Blue hydrogen likely to be in play in EU for 5-10 yrs, analyst says

There is a lot of talk in the EU about green hydrogen, but blue and pink hydrogen will likely play a role in the next few years as the block has realised it will not be able to reach its own short-term targets at the current pace of renewables expansion, an analyst told Renewables Now.

Nick Walker, Head of Renewable Energy, Cleantech & Sustainability Research at UK investment bank Peel Hunt LLP, shared his view of the current situation in the European hydrogen market, particularly in relation to electrolyser production and green certification.

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“It is likely that down the road there will be another push to switch to an all-green hydrogen. For the next 5-10 years, however, both blue and green hydrogen are likely to be in play (like in the UK),” Walker said.

The analyst has come to this conclusion due to the conflicting signals coming from the EU in relation to the green “label” of hydrogen. More specifically, the European Commission’s REPowerEU Plan stipulates that only fossil-free hydrogen will benefit from subsidies but in reality, for a limited time, certain nuclear energy and fossil gas activities with the carbon being sequestered (blue hydrogen) will be viewed as environmentally sustainable, too. This will become so with the start of the new year as in mid-July 2022 the EU adopted an amendment to its taxonomy to include such activities.

“So, on the face of it, it would appear to have the EU saying it will only hand out subsidies for electrolyser projects/companies producing green hydrogen, but the taxonomy -- underpinning rules for investors -- says it is okay to include nuclear and gas as ‘green’ for investment purposes in this sector,” he said, also suggesting that “the national interests of some of the larger EU member states have come into play.”

Asked about how this will affect the sector and electrolyser production in particular, Walker provided the following comments:
“I believe the EU has discovered that they cannot build enough new renewables in the timescale it has set itself to meet its own targets [...] and there is a push to go quicker, faster, bigger. So, in the short term, they want to also use nuclear power to power electrolysers and the use of blue hydrogen sourced from natural gas [...]. The EU has also promised to speed up permitting times for renewables and electrolyser projects, where possible. Use of nuclear power could be a positive for electrolyser production,” he added.

“With the US IRA [Inflation Reduction Act of 2022] tax credit in place, I think the EU has woken up to the fact that they need to push as hard and as quickly as possible and not to put too many bureaucratic processes/obstacles in place. Hence, we are now seeing the watering down of the original ‘additionality’ rules,” Walker said further.

The industry is currently waiting for the EC to publish the delayed additionality rules, which will set the requirements for hydrogen to get the renewable certification. This was reportedly supposed to happen on December 15 following the leaking of the draft document.