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JUNE 2024

May brought positive developments for the industry, with several projects being announced or advanced, as detailed in our Key Northwest European Project Watch (below). However, significant announcements also raise questions about the market’s overall progress. This month, we will highlight the state of hydrogen home heating trials in the UK, Germany’s introduction of the Hydrogen Acceleration Act, and the EU’s efforts to implement regulatory frameworks to stimulate market growth.

Hydrogen for home heating – is it time to end the discussion?

The UK government shelved plans for a “hydrogen town” pilot project in May, which aimed to test hydrogen use in residential heating and cooking for 10,000 homes. The primary reason cited for this decision was the lack of a main hydrogen supply. Similar trials in Whitby, Ellesmere Port, and Redcar, Teesside, were also cancelled in July 2023 for the same reason. Despite these setbacks, the government has reaffirmed its commitment to making strategic decisions about the role of hydrogen in heating decarbonisation by 2026. This will be informed by evidence gathered from the H100 Fife trial in Scotland, a 300-home project that has faced its own supply chain challenges, delaying completion until the summer of 2025.

The use of hydrogen to decarbonise residential heating has been a contentious issue. Critics point to low efficiency, high projected costs, and safety concerns compared to direct electrification and heat pump alternatives. Bosch Executive Vice-President Stefan Thiel recently stated that hydrogen should be reserved for decarbonising heavy industry, aviation, and commercial vehicles, with no view of its widespread use in the heating market[1]. This stance is particularly notable given that Bosch’s British arm has been advocating for hydrogen’s use in heating to date.

Primary Target Sector[2] for Northwest European[3] Electrolytic Production Projects to 2030
Source: Westwood Hydrogen

According to Westwood’s Hydrogen project database, residential and commercial heating represents only 1.2% of the cumulative pipeline capacity for electrolytic projects in Northwest Europe by 2030. Of this capacity, 63% is located in the UK, with the remainder tied to the recently stalled Aquaventus initiative in Germany. Based on the current pipeline, hydrogen is expected to account for only a small fraction of potential demand for electrolytic hydrogen projects in the region, with this share likely to diminish further.

While the industry has not given up yet (another pilot is being developed this summer in the Netherlands for 12 homes), the cancellation of a third pilot project in the UK within the past 10 months sends a clear message to the industry: the focus should remain firmly on sectors where hydrogen has a clearer business case and greater government support.

Will Germany’s Acceleration Act be enough to propel the industry forward?

As highlighted in last month’s Hydrogen Compass, significant delays and cancellations across key enablers of the hydrogen industry – funding, demand, and infrastructure – have plagued the German hydrogen development pathway. Announcements in May reinforced this narrative, with the suspension of all hydrogen-related funding and uncertainty surrounding RWE’s plans for a hybrid power station.

Last month, Germany’s Ministry of Transport (BMDV) disbanded its hydrogen unit and suspended all hydrogen-related funding following a nepotism scandal involving a senior civil servant and a constitution court ruling that prevented the use of €60bn of unused COVID-related debt for the Climate and Transformation Fund (CTF). The head of the hydrogen unit was dismissed, and funding for hydrogen mobility projects is frozen while investigations continue. Though hydrogen for transport is not the main focus of Germany’s hydrogen strategy, this setback could lead to delays and uncertainty in other hydrogen applications, with wider implications for Germany’s hydrogen ambitions. Disruptions in funding and organisational support may reduce investor confidence and slow down advancements in critical areas such as for industrial decarbonisation.

Additionally, in May, RWE announced its plans to construct an 800MW hydrogen power plant in western Germany, which has the potential to run on up to 50% hydrogen by 2030. However, RWE has not committed to using that amount of hydrogen and will base its final investment decision on the availability of subsidies for the wider development of 10GW of hydrogen-ready power plants, and the development of hydrogen pipeline infrastructure. RWE’s lack of commitment to the hydrogen mix at the power station and the government decision on the switch to 100% hydrogen not being made until 2032, adds significant demand uncertainty for hydrogen in the power sector.

To address some of these challenges, Germany has shifted focus towards expediting infrastructure development, crucial for its hydrogen ambitions. Last month, the federal cabinet approved the Hydrogen Acceleration Act, signalling a commitment to rapidly expand the country’s hydrogen infrastructure through a streamlined planning and approval process. This legislation, pending parliamentary approval, aims to simplify and digitise procedures for developing electrolytic hydrogen projects, hydrogen pipelines, import terminals, ammonia crackers, and other related infrastructure. It is designed to override certain environmental and procurement requirements, as well as to set or shorten deadlines for key planning milestones like environmental permits.

Germany Electrolytic Hydrogen Production Capacity Pipeline vs Target GW (LHV)
Source: Westwood Hydrogen Country Report – Germany

However, as evidenced by its electrolytic production capacity pipeline, Westwood only categorises 11% of Germany’s projects as ‘Probable’, with the majority labelled as ‘Possible’ or ‘Risked’. With 42% of announced projects expected to come online in 2030, Germany faces the risk of missing its hydrogen production goals without urgent action to ramp up infrastructure and production projects. While the Hydrogen Acceleration Act represents a positive step forward, sustained commitment, adequate resources, and effective coordination among stakeholders are crucial to ensuring tangible progress. While promising, the ultimate impact of the act remains to be seen and will require careful monitoring moving forward.

The effectiveness of the EU’s hydrogen and decarbonised gas markets package is up for interpretation

The European Council approved the EU’s hydrogen and decarbonised gas markets package last month, setting unified rules for hydrogen, renewable gas, and natural gas markets. The regulation establishes the European Network of Network Operators for Hydrogen (ENNOH) to develop a 10-year plan for hydrogen infrastructure, requiring a gradual phase-in of rules to support hydrogen market development. Key elements include tariff discounts for renewable and low-carbon gases and a certification system ensuring a level playing field for imports and domestic production.

