Major energy companies are betting on hydrogen as they branch into new renewable ventures and investors are keen to understand the evolving landscape and what role this alternative could play compared to natural gas and electrification.

The present day is seen as a critical juncture for the hydrogen market. To help investors navigate the emerging hydrogen economy, OPIS recently took part in a roundtable of industry experts, exploring factors that could drive wider adoption of hydrogen as a clean fuel source.

As pointed out during the discussions, challenges of developing hydrogen trade include funding assurance for new projects and the ongoing changing landscape of regulation across the European Union and the United Kingdom. Other key material issues that must be addressed involve convincing industrial sectors how they can electrify or switch to hydrogen.

Well-established corporations such as ExxonMobil see the importance of implementing hydrogen for their energy needs, according to the company’s low carbon hydrogen solutions executive Michael Foley. Besides manufacturing experience, leading energy producers aim to develop hydrogen on a wider scale as part of their overall strategy. For many, however, manufacturing it from natural gas with carbon capture remains the most affordable method.

Another point made during the roundtable concerned hydrogen availability and predictability, that is, whether enhanced cooperation amongst parties can translate into realistic demand. Fuel switching, currently gas-fed networks with hydrogen, remains a huge endeavor, and in here coordination remains a key component in the transition toward hydrogen adoption. In that sense, although hydrogen as a fuel can be seen as very similar in practice to natural gas, it still needs to be treated in different ways concerning its safety criteria, storage, and other matters. As such, a full switch of pipelines and use is not as evident as many would expect.

Expectations anyway remain high, points out Cadent’s director of strategy Angela Needle. Current research for instance confirms that standard natural gas networks can safely handle up to 20% of blended-in hydrogen, without having any significant impact on the majority of appliances that would use the blend. Yet the same cannot be said for larger infrastructure levels such as gas turbines, which would in theory require different blend conditions.

Without a doubt, hydrogen is still an essential component to achieve net-zero targets for power industries, and developing business models together with governments will continue to contribute to creating confidence from the user’s side, said Marta Oliveira of Ikigari Capital.

Incentivizing Hydrogen Investors

From a venture capital perspective, project developers need to look at hydrogen in terms of multi-modal transport demand to push for expansion. Investors need to see more material demand for hydrogen production, and this will help create the infrastructure, testing, and confidence in production. Still, investors need more visibility on potential revenues, for if the issues surrounding establishing and maintaining demand for hydrogen can be resolved, other cost-side challenges can be addressed more quickly.

OPIS produces a hydrogen cost price index that underlines such cost-side challenges. The index reveals that green hydrogen in the Netherlands, Germany and the UK has consistently been more expensive than its chief competitor, natural gas, which hydrogen makers hope will be swapped for the greener gas in industrial processes.

The May OPIS Netherlands green hydrogen price stood a whopping €156.61/MWh more expensive than the equivalent EEX Dutch TTF natural gas price. This compares with €155/MWh in the previous month.

With greater market assurance, there will also be more consistent hydrogen pricing. Producers would eventually manage to trade hydrogen in the same way as other energy commodities.

A key takeaway from the discussion showcases the differences between the EU and U.K. hydrogen prices when reviewing the implementation of industry production requirements. The Hydrogen Bank Allocation program, which entailed direct subsidies intending to incentivize green hydrogen projects, has benefited in curtailing hydrogen production prices for EU-based initiatives. The U.K. Hydrogen Funding rounds display higher prices than their continental counterparts, making them in turn less attractive projects to take up.

Nonetheless, all specialists emphasized the importance of establishing common policies, to encourage investment for scaling up production. New requirements for carbon capture and storage are contributing to creating demand for alternative fuels by a diverse range of industrial sectors. This in turn will facilitate the setting up of business models to support hydrogen pipelines and storage facilities enabling the massification of green hydrogen consumption for Europe’s industrial needs.

Watch our latest on-demand webinar in partnership with Investors Business Daily,
‘Why 2024 Is A Pivotal Year For The Hydrogen Market: A Conversation With IBD And OPIS’