At the pv magazine Roundtables Europe event last year, you presented your plan for green hydrogen production in Portugal, in which you couple a utility-scale PV plant with an electrolyzer. What’s the status of the project?
We continued our development at full pace, [even though] the legislative and permitting framework is not yet fully in place. The project has been shortlisted by the Portuguese IPCEI [Important Project of Common European Interest] selection process and we are front-runners at the various entities for registering and permitting the project.
There is still a lot to be done on the regulatory side, but you’ve reported that the regulations are evolving. What do you mean by this and what remains to be done?
Following the launch of the EU hydrogen strategy and the increase of climate action goals, the [European Commission] is expected to launch the proposal for a complete regulatory framework on hydrogen this year. Discussions are ongoing in the context of, among others, the revision of the REDII, the Alternative Fuels Infrastructure Directive, the EU ETS in connection with the Carbon Adjustment Mechanism, and the EU Taxonomy.
Going a bit deeper, what is particularly important for you as project developer and investor in the solar and hydrogen space?
The introduction of the additionality principle, meaning that hydrogen projects shall only be fed by electricity from additional RES, should happen in a phased approach. Imposing too demanding restrictions with respect to time and geographical correlation at the very start of the enabler projects can stop the required momentum. In terms of EU Taxonomy, the threshold for carbon emissions by hydrogen production should be set low enough that subsidies go to RES-based hydrogen – meaning the value of 2.256 tCO2eq/tH2 should not be increased further. … 2021 will be decisive for the development of the hydrogen framework at the EU level, but national regulation has to follow. In order to accommodate the development of green H2 projects, we urgently need clear definitions of renewable H2, less complexity in the licensing procedures, definitions for technical regulations to access the gas grid, and suitable territorial instruments that enable the production of green hydrogen outside of industrial areas to co-locate PV or wind with electrolyzers. [But] 2030 is only one investment cycle away and therefore, despite the strong commitment of the EU industry toward the energy transition in Europe, the uncertainty associated with the regulatory framework may jeopardize timely investments into green H2 projects.
We’ve already reported on projects claiming that in the near future, they will be able to produce green hydrogen in southern Europe for €1.50/kg. Is this reasonable? What are your cost expectations? Which costs have to be included in a serious comparison?
The most decisive factors on the achievable cost of hydrogen (LCOH) are the electricity costs (LCOE), the loading factor which you can achieve, and the electrolyzer cost. Assuming optimum conditions, €1.50/kg is ambitious but reachable by 2030 or even earlier for large-scale projects – excluding works. However, often current business cases don’t see the full reality and are overly optimistic. For example, you cannot only put the capex cost expectation of the electrolyzer in your project – what about the local EPC, all the auxiliaries, and other balance of plant (BOP), which in smaller projects can be more expensive than the electrolyzer? Also, on the LCOE – if you plan to use the grid with a dedicated PPA besides a potential direct connection to RES, grid fees apply which can kill your business case. Given the additionality principle, this PPA also cannot necessarily balance your electricity supply and you may end up with a lower loading factor. And obviously you have to consider the logistics and transport costs, which are very important, until a dedicated pipeline network for H2 will be available. In our projects in Portugal and Spain we are calculating – depending on the specifics – LCOH ex-works between €3/kg and €5/kg. These are the kind of projects happening now to enable the scaling to achieve the intended cost below €2/kg for projects in 2030.
One cost factor is full load hours with which you can operate the electrolyzers. PV has lower full load hours in the northern latitudes, while wind generally has more but higher generation costs. What is your strategy when it comes to the geography of green hydrogen production? Do you think solar PV+electrolyzers in northern Europe is a possibility? How competitive is it in southern Europe?
Smartenergy has a strong focus on PV and we are targeting sites in southern Europe – such as Portugal, Spain and Italy. Although the loading factor is an important parameter, with the expected reduction of electrolyzer costs, the load factor as provided by PV, at approximately 30%, can be the best choice. Combination with other RES, in particular wind, is feasible with a combined load factor of above 50%, and should be absolutely developed. As mobility and transport of hydrogen will remain costly until a dedicated pure hydrogen pipeline system will be available in 10+ years, decentralized projects with dedicated off-take in industry and mobility can be competitive also in northern Europe instead of imported from the south. On the other hand, the more competitive conditions for H2 generation in southern Europe may also attract corresponding industries to “re-locate” over time. The production of ammonia could be one example.
Are investors already interested in investing in PV-sourced green hydrogen generation? And what are your plans for the future?
For Smartenergy, adding H2 to our RES portfolio is both an investment opportunity and a hedging mechanism to reduce risk on pure PV and wind investments. PV merchant prices are expected to decouple more strongly than other energy sources being by far the cheapest electricity at levels below €25/MWh, depending on the location. Making use of this development with hydrogen projects is a great opportunity for new PV projects. But until a commodity market for hydrogen develops, the targeted application and off-take matching with the project is key.
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