INTERVIEW | ‘Producing green hydrogen in Europe will only be viable if derived from Iberian solar and Chinese electrolysers’

When it comes to green hydrogen, “it’s €2.50 [$2.71] per kilogram wholesale price, or nothing.”

Thierry Lepercq, founder of leading project developer HyDeal (see panel below), is adamant that not only is it possible to produce green hydrogen in Europe at such a price, but that a market for large volumes of renewable H₂ will not happen if it is any higher.

This runs counter to cost estimates from other developers, analysts and academics, which suggest that projects in Europe can only produce hydrogen at double or triple that price.

Nevertheless, Lepercq — a former CEO of renewables developer Solairedirect and a vice-president at French utility Engie until 2018 — is confident that solar installed in Spain or Portugal will not only be cheap enough to produce hydrogen at this price, but that it will be the only source of renewable power in Europe cheap enough to make these economics work without subsidies.

But if subsidies are available in Europe, why does this matter?

Lepercq describes a “subsidy illusion”, where neither offtakers nor producers feel the need to adjust their price estimates due to the belief that government support would bridge the gap if a project’s green H₂ is too expensive.

However, while the EU has promised subsidies through the European Hydrogen Bank, the budgets will only cover a fraction of the renewable H₂ required.

“The problem is that if you do €2-per-kg subsidies, times [the EU’s 2030 target of] 20 million tonnes of hydrogen in Europe, times 10 years, it’s €400bn of subsidies,” he estimates. This is more than 130 times the European Commission’s €3bn budget for the European Hydrogen Bank.

But when it comes to producing the cheapest renewable hydrogen in Europe, developers are limited by the price of power, which represents 60-75% of the levelised cost of H₂ production.

“If you look at the efficiency of electrolysers and the cost of the electrolysers, by definition, your financial model will tell you that you cannot pay more than €20 per MWh [for electricity], period,” he says.

“And you still have people, actually, a huge amount of people, who are saying, ‘let’s use offshore wind’. Come on, offshore wind at €20 [per MWh]? Not in 100 years, you’re wasting your time. Not one kilogram of hydrogen will be produced with offshore wind, and certainly not onshore wind in Europe either, because onshore wind is actually not cheaper.”

He points out that green hydrogen made from existing hydropower in Europe will fall foul of the EU’s additionality rules, while electricity from nuclear power — which could produce “renewable” H₂ in France under a loophole in the EU’s Renewable Energy Directive — would also be too expensive.

“I find it funny, I still had this discussion again a couple of days ago with the people who want to produce hydrogen [in France]. They’re saying, ‘We’re going to ask EDF to sell us power at €40’, which is just half of what [EDF] just said they need to cover their basic costs for existing nuclear. I’m not even talking about new nuclear, which is far more expensive.”

While he admits that excess wind and solar power could produce green hydrogen at very low prices, it would be unlikely to meet the required volumes.

While the EU wants to see 10 million tonnes of green hydrogen produced inside the bloc by 2030, it also wants to import 10 million tonnes from outside the bloc by the same date.

Cheap green hydrogen could be produced in parts of the world with high solar irradiation and/or strong winds, with most potential exporters are planning to send green ammonia — derived from renewable H₂ and nitrogen captured from the air — to Europe, due to its greater energy density by volume and relative ease of transport compared to hydrogen.

However, Lepercq is skeptical that imported ammonia will ever be competitive.

“First, all the fertiliser companies [that consume large amounts of ammonia made from natural gas] are shutting doors because they’re no longer competitive [due to high gas prices], so the natural buyers of that [imported green] ammonia are just going away,” he says, adding that cracking ammonia back to H₂ would result in delivered costs above €5/kg.

The only possible way to import green hydrogen into Europe economically is via pipelines from North Africa, Lepercq says, estimating that this mode of transporting molecules only adds €0.2-0.3/kg to the final cost of delivered H₂, and can be produced cheaply due the high wind and solar resource compared to Europe.

HyDeal has already partnered with Moroccan developer Gaia Energy to explore hydrogen production as well as subsea pipelines from Morocco and Mauritania to Spain.

Are Chinese electrolysers up to the challenge?

Lepercq is similarly adamant that the only way to reach HyDeal’s ambitious price targets is through the Chinese supply chain, both for solar panels and electrolysers — with the latter available at a quarter of the price of Western models.

“Our very strong conviction is that there will not be hydrogen production in Europe without China’s supply chain… If you have the pricing levels [for electrolysers] that you get from [European electrolyser makers], you’re not at €2.50 [per kg], you’re at €5 or €7. Who’s going to buy hydrogen at €5 [per kilo]? Nobody.”

According to figures from research house BloombergNEF (BNEF), an off-grid green hydrogen project using dedicated, fixed-axis solar would see a $6.26/kg levelised cost of production if it was using Western-made alkaline electrolysers.

However, the research firm is reluctant to offer their estimates using the capex of electrolysers made in China, as it is not known whether these will be subject to extra costs when imported.

Lepercq’s business plan hinges on electrolysers being able to keep up with intermittent solar power with no back-up from the grid.

As BNEF warned earlier this month, while some manufacturers have promised that their electrolysers will be able to produce hydrogen when the electricity input is only 10-30% of their nameplate capacity, in reality, this has often been closer to 50%. This means that off-grid electrolysers would have fewer operating hours, increasing the levelised cost of hydrogen production over the project’s lifetime.

