THEgreen hydrogen, or produced from renewable sources, can play a leading role in the process energy transition and thus reverse the course of climate change. In Europe, many countries have already put funds and instruments in place for the development of the sector. It's an important match and theItaly it cannot and must not fall behind, in order to avoid delays in starting up the sector putting us at a disadvantage with respect to the import prices of green hydrogen. But there are still many obstacles that hold back the development of the supply chain: the high Costs of production, mainly related to the cost of electricity; there bureaucracy (little regulatory clarity) and the nodes political. Approximately 10-20 billion euros of public support is needed for production costs, but above all it is necessary to define support for Opex (operating and management costs) to ensure the economic feasibility of projects for operators, with timing aligned with tenders PNRR.
This is what emerges from the first report on green hydrogen by Agici and Fichtner which was presented during theevent's audience “The challenges of green hydrogen: demand, public policies and operator strategies”, in Milan on Thursday 1st December, at Palazzo Turati.
“The market for the production and consumption of hydrogen is ready and regulatory clarity and support for the sector are needed immediately as the hydrogen production market is international and delays in starting up the sector in Italy could see us at a disadvantage in terms of prices of hydrogen imports around 3-5 euro/Kg”, he added Massimo Andreoni, Research Manager for Fichtner.
Green hydrogen in Italy: 164 initiatives started or ready to do so
In Italy there are 164 Italian initiatives related to hydrogen, those made public, which allocated according to the categories identified, reach 224 projects, mostly production (76) and consumption (77), the remainder in technology (45) and logistics (26). In the monitoring at the end of July, there were 120 initiatives, therefore they grew by 37% in 4 months.
The majority of the 164 initiatives is represented by projects that aim at the concrete construction of plants, focused on the hard-to-abbot industry and mobility, but in the vast majority of cases the companies await the departure of the PNRR tenders and significant incentives to bring down the high production costs.
The cost of green hydrogen
The study showed that the hydrogen market, both in terms of production and for many of the areas of consumption, is starting decisively with different projects, but which can be traced back to 4 production models:
- centralized,
- decentralized,
- mixed,
- hydrogen valley.
With range of skyrocketing production costs. (LCOH) which vary between 7,4 and 11 euro/Kg. Among these, the optimal model, i.e. with the lowest LCOH, is the mixed model, with a production of hydrogen localized at the user, with a renewable source dedicated, supplemented by withdrawal from the network with green certificates.
The analysis also highlighted how even the choice of decentralized production models with respect to consumption is not economically distant and that their sustainability in any case depends on the presence of support mechanisms both on the Capex (capital expenditure) that side Opex – in the cases analyzed between 50-80% of the total costs – in particular to compensate for the cost of energy which has exploded in the recent period. The models are defined as optimal because in the most unfavorable conditions of energy price scenarios, operating hours of the electrolyser and specific interventions to be done on the sites, the values can even grow by 3-5 euro/Kg.
“From our estimates – he declared Stefano Clerici, Head of research for Agici - it emerges that the resources to support the production of green hydrogen in Italy could be in the range of 10-16 billion euros for the mixed model, and 14-20 billion euros for the hydrogen valley model , to which must be added the 3,5 billion euros of PNRR funds. Furthermore, it is evident that the cost of the electric energy necessary to produce it weighs significantly on the LCOH of hydrogen; for this reason, in our opinion, one could imagine a contribution to the Open indexed precisely to the price of the electricity carrier”.
Green hydrogen in Italy: a precise country strategy is needed
According to the two companies, to facilitate the development of the national projects and models described, it is necessary to develop a precise country-strategy on hydrogen and specific policy tools, necessary above all to reduce the still high production costs of the molecule. In particular, there are concerns on the operators' side about the lack of regulatory certainty and clarity on the specific criteria to be adopted for the definition of green hydrogen; on the risk of loss of competitiveness of green hydrogen compared to other forms of low-emission hydrogen; on the slow development of the renewable capacity needed to power the electrolysis plants for the production of green hydrogen at a national level; on the low capacity of the current public financing instruments envisaged (e.g. IPCEI, PNRR) to support investments in the medium-long term and, in particular, on the lack of a specific instrument capable of supporting the Opex of the projects, at this stage strongly influenced by the low maturity of the technologies, but above all - as repeatedly stated - by the high costs of the electricity carrier.
How are other countries doing?
At the European level, many countries are developing solutions capable of responding to these issues, in particular guarantees of origin for the molecule (for example the HyXchange Initiative in Holland), mechanisms to support the import of green hydrogen from abroad (such as the H2Global Foundation in Germany), tax credits (such as the US tax credit Use) and incentive schemes for bridging the economic gap between hydrogen and fossil alternatives (for example the Contract for Difference in UK).
Conclusions
- Green hydrogen represents a great opportunity for decarbonisation, but not for all sectors: the focus is on hard to abate and mobility.
- Companies are ready with hundreds of projects to invest in the sector, but it is necessary to define a clear country strategy to guide their choices.
- It is necessary to define support for Opex to guarantee the economic feasibility of projects to operators, with timing aligned with the PNRR tenders.
- To counter the great uncertainty about the prices of the electricity carrier, it would be appropriate to define an incentive indexed to price signals.
More concretely, regardless of the support tool adopted, to make more competitive the cost of production, currently between 7,4 and 11 euros/kg depending on production models, intended uses and electricity prices, needs to be brought closer to that of fossil alternatives, gas in industry (1,5 euro/Kg) e diesel in mobility (5 euro/kg). To do this, based on the simulations by Agici and Fichtner, it would be necessary to reduce Capex by 50-60% through the PNRR funds and apply a contribution on Opex of between 1,5 and 6,8 euro/Kg.
