Senior Associate EU and French Energy Policy
The year 2020 has seen the announcement of significant investment flows for the development of hydrogen in the European Union. Some stakeholders, in particular from the gas industry, are advocating the development of large-scale cross-border hydrogen transport infrastructure in Europe. These proposals raise the question of the needs for such infrastructure and must be set against estimates of realistic and desirable hydrogen demand and production methods. Otherwise, substantial financial resources risk being spent on developing an unnecessary and unsustainable network, which could result in significant stranded assets.
The development of a hydrogen industry in Europe naturally raises the question of its transport and distribution infrastructure. Planning requires a proper estimate of future demand, its location, and possible production sites depending on the mode of production, i.e. based on natural gas in a transitional period or on electrolysis using electricity. However, too little is known at this stage to decide how electricity and hydrogen transport and storage networks should complement each other in order to optimise the energy system around hydrogen demand and production, and further analysis is needed.
Similarly, the studies propose estimates of hydrogen demand in 2050 that vary up to eightfold between studies; Bruegel places the demand for hydrogen in 2050 as somewhere between 295 and 2080 TWh, with the scenarios developed by the European Commission falling within this range (790-900 TWh). There is thus a significant risk of developing an outsized hydrogen infrastructure that could not only result in stranded assets but also drive the development of uses for hydrogen, thereby favouring applications for which there are more efficient – and therefore more economical – low-carbon alternatives. Poor planning could also lead to lock-ins in uses or supply routes that are not sustainable in the long term (the lifetime of transport infrastructure is between 30 and 60 years). It is therefore essential to adopt a "no-regrets" approach that minimises lock-in risks when investing in hydrogen infrastructure.
Uncertainties about which hydrogen uses should be developed make it difficult to plan a potential hydrogen network at this stage. However, it is possible to identify "no-regrets" hydrogen applications, for which no low-carbon alternatives exist. In a recent study, the think tank Agora Energiewende quantified this "no-regrets" demand at the European level at around 270 TWh per year by 2030-2050. This estimate corresponds to uses in industry, including hydrogen as a raw material (e.g. for the manufacture of ammonia) or as a reducing agent for steel production. These "no-regrets" uses would be relatively concentrated geographically around industrial sites.
In the first phase, develop clusters
To deploy hydrogen in "no-regrets" industrial uses, a trans-European hydrogen transport infrastructure is not essential. The modular nature of electrolysers makes it possible to locate hydrogen production near consumption sites: the electrolysers can be small and only require an electrical connection and a modest water resource. It is therefore strategic to invest first in production capacity near sites with "no-regrets" industrial applications. The use of hydrogen to decarbonise industry could then be achieved without deploying cross-border infrastructure.
The value of investing in clusters as a priority is reflected in European hydrogen strategies (see strategies by the European Commission, France, Spain), which view this type of deployment as a first step. Concentrating production at demand sites allows for economies of scale and the deployment of a certain level of hydrogen consumption before potentially having to develop a hydrogen transport infrastructure. In this phase, only a few hydrogen transport pipelines would be installed over short distances, or part of the existing (methane) gas network would be converted.
What terms for a “European backbone”?
Natural gas network operators are proposing the construction of a "European hydrogen backbone", i.e. about 40,000 km of pipelines crossing 21 countries across Europe and numerous storage sites in salt caverns. This network would mainly comprise methane pipes converted to carry hydrogen. The total cost would range between 43 and 81 billion euros.
This proposal is based on European hydrogen demand estimates by the gas industry (Gas for Climate consortium), which are very optimistic about the deployment of hydrogen in all economic sectors and should not be considered as a moderate scenario. For example, their "Accelerated Decarbonisation Pathway" envisions 1,710 TWh of pure hydrogen consumption by 2050, supplied by low-carbon hydrogen from electricity and methane. Gas for Climate relies on fossil-based hydrogen which, even when supplemented with carbon capture and storage, raises the issue of methane leakage along the value chain. Furthermore, it assumes that some of the hydrogen demand would originate outside of Europe, and there is no unified vision regarding the use of imports at the European level: for example, Germany plans to import the majority of its consumption, while France does not mention cross-border trade in its hydrogen strategy. Finally, importing low-carbon resources from countries with high-carbon energy supply raises sustainability issues.
In view of the uncertainties regarding the level of hydrogen demand and production methods, planning cross-border infrastructure at this stage runs the risk of creating irreversible hydrogen demand. Moreover, such infrastructure is not necessary to ensure hydrogen deployment in applications without a low-carbon alternative. Developing a cross-border infrastructure too quickly without ensuring the relevance of the uses and modes of production of low-carbon hydrogen entails risks, namely diverting financial support that would be better used to develop a hydrogen sector for decarbonisation, for instance by supporting the deployment of electrolysers to lower their cost or stimulating research and development on how to decarbonise hydrogen production. These are the topics that should be at the core of an enhanced European cooperation on hydrogen, already underway as part of the Important Projects of Common European Interest (IPCEI).