The legislation also aims to facilitate cross-border trade by connecting hydrogen infrastructure to the existing gas grid and allowing tariff discounts. It sets common standards for gas quality, allowing hydrogen content of up to 2%, with voluntary agreements for higher blends into the grid. Hydrogen transmission network operators must submit updated 10-year Network Development Plans, and the ENNOH will develop an EU-wide plan to ensure transparency and coordination. These measures aim to support cost-effective hydrogen transport from production areas to industrial users, crucial for the EU’s hydrogen economy.

However, Air Products[4] has recently raised concerns about the new rules, particularly the requirement for “negotiated third-party access” to infrastructure, which could prevent them from booking full capacity long-term contracts essential for investment security. The company is currently lobbying for exemptions, emphasising the risk of investing private funds without guaranteed capacity issuances. A similar exemption was granted by the German network regulator BNetzA for the TES eLNG terminal in Wilhelmshaven in March, though it remains unclear whether approval has been granted by the European Commission – exemptions can be made “on the basis of a publicly available positive cost-benefit analysis and subject to a positive assessment by regulatory authorities.”[5]

The package does include a proposed “matchmaking” service, which aims to mitigate this risk by connecting potential offtakers with suppliers. A five-year pilot mechanism, which is proposed to start in 2025, is being designed to support the market development by ensuring transparency and security of supply. It is unclear, however, if this service will provide a platform to facilitate contracted volumes, with emphasis appearing to be focused on collecting and processing market data and providing access to this knowledge to its participants.

The new regulation will come into effect within six months of publication, requiring member states to align their national policies within two years. Despite major players like Johnson Matthey scaling back investments in hydrogen technology due to the slow pace of progress in Europe, it is clear that the EU is working to address concerns raised in the bloc’s approach and the resultant pace of market development. While the effectiveness of the new regulation is to be seen, perhaps it is time to adopt a more realistic perspective on the slower-than-anticipated pace. New systems and structures that aim to foster growth are positive movements that should instil investor confidence and aid in the advancement of this challenging industry.

Key Northwest European Project Watch

Key project announcements and developments in May

ProjectUpdate
Deeside Ruby HydrogenCircular Refining has announced plans to develop a nuclear-derived hydrogen facility, dubbed a "ruby hydrogen" production site, at Deeside Industrial Park, located in North Wales. The project will be rolled out in five equal phases, each including a 20 MWe small modular reactor (SMR) and a 20MWe hydrogen production facility. Circular Refining seeks collaboration with local businesses, particularly those operating heavy goods vehicles, to leverage the clean hydrogen fuel produced. The hydrogen will be distributed regionally via road and rail.
H2H EasingtonEquinor, Centrica, and SSE Thermal have announced a collaboration on multiple low-carbon hydrogen projects at the Easington gas terminal. Launched in the Houses of Parliament, detailed engineering studies have projected up to 1.2GW of CCS-enabled hydrogen and 1GW of electrolytic hydrogen production. Initial projects are expected by the end of the decade, with expansion through the 2030s. Proposals for the electrolytic hydrogen project have been submitted as part of the second Hydrogen Allocation Round (HAR2) process.
DuwaalA purchase order for 5.4MW of Ohmium’s PEM electrolysers has been placed by HYGRO for its Duwaal hydrogen project in Wieringerwerf, the Netherlands. Set to be operational in 2025, HYGRO intends to produce electrolytic hydrogen powered by its own turbines at the EWEF Wind Park in Wieringerwerf. The project also aims to store the hydrogen produced in high-pressure storage tanks to serve five hydrogen refuelling stations around the Netherlands operated by AVIA.
EverfuelEverfuel has decided to integrate PtX Holsetbro into Project Sif (a potential 1GW electrolytic project) due to the projects being co-located. An unnamed German industrial offtaker has signed a Letter of Intent (LoI) for the supply of 10kt/year of hydrogen from either Project Sif or other future Everfuel projects – hydrogen to be supplied from 2028 and is dependent on a hydrogen pipeline from Denmark to Germany. Everfuel’s Hysynergy 20MW Phase 1 has been delayed to H2 2024, with FID for the 300MW Phase 2 development expected in 2025.
GrangemouthRWE is set to develop a green hydrogen project in Grangemouth, Scotland, with plans to be operational by 2029. The project is set to have an initial capacity of 200MW with the possibility to expand this up to 600MW in the future. The hydrogen generated will be supplied to Ineos Grangemouth, aiding in significant reductions of greenhouse gas emissions. RWE has secured a grid connection and is shortlisting electrolyser suppliers.
FertigHyFertigHy has chosen the Hauts-de-France region in Northern France for its first low-carbon hydrogen and fertiliser plant, which will require a €1.3 billion investment and is slated to start construction in 2027, with operations beginning by 2030. The plant will produce 500,000 metric tonnes of nitrogen-based fertiliser annually, covering about 10% of France’s agricultural sector’s consumption.

[1] Interview with SBZ 13/05/2024
[2] Main end-use demand sector in which the hydrogen generated is expected to be used
[3] UK, Norway, Denmark, Netherlands, Germany, Belgium, France
[4] Interview with Hydrogen Insight 20/05/2024
[5] European Council

If you have any project updates that you would like to share with Westwood’s Hydrogen team, please contact Jun using the contact details below.

Jun Sasamura, Senior Analyst – Hydrogen
[email protected]

Featured data is derived from Westwood’s Hydrogen market intelligence solution. Initially focused on Northwest Europe, our unique solution delivers important data on low-carbon hydrogen projects and phases, providing valuable insight on the development of this rapidly evolving market. To find out more, click here or contact [email protected].

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