The EU should set a target for green hydrogen to push gas out of the market and help the continent reach net-zero emissions by 2050, according to the vice-president of the European Investment Bank (EIB).
Andrew McDowell, speaking at the Empower energy-transition conference in Brussels on Tuesday, said that if the average wholesale price of clean electricity falls to €0.02 ($0.022) or €0.03 per kWh (€20-30/MWh) — green hydrogen would be cheaper than natural gas, enabling full decarbonisation of the energy market.
“I think one very interesting point is, what will happen to your [oil & gas] assets if the price of electricity falls to €0.02 or €0.03 per kWh? And why €0.02 or €0.03 per kWh? Because that’s probably the price that’s required for electricity to make green hydrogen competitive with fossil fuels; replacing fossil fuels in industry with green hydrogen,” he stated.
“And why is that an interesting question? Because that has to happen for the net-zero [emissions] target to materialise. There is no other route.”
Individual wind and solar projects have already been awarded at prices below €0.02 per kWh (€20/MWh) around the world, with the lowest cost seen in Europe being €14.80/MWh (€0.148/kWh) awarded for a solar project in Portugal last June.
The International Renewable Energy Agency (Irena) reported last year that it expected the global average levelised cost of onshore wind and solar power to reach $0.045 and $0.048 per kWh, respectively, this year.
By 2050, Irena forecasts the average cost of onshore wind globally to fall to $0.03-0.05/kWh by 2030 and $0.02-0.03/kWh, with offshore wind reaching $0.05-0.09/kWh by 2030 and $0.03-0.07/kWh by 2050. Similarly, the average cost of PV globally will fall to $0.02-0.08/kWh by 2030 and $0.014-0.05/kWh by 2050.
Currently, the average wholesale price of electricity in Europe is about €0.07-0.08/kWh.
“To get the price of electricity down to €0.02 or €0.03 per kWh is going to be an enormous, enormous challenge,” McDowell told the conference, which was jointly organised by industry bodies WindEurope, SolarPower Europe, the Renewables Grid Initiative and Smart Energy Europe.
“Obviously that’s about reducing the capital costs — we need to reorganise the entire value chain and the supply chain around solar and indeed wind in order to get the price even further down.
“So this, for me, is the monumental challenge that Europe faces. It’s the €0.02/kWh challenge. Because that is what is required in order to decarbonise pretty much the entire European industry. And obviously, as we know, 70% of carbon emissions come from the energy sector.
"So without that, I think we’re really going to struggle [to meet the net-zero by 2050 target].
“I’d love it if the European Commission and indeed other policymakers would set out that as a mission — [to] get the price of electricity down to €0.02 or €0.03 per kWh.”
The EU has yet to officially adopt a target of net-zero emissions by 2050, but the European Commission has been clear that it is pushing for that goal to be officially adopted by the bloc this year.
McDowell, who oversees energy financing at the EIB, also explained that the net-zero target was one of the main reasons that the EU’s investment bank last November decided to stop financing all fossil-fuels projects.
“If you look ahead at €0.02 or €0.03 per MWh, you start to realise that entire sections of the energy value chain become completely redundant. Pretty much the entire gas infrastructure as we currently have it becomes completely redundant.
“The reason why we pulled out of gas was partly because of policies. We are a political institution and our shareholders [that is, the EU] want to position ourselves as the EU climate bank. And we can hardly position ourselves as the EU climate bank if we’re continuing to finance fossil-fuel projects.
“But it was also because we were going through a risk-management exercise of looking at what happens to our assets if net-zero is reached. And what happens to our assets is that the assets we’d be financing on a 25-year basis would become redundant, they’d become stranded. From a pure risk-management and banking perspective we decided that wasn’t going to be an acceptable risk for our institution.”
More than 95% of the hydrogen produced today is derived from unabated fossil fuels (natural gas or coal), resulting in nine to 12 tonnes of CO2 emissions for every tonne of H2. This is known as grey hydrogen.
However, 'green hydrogen' can be produced with zero emissions by using renewable electricity to split water molecules into H2 and oxygen inside a machine called an electrolyser; a process known as electrolysis.
Or the CO2 emissions from natural-gas-based H2 production can be captured and stored, resulting in what is known as blue hydrogen. Strictly speaking, this would be classed as low-carbon hydrogen as not all the CO2 from the production process can be captured.