EU energy: strict rules on green hydrogen hurt nascent industry

One might be forgiven for thinking that the clash of the energy titans would be between those who favour “dirty” fossil fuels and those rooting for “clean” renewables. Not so in Europe. Sparks have flown over what kind of hydrogen — exactly — should count as green, and gain access to any envisaged subsidies for the fuel. The European Commission’s relatively strict stance is a blow to the nascent industry.

At first take, the proposed new rules — expected to kick in towards the end of the decade — make sense. Hydrogen does not emit Co2, but the way in which the former is produced might. If electricity generated with fossil fuels is used to split water the process may prove counterproductive.

That is why the EU does not want hydrogen made by hooking electrolysers up to the power grid to count as green. However, electrolysers fed by new solar and wind generators, running in the same place and at the same time as the electrolyser, would qualify. The EU would waive the new strictures if the grid were to be largely renewable, or nuclear.

That would make European hydrogen really green — much greener than zero-emission electric vehicles. This hydrogen will also be scarce and expensive. Producing hydrogen only when the sun shines spreads equipment costs over relatively little hydrogen. These restrictions will add more than €2/kg to the cost of hydrogen, or €50/MWh, estimates Frontier Economics, a consultancy. That is roughly the cost of natural gas in Europe today.

This could mean good news for big renewable generators such as Spain’s Iberdrola, should the EU’s strict approach lift demand for pure renewable power. An unexpected green light for nuclear power would give the French hydrogen industry a head start.

But the strict rule-book will prove a setback for the European hydrogen industry as a whole — from electrolyser manufacturers to energy companies hoping to switch clients on to hydrogen. Worse, if the US settles on a more flexible approach, that will energise the transatlantic tussle for green investments.