2.2.4 Increased deployment and scale of demonstration and pilot projects
Globally, grey hydrogen production has steadily increased by about 3% per year over the past decade, largely due to increased demand for refinery processes (see section 3.1). Historical data from the H2tools platform, Eurostat,96 and data from S&P Global and Platts97, suggest that grey hydrogen production in the EU has been relatively constant over the past few years at around 339 TWhLVH (33 bcm natural gas equivalent).67, 97 Close to all of this production is linked to industrial activities. Generally, the hydrogen market can be divided into captive, merchant, and by-product production of hydrogen (Figure 2.25).98
- Captive hydrogen is produced onsite in industrial facilities like refineries, ammonia and methanol plants, to be used directly at the same location and constitutes about 64% of current EU hydrogen production (see section 3.1).
- By-product hydrogen production makes up 20% of the total and is the result of industrial processes, such as refinery cracking and steel manufacturing. By-product hydrogen is typically used (onsite) for heat generation but is sometimes traded.46
- Merchant hydrogen production makes up only 15%. Industrial gas producers are often located in industrial clusters to supply refineries (see section 2.2.5).71, 98
Although hydrogen is already being produced in most EU27 countries, the distribution is not equal across countries (Figure 2.26). The three countries with the largest daily hydrogen production are Germany, the Netherlands, and Poland.98 Together, they produced almost half of the daily EU hydrogen production in 2018. Germany and the Netherlands are the largest producers of merchant hydrogen. Together with Italy, France, Spain, and Belgium, these countries cover 91% of the total merchant hydrogen market, which is largely the result of the big industrial clusters present in these countries.
Deployment of electrolyser capacity is growing rapidly in the EU, with an average annual growth rate of approximately 20% between 2016 and 2019.
The European Commission Joint Research Centre (JRC) estimated the total installed capacity of electrolysers in the EU to be around 1 GW.99 Of this capacity, the FCHO identified 70 power- to-gas projects in 2018/2019 using renewable electricity, totalling 58 MW of green hydrogen production capacity.98 Many of these projects are still pre-commercial and were built as part of a demonstration project with operating times of only 2-3 years.98 Despite its small size, the cumulative capacity of electrolysis in the EU has been developing rapidly, with a yearly average growth rate of around 20% between 2016 and 2019, as estimated from the projects tracked in IEA’s hydrogen project database (Figure 2.27).63
No large-scale blue hydrogen takes place in the EU; in France and the Netherlands, two facilities capture CO2 from hydrogen plants for downstream utilisation. Blue hydrogen developments can be expected close to large industrial clusters around the North Sea due to the prospect of a widespread CO2 transport and storage network based on shipping routes and pipelines.
In the EU, no large-scale blue hydrogen production sites exist to date. Only two projects capture CO2 from large-scale hydrogen production: the Air Liquide Port Jérôme facility in France (50,000 Nm3 H2/h) and the Shell Pernis refinery in the Netherlands (200,000 Nm3 H2/h).98 In the Air Liquide plant, the captured CO2 is upgraded to carbonate sparkling beverages, whereas the Shell plant supplies the CO2 to greenhouses via a pipeline, replacing the need to produce CO2 from fossil sources.
Blue hydrogen projects are planned to become operational in the coming years, with the largest capacity additions in countries around the North Sea, namely the Netherlands, Germany, and Sweden.100 Key projects announced in previous years are detailed in the showcase projects. These are mostly projects that convert existing grey hydrogen into blue hydrogen by adding CCS. However, some projects also aim to add significant greenfield capacity for new end -uses, such as the H-vision project in the Port of Rotterdam.
Late in 2019, the European Commission awarded five CCS projects with the label of Projects of Common Interest (PCI) (Figure 2.28), a status required to receive infrastructure funding from the CEF. Blue hydrogen projects have been awarded this status before, most prominently the Porthos project. The following three PCI projects intend to transport CO2 captured from hydrogen production facilities:101 the CO2 SAPLING Project, CO2 TransPorts and the Northern Lights project.
Development of CO2 infrastructure, both pipelines and shipping routes, is expected to rapidly enable blue hydrogen production in the countries bordering the North Sea area by retrofitting existing production. To date, no hydrogen-related CCS projects have received PCI status outside the North Sea area. In Germany and Sweden, blue hydrogen is also being explored, although Germany is not in favour of domestic CO2 storage. This implies that Germany has to look to cross-border CO2 transport if it is to engage in CO2 capture, for example, under the H2morrow102 and Preem CCS projects.103
CO2 transport and storage infrastructure will develop in areas where there is a sufficient supply of CO2 from point-sources, both now and in the future. Industrial clusters with a large share of emissions from (petro)chemicals, hydrogen, cement, and steel production will likely be able to provide sufficient guarantees to pipeline operators. Two basins in the North Sea, off the coast of the Netherlands and Norway, are the only basins that have received official permits for CO2 storage, so legally developments can only materialise here in the short term.
The recent steep increases in the EU ETS carbon price105 and other policy and support measures, such as the ETS Innovation Fund launched in the summer of 2020, the Dutch SDE++ support scheme, and the Connecting Europe Facility (CEF) are expected to increase blue hydrogen production capacity in the coming years. In the future, industries with a high demand in hydrogen could also trigger the construction of a new SMR/ATR plant (see section 3.1).
Based on current project announcements, an acceleration of blue and especially green hydrogen project developments is expected between 2020 and 2030. A further increase is expected, driven by the EU and national hydrogen strategies, reaching at least 40 GW of electrolyser capacity in the EU by 2030 (European Hydrogen Strategy).
Most of the electrolyser projects (around 55%) the EU are located in Germany. In addition, the UK has six operational electrolyser projects, nine planned electrolyser projects, and six planned blue hydrogen projects. The IEA hydrogen project database of planned and announced projects shows that hydrogen production capacity is expected to continue to grow during the 2020s (Figure 2.29).100 A further 110 electrolyser projects are planned to become operational by 2030, mainly in Germany, the Netherlands, France, Spain, Denmark and Belgium. Almost all electrolyser projects have plans for capacities at megawatt-scale.100 The uptake of new projects could be lower in reality as some planned projects may not materialise on the announced potential start date.
In terms of capacity, countries like Portugal, the Netherlands, France, and Germany are expected to contribute, with 1.7 GW of hydrogen production capacity installed by 2023 (Figure 2.30). By 2027, an additional 3.3 GW of installed capacity is expected in the Netherlands and France. By 2030, Belgium and Italy are estimated to be major contributors, with an expected additional capacity of almost 11 GW. Over the course of 2020, the European Commission and several countries have announced hydrogen strategies, which are expected to further accelerate the development of electrolyser capacity towards 2030 and 2040.106 The EU Hydrogen Strategy has set a clear target of installing at least 6 GW of electrolysers in the EU by 2024 and 40 GW of electrolyser capacity by 2030.107