Why the Dutch are Placing their Faith in Hydrogen [Gas Transitions]

You may regard this article – my 20^th for Natural Gas World – as a follow-up to the very first piece I wrote in this series, on 20 February: Why the Dutch lost their faith in natural gas. In that article I explained how a combination of earthquakes induced by domestic gas production and climate concerns led the number one gas producing and exporting country in the EU to decide on a complete phase out (by 2050) of its gas production as well as consumption. A revolutionary development, inconceivable just a few years ago. And if the Dutch can get off gas, I wrote, then anyone can.

Now, four months later, the Dutch gas revolution is continuing in full force. On June 28, the cabinet presented a new climate policy (or to be more precise: the definitive version of its earlier climate policy proposals) that sets out in great detail how the Netherlands will achieve its ambitious climate goals. (The 250-page policy document is known as the “Climate Accord”, and is only available in Dutch. It has yet to be debated in parliament, but no major changes are expected to result from that.) This policy will leave only a very small role for gas, if any.

In power generation, the Netherlands intends to move to no less than 70% renewable electricity (including biomass) in 2030. At this moment, renewables contribute 13% to electricity demand, natural gas 45%, coal 32%, nuclear 3%, oil 4%. (See here for Dutch energy statistics provided by state-owned energy operator EBN, in Dutch, but with English explanations. Another good source is the Central Bureau of Statistics here, also with some English references.) The government has promised to close all five coal-fired power stations by 2030, so gas demand will not be hit immediately, but the aim is to phase out gas in power generation too eventually.

The buildings sector is in for at least as big a change. Currently, gas supplies 90% of heat demand in buildings. The Climate Accord aims to make all 7.7mn houses and 1mn commercial buildings “zero-emission” by 2050, with an intermediate target of 1.5mn houses by 2030. Gas will be replaced by electric heat pumps and district heating networks mostly, with a supplementary role for biogas and hydrogen.

The government also aims for the large Dutch energy-intensive industrial sector, which relies on gas for 40%-50% of its heating, to be “zero-emission” by 2050. The final version of the Climate Accord actually increases pressure on industry compared with the draft version published in December 2018.

The government has decided to introduce a steep CO2 tax on industrial emissions: €30/mt in 2021 and increasing linearly to €125-150/mt in 2030. The tax includes the price industry has to pay for its CO2 emissions in the EU Emission Trading System (ETS), which is now around €25/mt, will be subtracted from the tax. According to the website of the Climate Accord, the Netherlands will be the only country in Europe and probably the world that will have a separate CO2 tax on industry (Sweden and the UK have CO2 taxes but their industries are exempted).

The hydrogen route

What does all this mean for natural gas? Essentially that the use of “unabated” natural gas will be phased out altogether by 2050 and that there will only be one escape route left for gas: via hydrogen, in combination with carbon capture and storage (CCS).

The good news for the gas industry is that it looks ever more likely that the Netherlands will be taking the hydrogen route in a major way. The Dutch gas industry association KVGN has been actively campaigning to convince policy-makers and the public that a cost-effective energy transition cannot rely on electrification alone and requires a substantial and permanent role for “gases” such as hydrogen and biogas. The government seems to have accepted this argument. The Climate Accord sees an “important role for hydrogen” as energy carrier in power generation, transport and industry, and possibly also in the buildings sector. It also notes that the Netherlands is in a good position to acquire an “internationally leading position” in the emerging global hydrogen market.

Nevertheless, this is no guarantee for natural gas suppliers that they will be able to continue to play a major role in the Dutch energy system. “Emission-free” hydrogen can be made in two ways after all: on the basis of natural gas with CCS (“blue hydrogen”), but also through electrolysis on the basis of renewable power (“green hydrogen”). And the Climate Accord does express a clear preference for green over blue hydrogen, although it acknowledges that blue hydrogen can serve as a “bridge” to a green hydrogen future.

