The UK government closed its consultation on a hydrogen business model Oct. 25, setting out details on its preferred market support mechanism of a producer-focused…
Oct 25, 2021
The UK government closed its consultation on a hydrogen business model Oct. 25, setting out details on its preferred market support mechanism of a producer-focused variable premium subsidy, with natural gas setting a floor price.
The Department for Business, Energy and Industrial Strategy (BEIS) considered a range of support mechanisms in the consultation, setting out its “minded to” position of a variable premium subsidy for producers.
“We propose a producer-focused subsidy with the aim of reducing the cost gap between hydrogen and counterfactual fuels [i.e. fuels that would have been used otherwise],” Neil Atterbury, who works on low-carbon hydrogen policy at BEIS, said in a consultation presentation Oct. 14. “It will be open to different production technologies and project sizes.”
The proposed subsidy is similar to Contracts for Difference, but in the absence of an established hydrogen market in the initial phases of support, an alternative price reference point would be needed, BEIS said.
Under the proposed model, the government would pay producers the difference between a strike price for hydrogen and the higher of two reference prices.
One reference price would be the natural gas market, and the second an achieved sales price.
The gas price would set a floor for subsidy support, as support below this risked subsidizing gas production, BEIS said.
Natural gas would set a price floor as “it is the most common fuel from which end users would switch so are likely to be willing to pay at least that price for hydrogen,” BEIS said.
The inclusion of an achieved sales price as a reference gave hydrogen producers pricing power to encourage customers to switch, BEIS said.
“When sales occur above the natural gas price, the sales price would prevail” as the reference, BEIS said.
Hydrogen producers broadly welcomed the variable premium model.
“Whilst we are supportive of the government’s proposed reference price there are some concerns in sectors where natural gas is the counterfactual fuel that with very high gas prices (and therefore hydrogen prices), industries may be forced to cease production, if they cannot afford hydrogen,” Hydrogen UK Lead and Head of Innovation Clare Jackson told S&P Global Platts Oct. 25.
“Hydrogen UK believe that there needs to be a mechanism to mitigate this risk such as a ceiling on the reference price or a contractual reopener in the situation that natural gas prices hit a certain pre-determined threshold,” Jackson said in an email.
In addition, blue and green hydrogen production pathways should be treated differently, Hydrogen UK said, possibly indexing green hydrogen to electricity as well as natural gas prices.
BEIS said it was considering “additional contractual measures to incentivize producers to seek higher priced sales.”
The arrangement would be a private law contract between hydrogen producers and a government counterparty, BEIS said.
Longer term, a market benchmark price would best represent the value of low-carbon hydrogen in the market, BEIS said, and indicated it would engage with price reporting agencies such as S&P Global Platts to consider how to develop such a benchmark.
“”We are minded to … integrate a market benchmark into this approach at the earliest opportunity for future projects,” BEIS said.
S&P Global Platts assessed the cost of producing hydrogen via alkaline electrolysis in the UK (including capex) at GBP12.53/kg ($17.25/kg) Oct. 22, based on month-ahead feedstock prices, which have risen sharply in recent weeks on tight gas supplies.
PEM electrolysis production was assessed at GBP14.86/kg, while blue hydrogen production by autothermal reforming was GBP4.81/kg (including capex, CCS and carbon).
BEIS considered using a carbon price as the reference, similar to the Dutch SDE++ scheme, but dismissed this model, noting that the carbon price may not perfectly reflect the market value of hydrogen.
The correlation between carbon prices and the market value of hydrogen would likely weaken over time, BEIS said, adding that the level of subsidy received on this model would be independent of the price the producer actually achieved for its sales.
BEIS proposes inviting project applications in 2022 for assessment, before bilateral negotiations with selected parties to enable final investment decisions from 2023.
Longer term, BEIS took the view that auctions would be a more appropriate route for allocating contracts.
It noted that a different approach to funding smaller scale projects might be more appropriate for producers who don’t have the administrative resources or experience to enter into such contracts.
Siemens Energy’s Head of Market Development, Matthew Knight, said the renewable transport fuel obligation provided a good base for small-scale hydrogen uptake in the mobility sector, though the scope for scaling much above 1-MW projects was limited.
However, significant policy gaps remain for hydrogen in heavy transport and industrial uptake in the short term, Knight said Oct. 6 at the Dcarbonise Virtual Sustainability Summit.
“There’s the urgent need to build something in the next couple of years to get the supply chain started,” Knight said.
BEIS has proposed a sliding scale mechanism to provide volume support in the early days of demand building.
The government would pay a higher per-unit subsidy on initial volumes of hydrogen sold by a producer to cover minimum returns needed.
Hydrogen UK said more should be done to boost demand, removing the need for volume support mechanisms.
