Europe has paid to wean itself off Russian natural gas billions of dollars in new commitments toward building a market for low-carbon hydrogen. A nearly 450% jump in European gas prices last year has made future-cost green fuels competitive nearly a decade ahead of schedule, according to Bloomberg News.
Now, investment funds are joining governments and utilities in ambitious plans to make hydrogen a viable alternative to fossil fuels in manufacturing, transportation and heating. “It’s kind of a tipping point,” said Phil Caldwell, chief executive of Ceres Power Holdings Plc, a UK-based hydrogen technology company. Russia was ostracized on the world stage for invading Ukraine, but some of its fiercest critics still need oil and gas to keep their economy running.
Europe is accelerating its efforts to break this addiction, with Fortescue Metals Group planning a $50 billion hydrogen supply chain project with German energy giant E.On SE; Norway’s Scatec ASA Builds $5 Billion Production Plant; The Hy24 investment fund has allocated $1.6 billion for infrastructure. Fortescue billionaire founder Andrew Forrest said in an interview that the issue of hydrogen is already growing, mainly because of its climate benefits, but the war has broadened investor interest by highlighting the need for energy security.
“The money inflows have accelerated,” Forrest said in London , After the tanks rolled across the border, there was no longer any conscience running in people’s minds. It is a physical and financial necessity.” About 93% of hydrogen producers, users and investors who attended the BNEF round table meeting last month said they expect the war to boost the development of the green hydrogen industry. Participants said that support for domestic production and imports from trustworthy sources will be essential. Green hydrogen has always been more expensive to produce than the conventional type, which is made from natural gas in a process that releases carbon dioxide into the atmosphere. This is starting to change. BNEF analysts have found that green hydrogen, which is made by machines called electrolyzers that are powered by wind and sun, will be cost-competitive today with a product based on fossil fuels.
Martin Neubert, chief commercial officer for Orsted A/S, which plans to produce green hydrogen to ship shipping giant A.P Moller-Maersk A/S. Orsted is the largest developer of offshore wind farms. Previously, this cost parity was not expected until around 2030 through a combination of cheaper electrolyzers and explosive growth in the deployment of turbines and solar panels, which made production cheaper. But rising gas prices have changed the way the calculus is done, which means that green hydrogen costs don’t need to fall as much to be competitive.
Simply replacing the current demand for hydrogen with the green type in industries such as oil refining and fertilizer production could reduce EU gas demand by 12%, according to BNEF. At the same time, the price of carbon by mass has nearly doubled in the past year, making zero-emissions gas even more attractive.
“The economy is trending in favor of green hydrogen,” said Ivan Pavlovic, CEO of French bank Natixis CIB, which works to finance fuel production. “The projects we’re seeing seem more bankable from a funding perspective now.” However, the costs only go part of the way. Gas prices could drop, bringing the economy back to where it was before. However, the war cemented the political support necessary to expand the scope of the industry.
The European Union has doubled its green hydrogen capacity target to 80 gigawatts by 2030, compared to less than 1 gigawatt today. The UK has just set a target to produce at least 5 gigawatts of hydrogen from an electrolyzer by 2030, the first time it has been so specific. In the United States, the Biden administration said the infrastructure needed to increase shipments of natural gas to Europe would be ready to convert to deal with hydrogen .
These projects will take years to materialize and require a massive increase in renewable, but government support still gives private money the confidence to move in. Hy24 is a joint venture between Ardian SAS, one of Europe’s largest private investment houses with $125 billion under management, and FiveT Hydrogen, the world’s first investor to focus exclusively on clean hydrogen. “It’s a topic of growth, a topic of ESG, and renewables on a large scale in countries that need them,” said Hy24 CEO Pierre-Etienne Franck. “Because of that, and the increased certainty about the future, people are happy to make commitments.” Danish fund manager Copenhagen Infrastructure Partners K/S raised 800 million euros ($880 million) initially for its first energy transition fund, with plans to increase that to 2.3 billion euros.
