Will the US overtake Europe on hydrogen?

“Europe’s hydrogen sector is at a precipice.”

Trade association Hydrogen Europe shared this stark warning last month with Ursula von der Leyen, president of the European Commission, about the EU’s failure to remove roadblocks for green hydrogen. This should also worry firms in the wind industry that see green hydrogen as the ‘next big thing’.

The association gave its warning in a letter on 25th August, which it made public this week. It focused on the “dismal impact” of the Delegated Act of Article 27.3 of the EU Renewable Energy Directive, which it argued imposes strict restrictions on green hydrogen that would harm investment and mean that Europe loses ground to the US.

Its points are not new, but its warning is clear – and all the more urgent for the EU to respond now the US has passed its Inflation Reduction Act.

“Either the continent can capitalise on its head start to lead the world in renewable hydrogen production, distribution and end-use with the backing of investors and policymakers. Alternatively, Europe can lose ground to regional competitors due to a lack of drive and imagination at the policy level to become an also-ran in the next great technological race,” it warned.

Its main contention is that the EU will hamstring businesses by being too strict on what makes hydrogen ‘green’.

For example, Article 27.3 stipulated that hydrogen must be created using electricity from renewables projects including wind farms, but also that the electricity should come from dedicated new capacity or curtailed renewable power, or should be bought from the grid via tightly regulated power deals.

Then there are rules around where hydrogen production facilities can be based in relation to renewables generation; rules that commit operators to prove the power used to produce green hydrogen was generated during the same month as the renewable power was in operation; and rules about the age of facilities that can be used to produce green hydrogen.

It makes sense for the EU to ensure that green hydrogen is indeed ‘green’, but the fear is that the EU’s rules are too stringent and will spark a “mass exodus” of firms. Hydrogen Europe contrasted this with the approach in the US.

American ambitions

Last month, the Biden administration won backing for the Inflation Reduction Act, which is set to introduce new tax credits to support the growth of the US electrolyser and hydrogen-fuelling technology.

These include a ten-year production tax credit for green hydrogen production; an investment tax credit for energy storage technology including hydrogen; and more support for electric and hydrogen vehicles.

This is supported by a plan from the US Department of Energy, revealed in June, to fund the Bipartisan Infrastructure Law’s $8bn programme to develop four regional clean hydrogen hubs across the US. These four hubs are set to create networks of hydrogen producers, consumers and local infrastructure owners to transport it.

Hydrogen Europe called this a “concrete plan” that is “the most impressive incentive any policy maker has undertaken to encourage renewable hydrogen rollout”. It said investors would be attracted to the comparative simplicity of operating in the US.

Finally, we see another tailwind for the growth of green hydrogen in the US.

Last month, analysts at Yes Energy warned that wholesale power prices in the US went negative more than 200million times across seven US grids in 2021. This is because of the combination of high renewables production in some US grids and the ailing transmission grid that makes it difficult to transport the electricity to where it is needed.

This has been a longstanding bugbear for companies in the US renewables sector, and we expected it to be a talking point at our Financing Wind North America event again next month. Click here to sign up for your place

But this could be to green hydrogen’s benefit. If renewables producers are having problems transporting their electricity to where it is needed, they may be able to remove this issue by selling the power to green hydrogen facilities.

This is another factor that could help the US while the EU stays tangled up in its overly-complicated rules. But in a year of energy crises, will the EU listen?

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