The consultation also sought views on indexation of the strike price to account for changing input costs, the length of contracts and scaling of future production volumes.
Oct 22, 2021
Green hydrogen in Europe, produced by electrolysis of water powered by renewable electricity, is already competitive with hydrogen produced from fossil fuels in the current natural gas market environment, leading companies in the sector said.
Tight gas supplies have sent European prices soaring in recent weeks, feeding into the costs of producing hydrogen by steam methane reforming, so-called grey hydrogen.
Norway’s Aker Clean Hydrogen said in a results statement Oct. 22 that the cost of hydrogen production from its projects under development in Norway were now competitive with grey hydrogen production.
“We have made further progress to make hydrogen affordable,” Aker Clean Hydrogen CEO Knut Nyborg said in a statement.
“Some of our Norwegian projects under development show hydrogen cost levels of $3.5-$4.5/kg,” Nyborg said.
“In the current market environment, with very high gas prices, this matches the cost levels for grey hydrogen.”
S&P Global Platts assessed the cost of producing hydrogen from unabated fossil fuels at Eur4.93/kg ($5.74/kg) Oct. 21, including capex and carbon.
CEO of electrolyzer producer ITM Power Graham Cooley told S&P Global Platts that power purchase agreements locking in lower prices for renewable electricity were making renewable hydrogen production cost-competitive with fossil fuel-derived production.
“The cost of green hydrogen is now lower than the cost of grey hydrogen in most places around the world, because of the increase in the cost of natural gas,” Cooley said in an interview Oct. 21. “If you link an electrolyzer to a PPA with a wind farm, [the power price] doesn’t fluctuate at all, for the whole of the duration of the PPA.”
Conventional hydrogen producers are unlikely to be directly exposed to the sharp rise in natural gas prices, though any sustained rise in prices will be passed through in the longer term.
Speaking ahead of a planned January hydrogen auction, Portuguese Environment Minister Joao Pedro Matos Fernandes said current gas prices made renewable hydrogen theoretically cheaper, meaning green hydrogen projects would not necessarily need financial support. The comments came in an Oct. 21 interview with Portuguese publication ECO.
Aker Clean Hydrogen, an integrated clean hydrogen producer that develops, builds, owns and operates facilities, has a project and prospect portfolio of over 1.8 GW of capacity, with projects and prospects in Norway, Chile and Uruguay.
It is targeting 5 GW of installed clean hydrogen capacity by 2030, reducing CO2 emissions by 9.4 million mt/year.
In the third quarter, the company secured a long-term power agreement for its 40-MW Rjukan project in Norway. It expects to take a final investment decision in the second half of 2022, and is in discussions with potential customers for offtake agreements.
It also signed a memorandum of understanding with TuNur to establish a commercially viable clean hydrogen and ammonia value chain in Tunisia, and is exploring ammonia opportunities for offshore supply vessels with Aker BP.
Aker Clean Hydrogen is partnering with Yara and Statkraft to develop a 480-MW green ammonia facility at Yara’s fertilizer plant in Heroya, Norway, with a final investment decision expected in early 2024.
The company said the project would remove around 800,000 mt/year of CO2, and help establish decarbonized value chains in shipping and agriculture.
Oct 21, 2021
Norwegian electrolyzer manufacturer Nel has more than doubled its pipeline of potential orders since January to over $6 billion, representing over 11 GW of renewable hydrogen production capacity, the company said in a third quarter results presentation Oct. 21.
Nel CEO Jon Andres Lokke said the single largest potential order was for a 1.6 GW project. The largest electrolyzer currently operating in Europe is just 10 MW, though scale is expected to build rapidly, with announcements of projects of over 100 MW.
“We remain confident in the long-term potential of the green hydrogen industry and reiterate the strong growth outlook,” Lokke said in a statement.
The company is backing the anticipated growth in electrolyzer demand with its new 500 MW/year factory in Heroya, Norway.
“With the new production facility at Heroya up and running, we remain confident that Nel is well suited to capitalize on the opportunities, he added.
Company revenues rose by 55% on the year to NOK229.3 million ($27.5 million) in the third quarter, but the company continued to post losses overall as it invests in ramping up production and one-off expenditure.
The order pipeline constitutes around 800 projects, with 60% of potential revenue from the 20 largest ones, Lokke said.
Nel aims to start a 20-MW electrolyzer in Spain by the end of the year, which will produce hydrogen for ammonia production in partnership with power company Iberdrola and fertilizer company Fertiberia.
Nel also produces hydrogen fueling stations, and Lokke noted particular interest from taxi fleet operators and truck refueling operations, where refueling times were comparable to filling a diesel truck.
The company produces proton exchange membrane electrolyzers from a plant in the US, and Lokke said the hydrogen outlook there was also positive.
The US was “closing the gap with their ambitions to the Europeans,” Lokke added.
