Europe’s Shaky Relationship with Hydrogen Power

Highlighting Europe's High-Stakes Gamble between Green Energy Ambitions and Market Realities

Despite the buzz around hydrogen as a potential game-changer in the emissions-free energy sphere, European manufacturers, regardless of their size, appear hesitant to jump on the bandwagon. "Uncompetitively expensive," notes Rob Flello, chief executive of the British Ceramic Confederation. While trials are underway for firing ceramics with hydrogen, the industry is yet to commit to substantial purchases of the elusive fuel.

The fundamental predicament revolves around the concept of ‘locking in.’ With hydrogen’s infancy, a shift from natural gas to this novel fuel potentially shackles manufacturers to higher costs. Meanwhile, playing the waiting game allows others to pioneer, driving down costs as the technology matures. An interesting echo can be found in the adoption of more established clean technologies like wind and solar, where pre-sale of supply contracts to large customers often provided the financial scaffolding for construction.

Such an approach, however, remains elusive for hydrogen. Current sentiments seem to lean heavily towards potential government subsidies to stimulate the nascent market. Cathy Shepherd, Citigroup Inc.'s global head of clean energy transition, elucidates this hesitance, highlighting the inherent risk of 20-year contracts amidst an uncertain long-term outlook.

Hydrogen, produced through electrolysis of water, promises energy generation sans carbon dioxide emissions. Nevertheless, inflation and climbing interest rates have delivered a blow to many emerging segments within the renewable industry. These factors, coupled with equipment lead times, continue to hamper the progress of hydrogen-based projects and the fruition of a market for this new technology.

"The challenge for the big-gigawatt-scale projects is actually piecing together who’s actually going to buy the hydrogen," observes Sean McLoughlin, EMEA head of industrials and energy transition research at HSBC Holdings. The non-commodity status of hydrogen further complicates matters, despite attempts to create a market price.

With Europe envisaging hydrogen as a key player in decarbonizing transportation and industrial sectors, the lack of concrete offtake agreements paints a paradoxical picture. While traditional wind and solar power remains a cheaper grid supply alternative, the cost of green hydrogen production is projected to plunge by 57% globally by 2030, potentially reaching as low as $2 per kilogram in Europe.

However, the path towards this promising prospect is fraught with uncertainties, primarily economic factors influencing investment capabilities and borrowing costs. Governments, strained by back-to-back crises, face the formidable task of managing the transition to cleaner energy.

"For hydrogen to scale industrially, there needs to be a hardcore government-induced incentive," argues Esben Hegnsholt from the Boston Consulting Group. In this grand transition to cleaner energy, the approach will undeniably vary from country to country.

Germany, for instance, has been quite ambitious with its hydrogen strategy. It aims to solidify its position as a hydrogen technology provider and has doubled its domestic electrolyzer target for 2030. However, the lofty goals, coupled with a dearth of concrete investments, tend to cast shadows of doubt on its feasibility.

As the pendulum swings between potential and challenges, the European manufacturers continue their cautious dance with hydrogen power. It is evident that the path forward demands decisive action, transformative policies, and a profound commitment to innovation. The ultimate question remains: who will take the lead in this green energy revolution?