“reason for optimism,” even if the hype dies down

Greetings from London, where the fallout from Russia’s war on Ukraine is still reverberating across the region.

Britain’s energy regulator is expected to announce a 9% rise in household energy bills on Friday as wholesale gas prices rise, partly due to uncertainties over Russian gas supplies to Europe .

It means typical bills are still several hundred pounds a year higher than before the energy crisis fueled by Russia’s full-scale invasion in February 2022.

It comes as Russian attacks on gas storage sites in Ukraine are discouraging traders from storing gas there, as colleague Shotaro Tani reported last week.

Writing in the Financial Times this week, Kadri Simson, the EU’s energy commissioner, warns that attacks on civilian energy infrastructure in Ukraine have intensified and this winter is likely to “test the resilience of the Ukrainian people in a way we have not seen before . continent since the Second World War”.

In this week’s newsletter, I look at the emerging green hydrogen industry – and whether realism is finally starting to take over from the hype.

Enjoy reading – Rachelle

Programming Note: Power will be down this Thursday, returning on Tuesday, August 27th.

Green hydrogen: uneven progress

Hydrogen is going through a complicated period. The gas, widely used in oil refineries and chemical plants, is considered a crucial fuel for the energy transition because it emits no carbon dioxide when burned. But today it is produced almost entirely from fossil fuels, mainly natural gas, releasing hundreds of millions of tons of carbon dioxide each year.

Producing it at scale in a low-carbon way requires large investments in equipment to remove and capture these emissions or in electrolysis plants that extract hydrogen from water. The latter process (which produces “green hydrogen”) could help use excess wind or solar power in future renewable-dominated electricity systems and avoid emissions from natural gas drilling.

However, getting the projects off the ground is proving more difficult than expected. Several high-profile attempts to produce green hydrogen at scale have failed in recent months, with manufacturers struggling to overcome the “chicken and egg” conundrum facing the industry as high costs and uncertain demand hamper projects.

Australian iron ore giant Fortescue in July ditched its self-imposed 2030 timetable to produce 15 million tonnes of green hydrogen a year, while both French state-backed utility Engie and Statkraft the Norwegian renewable electricity company, have postponed the plans. for new green hydrogen capacity.

Danish offshore wind developer Ørsted last week pulled the plug on a plant it was building in Sweden to make e-methanol, a fuel produced by combining green hydrogen and carbon dioxide, warning that the market was growing more slowly than expected.

And Thyssenkrupp Nucera, the maker of Frankfurt-listed electrolyzers used to produce green hydrogen, warned last week that its “growth momentum” was being hampered by market uncertainty.

Emma Woodward, European hydrogen market leader at Aurora Energy Research, said there was “a general feeling that it is much harder to put together these investment cases (for new hydrogen plants) than companies would have expected in the past with 2-3 years”.

Several elements need to come together to get the projects off the ground, she noted, such as long-term electricity supply, hydrogen sales agreements, financing and government support. In the US, developers have been hampered by uncertainty over the criteria for tax credits.

“Reason for Optimism”

The setbacks have been eased by a number of projects in Europe that have been given the go-ahead in the past six months, such as Shell’s 100-megawatt Refhyne II plant just south of Cologne, Germany, which will help supply the plant and the oil major’s chemical refinery. the website.

German utility EWE has given the go-ahead for a 280 MW plant in Emden, northern Germany, to supply up to 26,000 tonnes of green hydrogen each year to factories in the region. In Aberdeen, Scotland, BP and the local government approved a green hydrogen plant to supply up to 300 tonnes a year for buses and other vehicles.

In total, green hydrogen projects with a total capacity of 483 MW made final investment decisions in Europe in July, according to analysts at Wood Mackenzie.

“Progress has been quite slow in Europe, but we think there are reasons for optimism,” Greig Boulstridge, research analyst at Wood Mackenzie, told Energy Source, noting that other catalysts for growth, such as new government support, are on the road.

Woodward echoed that view. “I’m not negative (about the sector) because last month we saw this series of final investment decisions being made across Europe,” she said. “So while there are people who are retiring, there are people who have been able to make it work.”

Woodward and others argue that as the market has begun to become more realistic, the hype has subsided about the role hydrogen could play in the energy system. This could help developers focus on getting viable projects off the ground.

Murray Auchincloss, BP’s chief executive, said during an earnings call last month that the group was “focused on hydrogen”. He added: “We have pursued 30 different opportunities in the past. Now we’re thinking about what we can build and what we can actually launch.”

Power points

• A top US oil group is expanding into Russia, despite Moscow’s war in Ukraine.

• Tata Sons has shown interest in buying some of India’s debt-laden state-owned power distribution companies.

• Falling iron ore prices have collectively wiped about $100 billion off the market capitalization of the world’s biggest mining houses.

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global reporting team. It reaches us at [email protected] and follow us on X at @FTEnergy. Keep up to date with previous editions of the newsletter Here.