The UK government's proposal for a levy on energy bills to support the installation of hydrogen infrastructure risks a backlash against the sector, critics have warned.
North Sea needs policies to match ambitions
North Sea nations are planning 300GW of offshore wind paired with green hydrogen production, but the power-to-X sector needs a plan to avoid bottlenecks and other obstacles.
- North Sea nations plan 300GW of offshore wind paired with green hydrogen
- More than 100 chief executives have come out in favour of the strategy
- However, there are manufacturing bottlenecks that need to be addressed
The North Sea will become a green hydrogen production hub by 2050, powered by more than 300GW of offshore wind farms. That was the goal agreed by the leaders of nine European countries and the European Commission at a summit last week.
On Monday 24th April, the leaders of Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Norway, the UK and the European Union met at the North Sea Summit in Belgian port city Ostend. Their goal was to set targets for the buildout of offshore wind and related industries, including power-to-X, and they did: 300GW of offshore wind would be a 12-fold rise from 25GW in operation today.
This capacity would be the foundation needed to build green hydrogen production in the North Sea, and investors in the green hydrogen sector would no doubt welcome the commitments from countries to achieve the ambitious targets.
The summit was also attended by the chief executives of more than 100 companies active in Europe’s offshore wind and green hydrogen sector. They signed an industry declaration where they backed the ambition to turn the North Sea, and other seas in northern Europe, into a powerhouse for renewable energy and green fuel production.
But while the group is supportive, they highlighted there would be major challenges to achieving these goals. Most of the issues discussed in the declaration focus on offshore wind, but any delays there would harm the green hydrogen side too.
1) Manufacturing bottlenecks
The biggest challenge was bottlenecks in the manufacturing process. The industry warned it was not big enough to produce the 20GW of offshore wind turbines that would be needed each year. This will exacerbate challenges with the production of cables, foundations, substations, transformers and vessels. The firms said they need support from governments to unlock investments in grids, ports and the supply chain.
However, the green hydrogen sector is facing challenges of its own. The makers of green hydrogen electrolysers are already experiencing growing pains as they look to expand their production capacity to meet growing demand, and would be forgiven for feeling angst at the huge targets. This part of the supply chain will need support too.
2) ‘Non-price factors’ in auctions
The industry also welcomed the proposal to include ‘non-price factors’ in auctions for offshore wind developments, which is an idea in the EU’s Net Zero Industry Act and the consultation in the UK on the future of Contracts for Difference (CfDs). The firms in the declaration said the factors should not just look at the supply chain, grids and biodiversity, but also cybersecurity, due diligence and projects’ ESG credentials.
For the green hydrogen sector, these ‘non-price factors’ must also look at the extent to which offshore wind could help support the commercialisation of green hydrogen technology. This could unlock further innovation in electrolyser technology, and help developers and investors in projects that have both wind and hydrogen components.
3) Rising costs for developers
The companies warned offshore wind companies have been delaying investments in new offshore wind projects in Europe because their costs have gone up 40% during the last two years, to the extent that they are no longer covered by project revenues.
They added that national interventions in some power markets have further driven up costs for developers, and the green hydrogen sector is not immune to the inflation in costs. The biggest issue we see here for green hydrogen is that investments in this technology need to be supported by investments in green hydrogen pipelines in the North Sea. There will be difficult questions how this infrastructure will be funded.
4) Skills shortages in renewables
Finally, the companies in the industry declaration said the offshore wind workforce in Europe needed to treble in size, from 80,000 people now to 250,000 people in 2030, and policies are needed to ensure the industry is financially viable. These people will be needed to attract the talented new workers to build and maintain projects.
This will be a challenge for green hydrogen developers too. The rapid expansion that is planned in green hydrogen will require massive growth in numbers of people who can develop, operate and maintain schemes. Therefore, any steps taken to fix skills gaps in the offshore wind sector must be matched in green hydrogen too.
These four challenges could de-rail plans to install 300GW of offshore wind in the North Sea by 2050, and any delays there would affect power-to-X too.
But this is a unified industry. Companies building green hydrogen capacity will be exposed to the risks that green power generation is not built on time, while firms in the offshore wind sector will also need to grapple with how to produce and transport fuels too. The ambitions in the North Sea plan need to be backed by policies – and, ultimately, they will only succeed if the private sector gets the support it needs.
Join us at our Financing Wind conference and our members-only Power-to-X Leadership Council meetings to discuss offshore wind and green hydrogen