Executive summary

BIOMETHANE Infrastructure Demand

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Renewable and low-carbon gases are indispensable to fully decarbonise the European Union (EU) energy system.

The EU aims to fully decarbonise its economy, requiring a complete overhaul of the energy system and its infrastructure by 2050. The Green Deal, as announced by the European Commission (EC) in December 2019, aims to achieve at least 55% reduction in greenhouse gas (GHG) emissions by 2030 compared to 1990 levels. Raising the ambitions of EU climate policy will require significant investment in energy efficiency, renewable energy, new low-carbon technologies, and grid infrastructure. It will also necessitate the close integration of the electricity and gas sectors and their respective infrastructures. Over the past few years, a series of studies by the Gas for Climate consortium showed that renewable and low-carbon gases have an important role to play in the future EU energy system. Combined with the existing gas infrastructure, renewable and low-carbon gases can help to achieve the transition to a net-zero energy system at the lowest societal costs.¹

Gas for Climate defined a critical pathway of required developments across the supply chains for biomethane and green and blue hydrogen between today and 2050 to achieve a decarbonised energy system. A comprehensive overview of the current market state and trends towards further scale-up and cost reductions was not yet available.

To facilitate achieving at least 55% GHG reduction by 2030 and to set Europe on a pathway towards full decarbonisation at the lowest overall societal costs, Gas for Climate defined a critical pathway of required developments in the 2020s across supply, certain demand sectors, and infrastructure. Two renewable and low-carbon gases will play a key role in decarbonising the European energy system: biomethane and (green and blue) hydrogen. In the short term, biomethane is expected to further scale up; green and blue hydrogen are expected to further develop to accelerate scale-up starting in the mid-2020s. These required developments will enable an 11% share of renewable gas (biomethane and green hydrogen) in total EU gas demand by 2030.

The pathways study demonstrated that current policies and trends are insufficient to drive the abovementioned required developments.² Additional policy and market action is required to speed up the transition. Renewable and low-carbon hydrogen and biomethane developments are already attracting a lot of positive attention in the media, in policy discussions, and in company strategies. Yet, a comprehensive overview of the current market state and of trends towards further scale-up and cost reductions was not yet available.

This market state and trends report is the first-of-a-kind comprehensive overview of the market state and trends of biomethane and green and blue hydrogen. The report identifies key trends across the supply chain of biomethane and green and blue hydrogen in Europe and tracks the status of each key trend towards achieving the required pathway developments in the early 2020s-2030.

This report identifies key trends in biomethane and green and blue hydrogen supply, demand, and infrastructure across Europe; it focuses on indicators and project examples by collecting and combining factual and statistical information and showcasing projects. These key trends are also analysed to track their progress in line with the required pathway developments in the short term (early 2020s-2030):

→ Green: Trend is in line with required pathway developments.

→ Blue: Emerging trend is developing.

→ Yellow: Early developments, no trend yet.

While the transformation towards net-zero CO₂ emissions is multifaceted and consists of many interlinked market and technological developments, the main focus of this analysis is on key trends in those sectors and subsectors that are most promising to decarbonise in the early 2020s-2030. This report is the first in a series aiming to provide regular insight into the current state and trends across the supply chain of renewable and low-carbon gases in Europe.

The majority of the identified key trends show emerging developments across Europe that are in line with the required developments on the path to 2030 (blue). Additional action is required to further bring down hydrogen production costs, boost cross-border trade of hydrogen and increase building renovation levels. In addition, early developments are shown in hydrogen use in the refining and chemical industry as well as in shipping, but more efforts are required to establish a trend (yellow). Significant developments are seen in the deployment of biomethane and green and blue hydrogen projects, biomethane feedstock changes, hydrogen developments in the iron and steel sector and biomethane grid injection levels (green); these trends are breaking through in line with the required pathway developments and are highly likely to continue.

Supply – Biomethane

Figure 2.1.
Key trends for biomethane and biogas supply

Slide Emerging biomethane cost reduction Scale-up of biomethane production Increasing cross-border trade Increasing plant size and shift in upgrading technique Increasing adoption of waste and residue feedstocks Scale-up of biomethane production Emerging biomethane cost reduction Increasing cross-border trade BIOMETHANE

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A significant biogas sector exists in Europe, producing around 170 TWh/year (16 bcm natural gas equivalent, 2018). Biomethane production volumes are rapidly growing, with around
23 TWh (~2 bcm natural gas equivalent) produced in 2018. The scale-up of biomethane production shows a positive trend in the EU—strong growth of around 15% in biomethane production volumes and a 17% increase of anaerobic digestion plants in 2018. With flatting growth in biogas developments, this indicates a shift from biogas to biomethane production. Feedstock used for biomethane production is progressively shifting from dedicated energy crops to waste and residue feedstocks in new plants. In 2019, waste and residue feedstocks were used in almost 65% of EU biomethane plants compared to 40% in 2012.