“The feedback from the first installations — Europe, China — is, I wouldn’t say discouraging, but it’s showing the challenge,” Lepercq concedes.

“Is it impossible, fundamentally, technically, scientifically impossible to have electrolysers follow load, whether that’s, for instance, with pressurised alkali? The answer is no, there is no fundamental technical reason why it cannot be.

“But otherwise, that means that we are on an experience curve, technical experience curve, where these things need to be fine-tuned, engineered, etcetera, which is not surprising for an industry which is ramping up in expertise in volume.

“We are very confident working with the engineering companies that these issues are going to be solved — not necessarily in 12 months, not necessarily in 24 months, but certainly within the right timeframe for us, which is 2026, 2027.”

However, Lepercq is also confident that the solutions to these problems will come from Chinese companies, citing the resources that these electrolyser manufacturers and EPC firms are able to put towards these challenges. “I’ve worked for 20 years with the Chinese supply chain, and it’s already [been] done, we’ve seen that in batteries, in EVs,” he notes.

“When you look at the totally undercapitalised, totally understaffed, small electrolyser makers in Europe, they’re not up to the task,” he says, claiming that most of these companies, both in Europe and the US, are on the edge of bankruptcy.

European electrolyser manufacturers have called for restrictions on subsidies offered to projects able to produce cheap hydrogen due to the use of Chinese equipment, with some institutions and lobbyists warning that Europe could end up switching from a dependency on fuel imports to technology imports.

However, Lepercq argues against this characterisation, noting that China’s capacity to massively drive down the cost of equipment can allow for these projects to be deployed at scale.

“I’ll just give you one example of solar and the position with China,” he says. “In 2011, Europe represented 70% of the global solar market, mostly on the back of Chinese models, imports already at that time. And in 2013, the European Commission said, ‘this is not acceptable, we will levy import duties, significant import duties, on Chinese imports’.

“And within five years, in 2018, the solar power market in Europe had cratered. It was like, Europe went from 70% of the global market in 2011 to 8% in 2018. All companies were gone, including the [domestic] manufacturers.”

Lepercq further argues that once the EU’s restrictions were lifted in 2018, “the market was multiplied by eight in the last five years… right now, solar today is more than 10% of our generation in Europe”.

He also points toward Chinese investment into manufacturing sites in Europe, such as Envision’s electric-vehicle-battery gigafactory in Douai, northern France, as a potential trend that electrolysers could follow.

European electrolyser manufacturers have argued that Chinese equipment is only so cheap because the country has lower labour standards compared to the West — with some suggesting that child labour could be involved in supply chains.

Lepercq strongly disputes this.

“As anybody who has visited solar and electrolyser factories in China will tell you, the source of their competitiveness is not child labour… but scale and automation,” he says.

“By the way, if there was any truth to this, would Europe have imported 50GW of Chinese solar modules last year? If anybody thinks we are going to win the climate war by waging a war on China — and teaming up with fossil-fuel-addicted Trump America [were he to return to office] — they are sorely mistaken.”

Where will green hydrogen be used in Europe?

Lepercq calculates that €2.50/kg of hydrogen is equivalent to €60/MWh of energy from fossil fuels — opening the door to cost parity not only with grey H₂, but with diesel and fossil gas in Europe.

“The good news about €2.50 per kilogram is that if you add transmission costs, distribution costs, compression costs, and refueling station costs… once you have all this infrastructure in place, the cost of a delivered kilogram of hydrogen to a truck, to a car, pre-tax, is around €5 per kilogram,” he says.

Based on how much fuel is consumed per kilometre, Lepercq calculates that 1kg of hydrogen would be equivalent to 7.4 litres of diesel — which at current prices in Europe would cost around €4.81.

Meanwhile, although natural gas prices in Europe have come down from a height of more than €300/MWh to around €30/MWh, futures prices for 2027 and 2028 are trending towards €40/MWh or the break-even point for LNG, Lepercq notes.

“If you have super-cheap natural gas in Qatar and Texas, if you add the cost of a $10-20bn liquefaction plant, if you add the cost of the gas tankers, and if you add the cost of gasification in European ports, you get to that level,” he says.

Adding in the extra cost of the EU’s Emissions Trading System (ETS), which Lepercq estimates would currently bump up the price of gas by €10-15/MWh, this would mean green hydrogen at €60 per MWh would be “roughly at parity with natural gas in Europe with a reasonable carbon value”.

However, Lepercq adds that rising energy costs in Europe are already driving energy-intensive industries such as steel to eye markets with cheaper natural gas such as the US, or growing demand such as India.

“If you’re a global industry and you’re in a region where you have very expensive [natural gas] feedstock, it’s not good, especially when the markets — both the fertiliser and steel markets in the European region — are going down,” he says. “So it means that these industries which look like the best candidates for decarbonisation in Europe, happen to be also the most challenging from a cost standpoint.”

He adds that “green hydrogen in the US is a lost cause”. Since fossil gas is so cheap, subsidy-free renewable H₂ will be unable to compete purely on cost to replace either grey hydrogen or the use of gas in power generation or direct iron reduction.

“Competing with natural gas at $3 per million BTU, $10 per MWh, is a lost cause — now, in 10 years, in 30 years.”