Green hydrogen becomes competitive in 2030
In order to achieve the goals of the Paris Climate Agreement, global decarbonization must increase by 12% annually by 2030. The development of a low-carbon hydrogen economy can be a decisive cornerstone of the energy transition, as the study "Laying the foundations of a low carbon hydrogen market in Europe" by Strategy&, the strategy consultancy of PwC, shows.
Assuming a continued sustainability trend in which hydrocarbons are gradually replaced in the economy, global hydrogen demand will almost double from 71 Mt to 137 Mt between 2019 and 2040, PwC writes. By 2070, it even expects a sevenfold increase to 519 Mt. In 2070, these volumes would be used primarily in transportation (30%), aviation (20%), industry (15%) and power generation (15%), respectively.
Boost via subsidies
In Switzerland, there are already initial private-sector projects promoting the use of hydrogen-powered trucks. In addition, green hydrogen has the potential, for example in steel production or in the manufacture of synthetic kerosene, to reduce emissions in areas where this was previously hardly possible for energy efficiency reasons.
"The first challenge is to target demand for low-carbon hydrogen in Europe via subsidies. When planning corresponding subsidy programs, states should first focus on industrial clusters that are struggling with their own decarbonization, but bring certain economies of scale and ideally hydrogen-compatible infrastructure such as pipelines. In addition to financial incentives, it is also important to create pioneering platforms so that interested companies can reduce investment risks through strategic cooperation," says Matthias Witzemann, co-author of the study and partner at Strategy& Austria.
In order for green hydrogen to achieve a breakthrough, the surcharge compared to carbon-rich technologies must also be overcome on the supply side. Currently, the electricity used in the production process accounts for 60-70% of the variable costs of green hydrogen. However, it could become competitive in large quantities as early as 2030 if the levelized cost of energy (LCOE) for renewables falls below $20 per megawatt hour and CO2 taxes rise at the same time, PwC writes.
Switzerland could use natural gas network for hydrogen transport
The massive increase in energy requirements for hydrogen production would make countries with great potential for renewable energies, such as Canada or Morocco, potential exporters of green electricity or green hydrogen. Industrialized nations such as Germany, France or even Japan, on the other hand, would tend to import. In addition to the availability of cheap green energy, water is also a critical location factor. Since 22 liters of water must be used to produce one kilogram of hydrogen, densely populated industrial areas are only suitable as production sites to a limited extent.
"For the breakthrough of green hydrogen, supply and demand sides need to be brought together via smart transport routes and storage options. Switzerland, for example, has a very well-developed natural gas network that could be used to transport hydrogen with few adjustments," explains Marc Schmidli, Partner and Deals and Valuation Leader at PwC Switzerland.
As demand increases, 6,800 kilometers of pipelines would be needed in Europe in 2030, and as early as 2040, 23,000 kilometers would be needed to transport hydrogen. The hydrogen market of the future also needs to be thought globally, he said, in order to benefit from cheap green electricity from exporting nations. "Through dialog with regulators and the targeted use of incentive measures, companies will have the chance to help shape the market ramp-up," adds Marc Schmidli.
The European hydrogen strategy primarily envisages the development of an investment agenda to promote strategic investments in environmentally friendly hydrogen technologies and to stimulate the production and use of the green energy carrier. In addition, the introduction of a regulatory framework for the European hydrogen market is planned. The strategy will be completed by supporting research and innovation and strengthening international cooperation.
"Hydrogen will play a central role in achieving ESG targets. In addition to the potential for emission reductions, the opportunities for maintaining technological leadership and business location are important criteria of the European hydrogen strategy. In order to finance the transformation and build the emerging market, hydrogen as a green investment opportunity now needs to raise investor awareness even further," comments Peter Gassmann, European head of Strategy& and global ESG leader at PwC.
Source: PwC
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