Almost all biomethane in Europe is produced using anaerobic digestion technology, with average digester sizes showing a growth of around 4% between 2017 and 2018. Membrane separation is increasingly being adopted—it is now the most common upgrading technique, with a market share of approximately 34% of cumulative installations in 2019. Other biomethane production techniques, such as thermal and hydrothermal gasification show high potential, but are only in an early commercial stage and industrial demonstration stage, respectively.

Emerging trends are seen in biomethane cost reduction and cross-border trade. Current biomethane production costs for anaerobic digestion in Europe range between €50/MWh and €90/MWh (~€0.50/m³ to €0.90/m³), mainly depending on feedstock used and the size of the digester. Costs are gradually coming down for larger anaerobic digestion plants with certain waste stream feedstocks. Production costs for thermal gasification are estimated to be around €90-€100/MWh (~€1.0/m³). Cross-border trade of biomethane certificates is still limited in the EU at less than 10% of biomethane production levels, but a gradual increase is occurring with key players being Denmark, Sweden, and Germany and the development of the European Renewable Gas Registry (ERGaR) certificate of origin (CoO) scheme.

Supply – Hydrogen

Figure 2.17.
Key trends for green and blue hydrogen supply

Slide Costs moving towards commercial level Increasing plant and stack size plus increased efficiency of hydrogen production and CO2-capturing processes Increasing number of upcoming projects sourcing renewable electricity Increasing deployment and scale of demonstration and pilot projects Costs moving towards commercial level First trading of hydrogen GoOs GREEN & BLUE

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In the EU, around 339 TWhLHV (10.2 Mt H₂, 33 bcm natural gas equivalent) of hydrogen was produced in 2019. Compared to grey hydrogen, the share of green and blue hydrogen produced is still small (less than 1% of production). Yet, electrolyser capacity and the number of projects in the feasibility phase show a rapid growth in the EU. Technological developments are on track, and decisions on pilot projects for 10 MW and larger are coming up. Electrolyser capacities have been growing, with an average annual growth rate of around 20% between 2016 and 2019. Large-scale blue hydrogen projects are under development across industrial clusters around the North Sea. Based on current announcements, a significant acceleration of green and blue hydrogen projects is expected between 2020 and 2030. The EU Hydrogen Strategy and national hydrogen strategies are expected to drive this increase even further.

Emerging trends are seen amongst hydrogen production technologies. Most green and blue hydrogen production routes are in an early commercial stage, but plant and stack sizes are increasing, and hydrogen production and CO₂-capturing processes are becoming more efficient. Electrolyser capacities are growing, and Proton Exchange Membrane (PEM) technology is closing the gap with Alkaline Electrolysis (ALK) and Solid Oxide Electrolysis Cells (SOEC) efficiencies, by adding 4% system efficiency, on average, since 2017. Newly announced blue hydrogen projects mostly rely on ATR technology, which has various economic and operational benefits in combination with CCS at large scales.

An increasing number of upcoming electrolyser projects intend to source renewable electricity as feedstock. Over 54% of announced electrolyser projects in the EU have disclosed their sourcing plans, with wind energy being the preferred renewable electricity source (39% of announced projects, representing 77% of announced capacity).

Early developments are taking place around production costs and cross-border trading, but additional attention is required. Production costs for green hydrogen range from €70/MWh to €130/MWh, and mainly depend on electricity price and electrolyser parameters. Costs
are expected to drop to the level of grey and blue in the coming decades. Blue hydrogen is currently more cost-competitive compared to green hydrogen, with costs estimated between €37/MWh and €41/MWh depending on the technology and infrastructure requirements. Cross-border trade of hydrogen certificates is still limited in the EU, with the first CertifHy certificates launched in 2018. Hydrogen certificate trading is expected to increase following national and EU developments.

Demand – Industry

Figure 3.6.
Key trends for renewable and low carbon gas developments in the industry

Slide Early investigations with substituting grey hydrogen in the refining and chemicals sectors Demonstration and early deployment of new hydrogen processes in the iron and steel sector Increasing interest in biomethane as a feedstock and energy carrier across industry sectors INDUSTRY

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Green or blue hydrogen can play an important role to decarbonise the iron and steel sector, which has limited alternatives for decarbonisation. New hydrogen processes in steelmaking are in the demonstration and early commercial stages in Europe. These processes include directly injecting hydrogen into blast furnaces which can reduce GHG emissions between 20% and 40%, or using hydrogen for the direct reduction of iron which can achieve emission reductions of more than 95%.

Biomethane is gaining interest as an alternative to natural gas for medium and high temperature heat generation and as a feedstock and energy carrier. Multiple industry sectors are starting to integrate biomethane, either as an energy carrier when biomethane is injected in the natural gas grid, through the integration of biomethane production in industry processes, or as a feedstock to produce high value chemicals.