He noted interest in the US to couple Nel’s electrolyzer technology with nuclear power generation, to provide an outlet for steady power production at times of low demand.
Lokke also said the potential for hydrogen to link with offshore wind was a key area of focus for the company.
Nel is involved in three offshore wind projects: ERM Dolphyn, a renewable hydrogen from floating offshore wind project; Deep Purple, which combines the same approach with subsea storage; and PosHYdon, which plans to blend hydrogen with natural gas to pipe to shore.
The Heroya alkaline electrolyzer plant is ramping up production to 500 MW/year, and has the potential to expand to 2 GW/year.
Lokke said the company could add production capacity “relatively quickly,” starting another line within 12 months, but said that Nel wanted to run the first line for some time in order to capture any learning and efficiency gains from the process before expanding.
He also said the company would look to monitor where demand was developing before responding with increased production, to potentially locate future additional production elsewhere.
Nel was also looking at introducing PEM electrolyzer production in Europe. Its production of the technology is currently based in the US.
The recent spikes in power and gas prices did not concern Lokke. He said the cost of installing renewable power production, not the price of electricity, was the key factor in driving down renewable hydrogen production costs, and noted these continued to fall rapidly.
The company is targeting $1.5/kg hydrogen production costs by 2025 for its customers, based on electricity at $20/MWh.
S&P Global Platts assessed the cost of producing renewable hydrogen via alkaline electrolysis in Europe at Eur12.38/kg ($14.40/kg) Oct. 20 (Netherlands, including capex), based on month-ahead power prices. PEM electrolysis production was assessed at Eur14.76/kg, while blue hydrogen production by steam methane reforming (including carbon, CCS and capex) was Eur6.10/kg.
Chief Financial Officer Kjell Christian Bjornsen noted that steel and iridium costs had risen, but said the company generally matched customer commitments with its sourcing of materials, limiting the impact of price rises.
The United Nations Climate Change Conference in Glasgow at the start of November was an opportunity to focus minds on the potential for hydrogen to help decarbonize the global economy, Lokke said, but did not expect specific targets or commitments on hydrogen to emerge from the meeting.
That, he added, would be left to individual countries and regions such as the EU.
At the recent S&P Global Platts Hydrogen Infrastructure event, EU Commissioner for Energy Kadri Simson discussed “The Role of Policy in Defining a Future for…
Aug 16, 2021
At the recent S&P Global Platts Hydrogen Infrastructure event, EU Commissioner for Energy Kadri Simson discussed “The Role of Policy in Defining a Future for Hydrogen in Europe”.
Mar 30, 2021
Navigating a pathway to a low-carbon global economy requires a new plan. The S&P Global Platts Atlas of Energy Transition, produced in collaboration with S&P…
Feb 22, 2021
Navigating a pathway to a low-carbon global economy requires a new plan. The S&P Global Platts Atlas of Energy Transition, produced in collaboration with S&P Global Market Intelligence, is your map to the sustainable commodity markets of the future.
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Join CLIMATE CH2AMPION for our third live online conversation focusing on how Hydrogen can decarbonise the stuff we make and things we do. FEATURED GUESTS…
Jun 24, 2021
Join CLIMATE CH2AMPION for our third live online conversation focusing on how Hydrogen can decarbonise the stuff we make and things we do.
Dr. Andreas Wagner, Hydrogen Lead, Energy Transitions Commission
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Ahead of London International Shipping Week 2021, a six-part S&P Global Platts podcast miniseries looks into the pricing of alternative marine fuels for the global…
Sep 07, 2021
Ahead of London International Shipping Week 2021, a six-part S&P Global Platts podcast miniseries looks into the pricing of alternative marine fuels for the global shipping industry. In each episode of Marine Fuels of the Future, Platts editors investigate the current state of the major fuel alternatives, as the shipping sector seeks to reduce its greenhouse gas emissions ahead of stringent caps in 2030 and 2050. In episode five, Platts energy transition reporters look at the practical and economic complexities of using ammonia or hydrogen to power the fleet.
Jun 01, 2021
– Over 40 hydrogen projects have been announced in Australia with a potential capacity of 7.0 MT H2/year by 2030, representing a third of total…
Aug 16, 2021
– Over 40 hydrogen projects have been announced in Australia with a potential capacity of 7.0 MT H2/year by 2030, representing a third of total announced capacity.
– Australia has plans to build two of the largest green hydrogen projects in the world
– Japan aims to become a ‘hydrogen society by 2050, Australia well positioned to supply growing hydrogen demand
The interest in hydrogen as a future clean energy feedstock and carrier is snowballing as governments around the world are planning their deep decarbonization goals and strategies. As a result, the global demand for hydrogen is rising. The future growth in demand can be even more promising considering the downstream applications in power, industrial, and transport (including marine) sectors.
