patiently for key announcements that will help shape their projects and the industry. The question for 2024 is, will that patience continue? In this insight, Westwood identifies the six key themes that will shape 2024.
1. Key government strategies and regulations should be signed off to ensure continued momentum
In the EU, the European Commission is expected to announce details on its industrial carbon management strategy and 2040 climate targets. The targets will bridge the gap between the 55% reduction in greenhouse gas (GHG) emissions by 2030 and carbon neutrality by 2050. Germany’s carbon management strategy is expected to be released in 2024, which amongst other things will remove.
While government targets for hydrogen production are in place, other regulations expected this year are key to see continued progress from project developers. The International Maritime Organization (IMO) plans to finalise its guidelines on the use of hydrogen and ammonia as a shipping fuel in December 2024. The decision is eagerly anticipated for engine manufacturers, shipbuilders and operators, with Wartsila and MAN planning to make their ammonia-powered engines commercially available as early as the start of this year, and companies like Yara, who have an ammonia container ship in development to travel between Norway and Germany for the start of 2026.
2. Continued announcements and updates to funding mechanisms will demonstrate necessary commitment
In the UK, the results of the CCUS Track-1 Expansion Process and confirmation of Track-2 anchor projects are to be announced while the second Hydrogen Allocation Round (HAR2) applications will be reviewed and shortlisted in 2024, with final award of contracts expected in 2025.
The winners of the €800mn European Hydrogen Bank pilot auction that opened in November 2023, offering an “auctions-as-a-service” mechanism, are to be announced in April 2024; with a second auction planned to open in the spring. France’s updated hydrogen strategy lays out plans to spend €4bn on subsidies in a CfD-style auction, with first call for tenders of 150MW expected to launch at the start of this year.
3. Key projects need to progress to construction and demonstrate successful operation to ensure public confidence
Projects due to start operation will be carefully observed, while those in advanced stages of development need to progress to FID to demonstrate progress and investment in the industry. Any failures will impact the confidence of (and in) the industry.
When it comes to CCS, the Northern Lights project in Norway, which is due to be online before the end of the year, will be crucial in successfully demonstrating a number of industry firsts, including cross-border transport of industrial volumes of CO2 for permanent storage. Elsewhere Climework’s Mammoth Direct Air Capture (DAC) facility in Iceland could also be operational in 2024, helping to underline DAC’s potential in Northwest Europe’s own carbon management strategy.
Having reached a pivotal milestone in the project development timeline, the 11 projects awarded funding as part of the UK’s HAR1 will be an important test to gauge the much-needed progress of the European hydrogen sector. Progress, as seen for H2 Energy’s 1GW project in Esbjerg receiving environmental approval, will be crucial to demonstrate the scaling potential for green hydrogen projects.
4. The scope and scale of CCUS markets will increase through further carbon storage licence awards and progress in circumventing the London Protocol
Results from Denmark’s onshore Carbon Storage Licensing Round are anticipated while Norway and the Netherlands are expected to continue the ad-hoc approach to licences. Following the success of the UK’s first licensing round, subsequent rounds are expected, although 2024 may be too early considering the North Sea Transition Authority (NSTA)’s current inbox.
Further progress on bilateral agreements to circumvent the London Protocol, which prohibits the transfer of CO2 between countries for permanent storage, is expected. This will be important in improving both the internationalisation and commercial potential of the industry.
5. More focus on hydrogen end-use demand sectors that demonstrate greater potential and attention from policymakers is expected
2023 was a difficult year for some hydrogen use cases. Lack of low-carbon hydrogen supply and profitability saw developers steer away from hydrogen fuelling for cars, with companies like Everfuel closing all of Denmark’s filling stations last year. Home heating also took a hit, with the UK’s Whitby and Redcar hydrogen heating demonstrations cancelled after public opposition.
The role of hydrogen in industrial decarbonisation has demonstrated greater potential, with expected progress to be made in maritime transport and aviation as well. Funding for green steel projects around Europe has occurred in Sweden, France, Belgium and Germany, with German steel-maker Salzgitter committed to start converting its steel production facilities to run on green hydrogen alongside electric arc furnaces from 2025. FuelEU Maritime and ReFuelEU should provide a catalyst for the use of hydrogen-based fuels for shipping and aviation, with specific targets effective from 2025.
6. There is political uncertainty surrounding upcoming elections in 2024 – the results of which could play an important role in achieving progress
Around 70 countries globally, with more than half the global population, could be heading to the polls in 2024. The outcome of EU elections in June will be important for energy policy implementation as climate targets for 2030 approach. Elections in the UK could promote a greener agenda, with a potential Labour government supporting more ambitious renewable energy and green hydrogen production targets. Dynamics elsewhere could also influence Europe’s attractiveness as an investment opportunity; the anti-climate rhetoric in the US election, due at the end of the year, is one such example.
Overall we do not expect significant shifts in near term climate ambitions or targets, but the question of how proactive governments will be in an election year on continuing to implement the necessary regulations and funding mechanisms, remains to be seen. Westwood will be carefully monitoring the industry to see how 2024 evolves.