Thus, the Climate Accord promises financial support for CCS projects, but at the same time puts clear limitations on this support. First, it says that the government will only support CCS projects in cases “where there is no cost-effective alternative available.” Second, it limits support for CCS to half the emission reductions imposed on industry. In other words: if industry wants to cut more than half of its emissions through CCS, it will have to do so without subsidies. The government has some serious money available to support industry in its energy transition, up to €550mn/year, but it wants to spend at most half of this on CCS. Third, no new CCS projects will be supported after 2035.

Competition between blue and green hydrogen

Clearly then in the coming years blue hydrogen will have to compete with green hydrogen in the Netherlands. In fact, that competition has already begun. The past few months have seen lots of activity in both green and blue hydrogen projects.

On June 26, green hydrogen scored a major point when the Dutch monarch, King Willem-Alexander (shown right, in the picture above,with Gasunie CEO Han Fennema, courtesy Gasunie), opened a 1.1-MW power-to-gas installation, called Hystock, built by Gasunie, the Dutch gas transmission system operator .

Powered by a 2 MW solar park, right next to Gasunie’s gas storage facility at Zuidwending in the province of Groningen, an electrolyser is now churning out the first green hydrogen ever produced in the Netherlands (shown in top picture, by author).

Although Hystock is a small facility, not bigger than a few containers, it should be seen, according to Gasunie, as “the first step in creating the hydrogen supply chain of the future.” The presence of the king symbolised the importance of the project.

At the opening, Gasunie CEO Han Fennema said: “The HyStock hydrogen plant is the first specific step towards really making an effort to achieve the required further growth in the use of sustainable hydrogen throughout the chain, from production to usage. We will be able to make part of our existing infrastructure suitable for the transport and storage of hydrogen by 2030. This sustainable reuse of the existing gas network will help to keep our energy supply reliable and affordable.”

As Fennema suggested, HyStock should soon be followed by other, larger electrolysis plants. For example, Gasunie and chemical company Nouryon (formerly AkzoNobel) are planning to build a 20-MW – or possibly a 60-MW – electrolyser in the town of Delfzijl, also in the province of Groningen, which will supply hydrogen for the aviation industry. A final investment decision on this project will be taken next year.

In addition, Gasunie last year announced that it will be building an even larger, 100-MW, power-to-gas facility in Germany, together with German grid operators Tennet (electricity) and Thyssengas. This is expected to start production in 2022. (For an overview of all power-to-gas projects in Germany, see this website of the Germany energy agency, DENA.)

Hydrogen storm

But these are only the first rumblings of what is supposed to become a veritable hydrogen storm. The government notes in the Climate Accord that various plans for green hydrogen already add up to 800 MW of electrolysis capacity by 2025 and it announces the “ambition” to scale this up to 3-4 GW in 2030. 

How this ambition is to be realised exactly is not clear. The Accord merely says a “substantial hydrogen programme will be started,” consisting of three phases: a preparatory phase (2019-2021), in which a number of studies and pilot projects will be carried out; a developmental phase (2022-2025) that should see electrolysis capacity scaled up to 500 MW (from currently virtually zero); and a third phase (2026-2030), which should see electrolysis capacity expanded further to 3-4 GW. The cabinet will make €30-40mn available for pilot projects in the first phase, but it does not indicate how the second and third phases will be financed or who will be responsible for building the electrolysis facilities.

The government presumably hopes that private and public players will take the necessary initiatives to make the Dutch hydrogen dreams come true. In November 2018, a consortium of 27 companies, research institutes, environmental organisations and local authorities – including transmission system operators Tennet (electricity) and Gasunie, distribution system operator Stedin, the city of Groningen, the ports of Rotterdam and Amsterdam, chemical company Nouryon, Tata Steel and Greenpeace – did announce the “ambition” to build 3 to 4 GW of green hydrogen production capacity in the Netherlands by 2030. This Hydrogen Coalition, as it calls itself, said it wants to build five large electrolysers in various parts of the country, although no concrete projects have been announced.

