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In Green Hydrogen Race With the U.S., Europe Is Hobbled – WSJ

Higher energy prices in the European Union are a problem when trying to match the scale of Washington’s subsidies

European politicians worry that the generous subsidies for green-energy technologies in the U.S.’s climate bill will lure investment to America.
European politicians worry that the generous subsidies for green-energy technologies in the U.S.’s climate bill will lure investment to America.(Todd Anderson/WSJ)

Carol Ryan, WSJ

EnergiesNet.com 03 24 2023

Excitement about green hydrogen is high in energy circles. Europe had an early lead, but now the U.S. is doing the better job of powering up the new industry.

Officials in Brussels announced plans last week to set up a new European Hydrogen Bank as part of its response to the $369 billion of funding for clean energy contained in the U.S. Inflation Reduction Act. The bank, due to launch by the end of the year, should boost renewable-hydrogen supply by using an auction process that links buyers and sellers, and by subsidizing the higher cost of producing the carbon-free gas compared with fossil-fuel alternatives. So-called green hydrogen is made by using an electrolyzer to split water into hydrogen and oxygen using renewable electricity. Most hydrogen today is derived from natural gas and considered “gray.”

European politicians worry that the generous subsidies for green-energy technologies in Washington’s climate bill will lure investment to America. Governments in both regions hope that low-carbon hydrogen can help to decarbonize industries such as steel manufacturing and shipping. Ramping up domestic production would also help Europe to lower its reliance on imported fossil fuels.

But companies find it harder to figure out what help is available in Europe. “The real charm of the IRA is its simplicity. To sum up the overall amount of available funding in Europe is very difficult,” says Leif Christian Kröger, business development manager at electrolyzer maker Thyssenkrupp Nucera.

There are subsidies but the cash is spread all over the place. Funding of up to €5.2 billion, equivalent to $5.60 billion, for hydrogen projects was approved last September and close to €270 billion of unused EU Covid-19 recovery funds can also now be redirected to clean energy projects. Grants worth €1.5 billion are available for companies building infrastructure such as hydrogen fueling stations. That’s not to mention support that is available from the European Union’s 27 national governments. 

One important job for the new hydrogen bank will be to gather information about funding across the EU in a single place. If it can become a one-stop shop, companies would have less complexity to wade through.

Understanding U.S. subsidies is simpler. The IRA offers a production tax credit of up to $3 a kilo of clean hydrogen, depending on the carbon intensity. This means green hydrogen could be competitive with gray hydrogen by around 2025, according to Bank of America estimates. Without subsidies, this would happen five years later in the EU. 

If the IRA helps the U.S. to attract more investment, it would be double-edged for Europe. The EU would benefit from a strong clean-hydrogen export market in the U.S., as it plans to import around half its future needs. But Brussels also needs to unlock a flood of private investment if it is to hit a target to produce 10 million metric tons of green hydrogen domestically by 2030. 

The new hydrogen bank is funded with €800 million for now. If it offers a €3-a-kilo subsidy, roughly matching the IRA tax credit, the bank will have capacity to subsidize a very modest 26,000 tons of production, according to Matthew Hodgkinson, hydrogen analyst at S&P Global Commodity Insights.

Electrolyzer manufactures, share-price graph
Source: FactSet

The region’s higher energy costs are also a disadvantage. At a recent industry conference in Germany, producers said the EU might need to subsidize higher operating costs to be on a truly equal footing with the U.S., according to Bank of America analysts who attended. 

This may make it harder for domestic manufacturers of equipment used in green-hydrogen production to know how soon they need to increase output to meet demand. These include independent electrolyzer makers such as ITM Power and Nel, whose stocks soared in 2020 and have struggled to make headway since. Until policies are clearer, their customers will take longer to commit to projects in Europe than in the U.S.—and the roller coaster for investors may continue.

Write to Carol Ryan at carol.ryan@wsj.com

Appeared on the WSJ in the March 23, 2023, print edition as ‘Europe Is Hobbled in Green-Hydrogen Competition’.

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