All large EU refineries use natural gas and other fossil fuels to produce grey hydrogen through different reforming processes. About 45% of industrial hydrogen consumption is used for oil refining, followed by ammonia production (34%). Early project developments and investigations are ongoing in the refining sector and chemicals sector to adapt grey hydrogen production to blue hydrogen or to substitute grey hydrogen for green hydrogen. Shifting from grey to blue or green hydrogen can be done without major process adaptations, but additional attention is needed to further boost these developments.

Demand – Transport

Figure 3.10.
Key trends for renewable and low carbon gas developments in the transport sectors

Slide Increased deployment of bio-CNG/LNG and hydrogen developments in heavy road transport Growing use of LNG and hydrogen pilot stage developments in shipping Growing number of fuelling stations TRANSPORT

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The uptake of renewable and low-carbon gases in road transport and fuelling infrastructure is emerging in the EU. Increasing deployment of bio-CNG/LNG and early hydrogen is taking place in the heavy road transport sector, and adoption of compressed natural gas (CNG) and liquified natural gas (LNG) vehicles grew respectively by 5% and 35% annually since 2016, for buses and heavy freight trucks. Biomethane use in Europe already represents 17% of all the gas used in road transport today. The number of LNG and hydrogen fuelling stations is still limited but experienced significant growth over the last year, and the number of CNG fuelling stations is gradually increasing as well. In addition, the use of hydrogen in transport is gaining traction.

Early stage hydrogen developments are taking place in the EU shipping sector. Several pilots are ongoing to test maritime applications of hydrogen fuel cells, mostly in Northern Europe. LNG use in shipping is growing, as LNG bunkering facilities for ships are increasingly being established across the EU (supported by the TEN-T regulation).

Demand – Built environment

Figure 3.18.
Key trends for renewable and low-carbon gas developments in the built environment

Slide Increased deployment of bio-CNG/LNG and hydrogen developments in heavy road transport Early deployment of hybrid heating solutions BUILDINGS

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Decarbonisation and renovation of the built environment is challenging because of the high abatement cost for deep renovations, the high number of buildings requiring renovation (>97%), the dispersed ownership of the building stock, and the potential construction of new infrastructure. In Europe, an emerging trend is seen with the uptake of hybrid heating technologies. Early deployment is taking place with around 18,000 hybrid heat pumps installed in Europe in 2017, and uptake is gaining momentum, particularly in Italy and France. Also, recently several gas DSOs have started to intensively explore the potential of using gas grids to distribute hydrogen (e.g. to decarbonise heat), referencing TSO plans for a European Hydrogen Backbone.

The Renovation Wave for Europe was announced by the European Commission in October 2020. Currently, the weighted annual energy renovation rate in the EU is only around 1%, with deep renovations only being carried out in 0.2% of the building stock annually. Early developments are taking place to increase these renovation levels in the EU, but more action is needed.

Infrastructure – Biomethane

Figure 4.1.
Key trends for hydrogen and biomethane infrastructure with an overview of selected showcase projects to illustrate ongoing developments

Slide Research and pilot projects on increasing blending levels Early deployment of dedicated hydrogen infrastructure and storage Early commercial deployment of biogas and reverse flow Increasing grid injection of biomethane

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Over the last decade, biomethane grid injection volumes have increased from around 5.5 TWh to approximately 20 TWh per year in Europe, resulting in a 0.4% share in the gas network, with higher ratios in some countries. This share is expected to further increase to 5%-8% (on average) by 2030 based on European and national targets, with differing shares among EU member states. About 90% of biomethane plants in the EU are connected to the gas grid, though differences in the connection profile exist between countries.

The early commercial deployment of biomethane centralised upgrading and reverse flow are emerging trends seen in the EU. Several reverse flow plants are installed in France (two in 2019), Germany (more than six in 2020), and the Netherlands (one in 2019). Biogas pooling for centralised upgrading is in an early development stage, with two main projects in Europe: one in Bitburg, Germany and the other in Twente, the Netherlands.

Infrastructure – Hydrogen

Emerging trends are seen in the EU with research and pilot projects regarding increasing levels of hydrogen blending in natural gas grids and the development of dedicated hydrogen infrastructure. Hydrogen blending tolerances in the natural gas distribution grids could range between 5% and 20% and are achievable without major upgrades or adaptations to appliances and infrastructure. Research and pilot projects on blending levels are ongoing.

Regional dedicated pipeline infrastructures already exist, connecting merchant producers to users of (grey) hydrogen. Further dedicated hydrogen infrastructure development is gaining momentum through the conversion of gas infrastructure and the early development of new hydrogen networks, such as the European Hydrogen Backbone.