The European Union’s new aim to make the bloc independent from Russian gas well before 2030 should have “significant benefit” for hydrogen industry specialists such as Ceres Power Holdings PLC (AIM:CWR, OTC:CPWHF) and ITM Power, said analysts at Citigroup and Liberum.
This followed yesterday’s announcement from the European Commission of its “REPowerEU” plan, which put the pedal to the metal on the bloc’s ambitions for renewable gases, with bio-methane and green hydrogen seen a central means of achieving the overall aims, along with a greater push for more gas storage built within the boundaries of the EU and more liquified natural gas (LNG) pulled from other global sources.
Two outcomes from the Ukraine conflict are likely persist, Citi said as a result of the announcement from the EU’s executive arm: that there will be an acceleration in policy to promote industrial production of green hydrogen, “not just for decarbonisation, but now as a tool towards enhanced energy security” and that the economics of green hydrogen relative to grey and blue are “improving as fossil fuel prices spike and as renewable power generation is encouraged”.
Europe is now targeting 3.6 times more green hydrogen tonnage than previously announced, which Citi said implied an additional 100 gigawatts (GW) of electrolyser capacity compared to the ‘80GW by 2030’ previous target.
The significance of the acceleration of hydrogen policy momentum, said Citi, is that “we also likely see acceleration of industrial-scale orders for electrolyser and fuel cell players”, namely its ‘buy’ rated shares Ceres and ITM in London and Nel in Norway.
Other London-listed companies developing hydrogen-related projects include AFC Energy PLC (AIM:AFC, OTC:AFGYF, ETR:QC8), ATOME Energy PLC (AIM:ATOM) and Powerhouse Energy Group PLC (AIM:PHE, ETR:BT81).
While the hydrogen sector has rallied strongly in the last month, Liberum analyst Adam Collins said most of the companies in Liberum’s coverage continue to trade “below fair value”.
The EU plan is very welcome, Collins said, “as the wheels turn slowly in Europe and it had appeared that the pace of approvals for government funding or renewable infrastructure investment was taking time”.
Hydrogen is no longer the expensive luxury gas, Collins added, with the cost of producing green hydrogen or ammonia since September lower than fossil hydrogen or ammonia in Europe because of elevated natural gas prices.
What’s more, the EC does not see H2 displacement as part of the plan to avoid Russian gas in 2022, and while fast-tracking new wind/solar installations is expected to make the main contribution in 2022 the green hydrogen scaleup is expected to make a contribution later this decade, he added.
Finer details of the EU plan
Within the EU plan there is a collection of measures “that should facilitate hydrogen project investment decisions and deployments such as contract for differences, relaxation of country subsidy rules and a commitment to speed up the permitting process and IPCEI grant awards”, Collins said.
The EC report reaffirms the bloc’s commitment to the ‘Fit For 55’ package of measures outlined last year, which already aimed to reduce the EC’s annual fossil gas consumption by 30%, equivalent to 100bn cubic metres (bcm), by 2030, including a 5.6m tonne (MT) target for green hydrogen, as well as 1TW of wind and solar, 17bcm of bio-methane and 30mln electric heat pumps.
But the measures in the new REPowerEU plan could gradually remove at least 155 bcm of fossil gas use, which is equivalent to the volume imported from Russia in 2021.
“Nearly two thirds of that reduction can be achieved within a year, ending the EU's overdependence on a single supplier,” the EC said.
The new plan foresees an additional 15MT of renewable hydrogen by 2030 on top of the 5.6MT foreseen under Fit For 55, comprising 10MT imported and 5MT produced in Europe.
“To put this in perspective,” said Collins, “the 20.6MT renewable hydrogen would require around 200GW installed electrolyser capacity we estimate within Europe and neighbours.
“The total renewable energy needed for those electrolysers would be 1,000TWh, we estimate, almost 2x the renewable energy generation today in the EU which is one of the reasons besides resource advantage that imports are expected to play a part.”
Total hydrogen production in Europe today, almost all from methane and therefore ‘grey’ or ‘blue’ or ‘turquoise’ at best, is around 10MT.
The EC said a Mediterranean Green Hydrogen partnership will be set up to leverage the resource advantage of neighbours.
Collins noted that a CFDs programme will be introduced to provide a framework for compensating project developers where there is a renewable cost premium, while permitting for renewable energy projects will also be speeded up.
Assessment of key projects for grant awards (IPCEI projects) will be speeded up to six weeks from EU member notification, the EC said.