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EU sets sights on electrolyzer hub status despite nickel, precious metal price risk

13 May 2022 Cristina Brooks

Electrolyzer manufacturers have vowed to help the EU use hydrogen to reach net-zero and improve energy security, despite expressing concerns about raw material availability.

The European Commission (EC) concluded an electrolyzer manufacturing joint declaration with 20 companies and others in the sector on 5 May.

Producing more green hydrogen from electrolyzers should help the EU to become independent from Russian natural gas supplies as foreseen under the 8 March RePowerEU proposals, and also deliver on its Paris-Agreement-linked carbon neutrality goal.

Under the deal, the EC will open a cleantech manufacturer financing round for its existing EU Innovation Fund, prioritize approvals for member state contracts-for-difference subsidies to reduce hydrogen investment risk, and carry on planning regulations that support hydrogen markets and infrastructure.

It will also build several partnerships to secure supplies of electrolyzer raw materials and components. Already, the EU has forged partnerships with India and Japan on renewables and hydrogen.

New partnerships that lie ahead include electroylzer raw materials partnerships with non-EU countries. The EU also plans a supply chain partnership on components and raw materials within the European Clean Hydrogen Alliance, the EC's grouping of over 1,500 public and private sector members.

In return, the manufacturers must aim to increase their combined electrolyzer manufacturing capacity tenfold to 17.5 GW per year by 2025, and to increase that further through 2030, to meet expected demand.

Danish electrolyzer manufacturer Topsoe, with plants in Denmark and the US and a signatory, was happy with the plan. "It's great to see that the EC is willing to support clean tech manufacturing, including electrolyzer manufacturing projects, in its third call under the EU Innovation Fund stated in the Joint Declaration," Media Relations Manager Ulrik Møller Frøhlke told Net-Zero Business Daily by S&P Global Commodity Insights.

In other words, manufacturers will make more electrolyzers to allow green hydrogen output in the bloc to ramp up to 10 million metric tons (mt) alongside 10 million mt of imported blue and green hydrogen by 2030 under RePowerEU.

These goals require 320-400 GW of electrolyzers to be installed by 2030, said Topsoe, but global installed electrolyzer manufacturing capacity is only 3 GW, of which 1.7 GW is in Europe.

China, Japan, and South Korea dominated the total number of patents filed between 2000 and 2016 for the hydrogen, electrolyzer, and fuel cell groupings, the EC found in 2020. Electrolyzer producers are also located in the UK, Norway, Switzerland, the US, Canada, and Russia.

The EU has a relatively small manufacturing base for electrolyzers, but output is expected to grow in the coming years, according to a 2021 EC report. "If the EU doesn't want to be dependent on cheap and inefficient Chinese electrolyzers, the ramping up of manufacturing of electrolyzers in the EU is critical," said Frøhlke.

However, "the availability of affordable raw materials constitutes a challenge for upscaling the production of electrolyzers in Europe," according to the joint declaration.

Nickel, platinum, iridium prices

There are not enough hydrogen regulations, investments, and supplies of required components and raw materials, according to electrolyzer manufacturers.

Making matters worse, prices for nickel, platinum, and iridium used in the most popular electrolyzers have increased in the wake of the invasion of Ukraine.

Russia's Nornickel, a supplier of refined nickel and palladium to Europe, said on 25 April that as the geopolitical situation challenged its deliveries of consumables, it was seeking new suppliers and logistical deals. Earlier in April, it announced plans to ramp up nickel output at its plant in Finland to meet growing European battery sector demand.

S&P Global assessed spot battery-grade nickel sulfate with minimum 22% nickel content and maximum 100 ppb magnetic material at Yuan 46,400/mt ($6,911.55/mt) DDP China 9 May, up 36.9% since the start of the year, before declining slightly to Yuan 46,000/mt on 13 May.

While iridium prices have not soared to the levels seen during last year's supply crunch, Platts' New York Dealer iridium price rose to a range of $3,650-$4,850/oz in the 24 February through 10 March period, and remained stable as of 13 May.

Platts' New York Dealer platinum rose briefly to $1,122.50/oz on 10 March, which was its highest level so far this year, before declining to pre-invasion levels. Europe is the largest consumer of platinum in industrial products.

The price spike came following the US and the UK's announcements of bans on Russian oil imports on 8 March, escalating a trade war. The UK also boosted tariffs on Russian goods, including platinum and palladium, on 8 May.

The EU isn't the only government in need of these metals to meet goals. ICRA Ratings and Research analyzed India's target to produce 5 million mt of hydrogen by 2030. Surging metal prices mean that electrolyzer costs won't decline until to closer to 2030, it said.

"I think we can all agree that without primary and secondary raw materials there will be no EU green transition," EC internal market commissioner Thierry Breton said during an event last month hosted by metal producer trade body Eurometaux.

Electrolyzers' metal demand

About 30 materials are needed for producing electrolyzers, hydrogen storage units, and hydrogen fuel cells, the EC said.

The EU has producers of all three main electrolyzer technologies: AEM and PEM, and SOEC. SOEC has the highest efficiency, but remains in a demonstration phase, and about 70% of electrolysis capacity installed in the EU was PEM in 2019, noted the EC.

Metals used as electrocatalysts for PEM include Iridium and platinum. These so-called platinum group metals are relatively scarce.

Even before the invasion of Ukraine, iridium as well as scandium supply risks for electrolyzers were predicted in a report from the minerals agency of Germany's Federal Institute for Geosciences and Natural Resources.

The International Renewable Energy Agency (IRENA) in 2020 found that insufficient iridium production might be a bottleneck for scaling up manufacturing of PEM electrolyzers. South Africa is the main producer of the world's iridium (80-85%) followed by Russia.

AEM and SOEC manufacturers both require nickel. Russia is among the top three producers of both nickel and platinum, IRENA said.

In March, a proposal to require mandatory recycling to boost domestic supplies of nickel and other metals in the EU, for example recycling of batteries, passed the first reading stage in the EU Parliament, according to law firm White & Case.

Hydrogen price key to adoption

The global drive to adopt green hydrogen as a fuel depends in part on a decline in electrolyzer costs of about 50% by 2030, wrote IRCA.

While most of green hydrogen's production costs come from the electricity used, catalysts typically make up about 8% of the purchase price of a PEM electrolysis stack.

A decrease in the cost of hydrogen produced can help foster adoption. "Currently, the high production cost for less carbon-intense hydrogen—for instance about $6/kg for renewable hydrogen from electrolysis—is hindering adoption," said industry body Hydrogen Council in a report.

On average, green hydrogen's cost levels are between two and three times those of fossil fuel hydrogen, but this must decrease in order for it to compete, according to IRENA.

S&P Global assessed the cost of renewable hydrogen production via alkaline electrolysis in Europe at €11.92/kg ($12.53/kg) 4 May (Netherlands, including capex), based on month-ahead power prices and double fossil-fuel sourced hydrogen at €6.64/kg.

Posted 13 May 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability



This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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