Europe to need at least 150 GW of renewable power to meet green hydrogen goal

EU member states will need to install at least 150 GW of renewable energy capacity to power the electrolysis of water to meet at least half of its green hydrogen target under REPowerEU, according to S&P Global Commodity Insights analysis.

The European Commission (EC) set 20 million metric tons (mt) a year of green hydrogen as a goal for 2030 under REPowerEU, a plan conceived by the EU in March to wean itself off Russian fossil fuels and to accelerate the transition to greener and cleaner forms of energy.

However, half of this goal or 10 million mt would be met through imports while the other half would be generated from renewable sources installed across the member states.

According to S&P Global Commodity Insights, an estimated 300 GW of additional renewable capacity would be needed to meet the 20 million mt goal, so roughly half would be needed to meet the internal EC production goal.

Hydrogen has been identified by the EU as an important part of the solution for hard-to-decarbonize sectors, such as aviation, maritime and certain industrial sectors.

Wind, solar key to green hydrogen

The EC has calculated that an additional 500 TWh of renewable electricity per year, which is about half the level of current EU renewable electricity generation including hydropower, will be needed to produce the 10 million mt of hydrogen within the EU by 2030.

Most of the additional renewable generation capacity will be wind and solar.

The REPowerEU Plan would bring the total renewable energy generation capacity to 1.236 TW by 2030, in comparison to the 1.067 GW by 2030 that EU originally sought under its package of proposed policies targeting net-zero, Fit for 55.

The 45% increase in renewable generation is expected to meet the increased goal for green hydrogen.

In a staff paper, the EC estimated implementing REPowerEU would require a "strong increase in the consumption of renewable hydrogen," which would translate into a need for increasing the installed capacity of electrolyzers—from 44 GW in Fit-for-55 to 65 GW in REPowerEU.

The staff also said installed wind and solar capacity also would need to increase to supply electrolyzers with renewable electricity. Under REPowerEU, there would be 41 GW of wind and 62 GW of solar in additional capacity.

One key question the EC is trying to resolve is criteria determining when and where electrolyzers will be allowed to draw on renewable power to produce hydrogen so that it has "renewable" status and its producers and products potentially qualify for several subsidies.

Developing rules to ease production

The EU is currently working on two draft delegated acts that upon final approval will clarify the bloc's rules for renewable hydrogen-sourced fuel as they pertain to additionality.

Additionality is a term referring to the additional amount of renewable capacity needed beyond what is needed for electricity needs to meet the green hydrogen goal.

At least one law firm commenting on the draft acts told the EC that the green hydrogen target might be difficult to reach if it proceeds with production using power from newly constructed, unsubsidized wind and solar farms so it doesn't detract from renewable electricity penetration goals.

At a recent FT hydrogen conference, Julien Rolland, who is head of trading firm Trafigura's new power and renewables division, welcomed the EU's attempts to clarify additionality.

"It's the right question the EU is trying to solve," Rolland said during a discussion on repowering the EU.

Green electricity deficit

In Europe, he said there's a "deficit" of green electricity because the priority is to replace coal and natural gas. "We do need the electrolyzer but we don't have enough power to feed it," he added.

At the same time though, Rolland said electrolyzers cannot be installed everywhere in the EU, especially in areas where there is a demand for renewable energy. "You need to put them where you think you're going to build more offshore wind farms or more solar farms," he added.

According to March analysis by the European power and gas team at S&P Global Commodity insights, electrolysis production capacity is growing strongly: annual production capacity is projected to grow from 4 GW in 2022 to over 12 GW in 2023 and as much as 35 GW by 2025.

This same analysis described reaching the EU's overarching 300 GW as "challenging but not impossible," while noting that there's currently no international trade in hydrogen. The hydrogen is typically produced close to where it is used.

Meeting its hydrogen goal will require the EU to frontload its renewable energy deployment. Offshore wind additions are ramping up through 2030, but onshore wind additions have struggled to exceed 10 GW per year because of local opposition to permitting, S&P Global Commodity Insights said.

Moreover, the 10 million mt green hydrogen goal is equivalent to the renewable electricity that France consumes each year and at least 30 times the hydrogen that the entire world consumed in 2020, noted Máximo Miccinilli, senior vice president and head of FleishmanHillard's Brussels energy and climate division.

India, EU in the same boat

According to S&P Global analysts, the EU finds itself in a position similar to India, where an ambitious green hydrogen goal of 5 million mt by 2030 will require renewable capacity in addition to the goal it has set for renewable penetration.

"For Europe that is a clear yes that deployment of renewables will need to accelerate significantly," S&P Global Executive Director Catherine Robinson, who leads the firm's global analysis on low carbon gases, told Net-Zero Business Daily 22 June.

India set a 450 GW goal of renewable energy by 2030, but analysts now say it will need at least 120 GW of additional renewable energy to meet its 5 million mt goal by the end of the decade.

The US has not set a green hydrogen target, but it is keen to develop electrolyzer capacity and that would require increased renewable generation, Robinson added.

In June 2021, the US set a goal to lower the cost of producing clean hydrogen to $1/kilogram (kg). Currently, S&P Global estimates the cost of producing green hydrogen ranges from $4/kg to $5/kg.

Posted 28 June 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

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.