Australia has established itself as a top exporter of key commodities such as coal, iron ore, and natural gas to the major economies of the region – China, Japan, South Korea, and India. It is also among the few countries that are uniquely placed to produce hydrogen at scale. In addition, Australia’s sizeable brown coal (lignite) reserves with carbon content as high as 60-70% could provide low-cost clean Hydrogen from coal gasification with carbon capture and sequestration (CCS) which can help kick-start the hydrogen export industry. Platts Australia Hydrogen price assessments for Victoria for lignite gasification with CCS were in the range of A$ 0.77-3.48/Kg for both with/without CAPEX considerations on Aug. 16. Although there are concerns around how clean such hydrogen can really be, given incremental energy needs/emission and upstream supply releases. Large-scale investments in clean technologies producing green hydrogen may follow as they mature and become economical over time.Platts Hydrogen Production Asset Database has seen around 7.0 MT H2/year of announced hydrogen capacity from renewables by 2030 (refer to Fig. 1), catering to the demand primarily from power, industrial, chemicals, and mobility sectors1 (refer to Fig. 2).
In addition to domestic consumption, there appears to be a significant potential demand for hydrogen as a fuel source from Japan which Australian hydrogen producers can target. Japan intends to cut its GHG emissions by 46% from 2013 levels and aims to achieve carbon neutrality by becoming a ‘hydrogen society’ by 2050, an upgrade from its initial targets in the Basic Hydrogen Strategy by the Ministry of Economy, Trade and Industry (METI), Japan. Over the next decade, the Government of Japan has committed a US$19.2bn (¥2 trillion) fund to develop green technologies, including hydrogen, storage batteries, and carbon recycling2. Currently, Japan has more than 4400 FCEVs on the road, and the plan is to increase the number to more than 811,000 by 2030i. Japan is planning hydrogen power generation using international hydrogen supply chains, leading to annual hydrogen procurement of around 300,000 tons (amounting to 1 GW in power generation capacity). METI in long-term plans to generate 15-30 GW of power through hydrogen with the annual procurement of 5-10 million tons of H2. Given Japan’s limited domestic H2 production capacity, Australia can target this huge H2 demand. It has a clear advantage over other H2 producers around the world in terms of the availability of low-cost clean hydrogen combined with its proximity to Japan.
Fig. 1 – Announced renewable H2 projects in Australia.
Fig. 2 – H2 end-use sectors in Australia
In past years, Australia has positioned itself as a developing hydrogen industry in the region through clean energy investments, research studies, and demonstration projects.
The Hydrogen Energy Supply Chain (HESC) project is one such pilot project that will demonstrate liquid hydrogen (LH2, H2 cooled to –253°C) transportation from Latrobe Valley in Victoria to Kobe City, Japan (planned for the year 2021). The LH2 will be transported using the world’s first LH2 carrier, Suiso Frontier, which will house a 1250 m3 vacuum-insulated double-shell-structure LH2 storage tank. The learning from this project in liquefaction, storage, and transportation will play a critical role in establishing an end-to-end supply chain between both countries.
In addition to LH2, the other viable technological options for H2 storage and transportation Include organic hydrides such as methylcyclohexane (MCH) and green liquid ammonia. Transporting liquid ammonia has an edge over the LH2 and MCH, it has higher energy density (11500 MJ/m3) than LH2 (8491 MJ/m3) on a volumetric basis combined with suitable temperature requirements, and it can carry around 17% of hydrogen by wt. compared to only 6% in case of MCH. Furthermore, ammonia has mature production technology, infrastructure, and shipping experience of many decades. For now, there are no large-scale renewable ammonia plants in Australia. Still, the country holds an edge as a likely hub of clean ammonia production, based on renewable energy potential and proximity to an end-user market in east-Asia.
Hydrogen and its critical role in the decarbonization of Europe Hydrogen has one of the most exciting potentials of the Energy Transition fuels. It can…
Nov 25, 2021
Hydrogen has one of the most exciting potentials of the Energy Transition fuels. It can be implemented in a variety of facets, such as power generation or transportation, and has the ability to tap into the existing infrastructure. This versatility makes hydrogen an attractive and potentially disruptive fuel for the future.
S&P Global Platts are delighted to announce this, our second annual conference on hydrogen as part of Europe’s move towards decarbonization. Gain unique insight into near-term growth potential, industry supply chain, infrastructure build-out, and hydrogen markets expansion.
Attendees will include hydrogen producers, midstream natural gas companies, infrastructure investors, developers, electric power companies, regulators, and policy-makers, among many others.
Last year’s virtual conference drew an impressive group of attendees from across Europe. This year’s content focus has been extended so the event will now go across a day and a half of sessions, to offer a wider content focus, more opportunity to hear from thought leaders and of course more networking.