Fraunhofer: green hydrogen imports not as easy as you think [GasTransitions]
The German government has the ambition to become the world-leading “green hydrogen” nation, in terms of technology, but its “hydrogen strategy” has one weak link: it is based to a large extent on hydrogen imports. Germany has far too little solar and wind resources to produce the amounts of hydrogen it needs for its decarbonisation targets.
Hence, Germany is pursuing “hydrogen partnerships” in various countries in the world that do have plenty of solar and wind power. To mention just one example, the Germans are eyeing a project with the Democratic Republic of the Congo (DRC) which would see the central African country provide hydropower capacity to produce green hydrogen for export to Germany.
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The hope of Germany and other EU countries, like the Netherlands, is that a global market in green hydrogen will develop similar to today’s oil and gas markets. However, it is not very clear yet what it will take to make this happen. A similar ambitious German plan to build large-scale solar plants in North Africa that would produce green electricity for export to Europe, Desertec, did not materialise, for various reasons. One important reason: countries like Morocco which did manage to build the solar parks need the power for their own economies.
Complexity
The well-known German Fraunhofer Institute has now produced a “policy brief” exploring the challenges of hydrogen imports for Germany: Opportunities and challenges when importing green hydrogen and synthesis products. It is mostly a theoretical exercise that discusses the multiple factors that will need to be taken into account for a successful international hydrogen market to develop. From this preliminary analysis Fraunhofer concludes that “most studies underestimate the complexity of green hydrogen imports” and that much still needs to be done to make hydrogen market possible.
As the head of the Competence Center Energy Technology and Energy Systems at Fraunhofer ISI, Prof. Martin Wietschel, who coordinates all the research conducted on the topic of hydrogen, notes: “At present, too little is understood about importing green hydrogen in all its complexity, and, as a result, the future challenges and tasks to be solved are partially underestimated. This is why a comprehensive analysis should be made of possible hydrogen imports and their consequences, to which we want to contribute with our policy brief”.
Dwindling acceptance
The report notes that “hydrogen and derived synthetic fuels are characterized by high flexibility of use, but also by higher power demand due to the efficiency of the process chain. The resulting electricity demand in scenarios with a strong use of hydrogen and hydrogen-based synthetic hydrocarbons reaches values of just under 3,000 TWh in studies. This requires substantial expansion of renewable electricity generation in Germany, which reached 243 TWh in 2019.
The potential in Germany to expand renewable electricity generation is seen as between 700 and 1,100 TWh according to Fraunhofer ISI’s internal calculations based on economic viability and acceptance.” In other words, some two-thirds of the hydrogen Germany thinks it will need, will have to be imported.
Neighbouring European countries could come to the rescue, but Fraunhofer cautions that “very high exploitation of this [renewable energy] potential is expected to be accompanied by higher costs and dwindling acceptance among the population.” A possible alternative “is to produce hydrogen in those regions of the world, which, due to their geographical and climatic conditions, have a naturally high supply of (low-cost) renewable energy sources and less intensively used land areas. Solar technologies in Germany, for instance, always compete with other land uses. In the uninhabited areas of North Africa, there is often no competition for use, and the potential yield of PV is sometimes twice as high.”
Attractive
The researchers believe that purely from a technical and economic perspective, such imports look attractive: “Several studies have looked at the production costs of imported synthetic fuels based on renewable electricity generation. Electricity prices, efficiency, investments in the electrolysers and their full-load hours have the biggest influence on production costs. The electricity costs of renewable installations in countries with favourable climatic conditions, such as North Africa, are much lower than in Germany—with electricity production costs from PV and wind installations of less than 3 €ct/kWh. They are therefore more than 50 percent lower than the costs at German locations.”
These locations “also have a higher number of full-load hours with more than 4,000 hours per year. The production costs of hydrogen and synthesis products in countries with favourable climatic conditions are therefore significantly lower than production in Germany.” This even applies when renewable energy is turned into synthetic fuels in the host countries.
Technical obstacles do exist, but they can also be overcome, say the researchers. “They still exist, for example, when transporting cryogenic hydrogen, i.e. liquid hydrogen at −253 °C, for which suitable ships still have to be developed and brought to series production, or for transporting synthetic methane, for which retrofitted natural gas pipelines can be used.”
Another technical requirement that currently exists “concerns the need for water in the producing countries, which presents a challenge in some regions and may require working with seawater desalination plants. Manufacturing the synthesis products also requires CO2. The CO2 can come from biogenic or stationary sources, e.g. from fossil power plants or industry. As these are not always available, technologies are currently being developed that can capture CO2 directly from the air. However, this is energy-intensive, requires lots of land and causes additional costs.”
Realistic perspective
However, the researchers note that “costs” are not the same as prices. “The economic analyses conducted so far are almost without exception based on the costs for production and transportation. But it is not possible to derive market prices directly from these. Market prices are based on marginal costs plus surcharges for taxes, profit, risk premiums, sales, warranty, R&D expenditure etc. or even scarcity prices (see crude oil) or prices based on other energy sources (such as natural gas).”
Today’s “mainly production cost-based analyses entail the risk of significantly underestimating the actual market price and deriving incorrect policy recommendations as a result,” the researchers warn. “This is why analyses of production costs are needed for a realistic future perspective in order to add the derivation of potential market prices, comparable to today’s trade with energy carriers and raw materials.”
Another key challenge is the political instability in potential hydrogen-producing countries and the need to provide attractive conditions for investors. The projects will need “large amounts of capital”, which will only be forthcoming if investors can expect a reasonable return on investment. Governments will need to step in to provide guarantees.
There are many other issues. For example, producing countries may not want to become dependent on the technological know-how of the importers. They will also want to see new jobs being created.
For importing countries, sustainability criteria could be a big issue. There is a risk, for example, that importing green hydrogen from developing countries will prolong these countries’ use of fossil fuels. In that case, the entire effort will have little climate benefits. As the researchers point out: “In many of the potential hydrogen producing countries, such as those from the MENA region or Australia, for example, power generation is often still based on fossil energy sources. Developing renewable power generation to export green hydrogen must not result in the perpetuation of fossil sources or countries not being able to meet their own energy and climate policy goals.”
Governance structure
In the end, says Fraunhofer, the hydrogen economy “must be integrated into the overarching governance structures for transforming the energy system”. The researchers propose a four-stage hierarchy of “principles” that should be applied when it comes to deciding on whether to undertake hydrogen projects:
1) The “energy efficiency first” principle recently introduced into European policy must be a strong guiding principle when expanding energy supply and therefore the renewable energy capacities in a country.
2) The second principle is priority for renewable energies in the continued expansion of the electricity sector (or if substituting fossil power capacities is necessary). Fossil fuels should be phased out as quickly as possible to make room for clean power generation.
3) The third principle gives priority to alternatives based on renewable energy sources that provide similar services but with less environmental impact. These include the direct use of electricity in particular and sustainable biomass/biofuels/biogas, taking into account their limited availability in the countries consuming and producing hydrogen.
4) Applications where none of the above three apply must use hydrogen and synthesis products.
This still opens up a global market of 100 to 700 billion euros worldwide for the hydrogen economy, notes Fraunhofer, so not all is lost. But the road to a global hydrogen commodity market with Europe as major importer is still quite long.