Another consortium, with many of the same members – Nouryon, Anglo-Dutch major Shell, fertiliser manufacturer Yara, OCI Nitrogen, Gasunie, Dow Chemical, Danish utility Orsted, Frames, Dutch research organisation TNO, Utrecht University and Imperial College London – announced in March 2019 that they are starting a project to “identify the technological bottlenecks in scaling up large numbers of electrolysis cells (so-called 'stacks') in an integrated factory.” The project, to be co-ordinated by the Institute for Sustainable Process Technology (ISPT) and called Gigawatt Electrolysis Plant, should pave the way for the building of a 1-GW electrolyser in the Netherlands.

There have also been several announcements of new hydrogen research projects recently. For example, ISPT has launched a research project called Hychain, again supported by companies such as Gasunie, Shell, Nouryon, Dow Chemical, Vopak, Yara and the Port of Rotterdam. TNO will be conducting hydrogen experiments in its Faraday lab in Petten. The province of Groningen is building a “Hydrohub MW Test Centre.” And there are many others.

Hydrogen backbone

These initiatives are almost all focused on green hydrogen. But projects around blue hydrogen are also making progress.

Deltalinqs, a networking organisation in the Port of Rotterdam, presented the findings July 2 of a feasibility study into the large-scale production of blue hydrogen in the Rotterdam region. The project, called H-Vision (the CCS part of the project is called Porthos), is supported  by 16 companies, including Air Liquide, BP, Equinor, Gasunie, Vopak, Linde, OCI Nitrogen, Shell, Taqa and Uniper.

The project concerns the building of 2 Autothermal Reforming (ATR) production facilities of 1.6 GW each, where the CO2 would be captured and stored in empty gas fields in the North Sea. They would produce 700 ktons of hydrogen and would save up to 4.3mn mt of CO2 emissions annually. The total emission reduction target for Dutch industry is 14.3mn mt by 2030, so this would be almost a third. The costs of the entire process (including transport and storage of CO2) expressed in €/mt of CO2 saved ranges from €86/mt to €146/mt. The consortium will take the final investment decision in 2021.

The financing of the project is the major uncertainty. At the presentation of the feasibility report in Rotterdam, project director Jaap Hoogcarspel said the project is technically feasible and delivers substantial results quickly, but is not economically feasible without government support.

The Port of Amsterdam is investigating the possibility of a similar hydrogen/CCS project, named after another of Dumas' musketeers Athos, together with Tata Steel, among others. It is expected to announce the results of its own feasibility study soon.

Other major industrial-chemical clusters in the Netherlands, in particular the Chemelot Industrial Park in the province of Limburg, and the big chemical cluster in the province of Zeeland, are also working on various blue (and some green) hydrogen projects. In November 2018, Gasunie switched a pipeline between production facilities of Dow Benelux and Yara in Zeeland from gas to hydrogen. Gasunie CEO Fennema said that this pipeline is the first step in the construction of a nationwide hydrogen “backbone” between the five major industrial-chemical clusters in the Netherlands. Note that Dutch refineries and chemical and steel companies already use 110 PJ (800,000 mt)/yr of hydrogen, representing a tenth of the industry’s total energy use.

In the coming years, then, we many expect many new hydrogen projects to be started up in the Netherlands, both blue and green. Thus, for example, in February 2019 the provinces of the northern Netherlands launched an ambitious “investment agenda” that should turn this region, the former gas producing centre of the Netherlands, into a new “hydrogen valley.” The “agenda” of the northern Netherlands does not discriminate between blue and green hydrogen projects.

This is exactly what the Dutch gas industry as well as many independent energy experts in the Netherlands like to see. They point out that there is not enough renewable energy available as yet to support large-scale cost-effective production of green hydrogen. Investing in blue hydrogen projects, they argue, will enable the development of a hydrogen infrastructure that will prepare the economy for the green hydrogen revolution that is to follow, probably around 2050. If they are right and this is what will happen, natural gas will continue to play a prominent role in the Dutch energy system for the next few decades. But that will be the end of it.

Gas Transitions

How will the gas industry evolve in the low-carbon world of the future? Will natural gas be a bridge or a destination? Could it become the foundation of a global hydrogen economy, in combination with CCS? How big will “green” hydrogen and biogas become? What will be the role of LNG and bio-LNG in transport?