What’s next for Power-to-X?

In mid-March, the European Commission presented its new industrial strategy and announced measures it intends to take to provide European industry with comprehensive support in transitioning to climate neutrality and digitisation. Among the key elements mentioned by the Commission is an alliance for clean, “green” hydrogen. The idea is to replace coal, natural gas and oil in production with hydrogen. This is how hydrogen could contribute to decarbonising industry. However, green hydrogen or CO2-free synthetic fuels produced from it also offer the possibility of reducing CO2 emissions in heavy transportation vehicles, ships and air traffic.

Power-to-Gas – the main attraction

The USP is the introduction of “clean” hydrogen as, so far, hydrogen has mostly been produced from natural gas, releasing considerable amounts of carbon dioxide into the atmosphere. This places the focus on methods for climate-neutral hydrogen production: Power-to-Gas technology. The basic process steps are well researched, but the technique has only been tested in small demonstration plants thus far. As things currently stand, the hydrogen obtained by these means is several times more expensive than when it is produced from natural gas. Therefore, companies, associations, research institutes and policymakers are debating action to render this technology marketable.

After all, PtG systems receive the most attention among all Power-to-X applications (explanation below). Hydrogen has a dual function: It is the basis for the Power-to-Liquid process, and it can contribute to substantial reductions of industrial greenhouse gas emissions. According to a study by Ludwig-Bölkow-Systemtechnik GmbH, a consultancy in the field of sustainable energy supply, hydrogen used in German industry releases over 20 million metric tons of carbon dioxide into the atmosphere every year, meaning that significant greenhouse gas savings could be achieved through green hydrogen.

Several major projects announced in Europe, with Germany leading the way

The study also finds that interest in the technology is increasing considerably. In early 2019, a total of 50 Power-to-Gas plants with an aggregate electric capacity of some 50 megawatts (MW) were in operation or planning. In the space of a single year, further PtG projects with a combined electrolysis rating of nearly 600 MW were announced. More than 300 PtG units are being planned or at least discussed the world over. According to the study by Ludwig-Bölkow-Systemtechnik, plant size is increasing as numbers grow. Several electrolysers with a nominal electric rating in excess of 30 MW are slated to be built in Germany in the next few years. Moreover, industry-scale electrolysers with a capacity of 100 MW have been announced in Germany, Great Britain and the Netherlands. Denmark has initiated a project to build a number of Power-to-X islands. The aim is to set up massive offshore wind farms on man-made islands in the North Sea to convert electricity to hydrogen and synthetic fuel.

Germany is considered to be the trailbalzer of Power-to-Gas technology. With its idea contest entitled “Real laboratories of the energy transition“ the country seeks to subject forward-looking energy technologies to industry-scale tests under real-life conditions. These field trials include several hydrogen projects. In addition, the German government is providing subsidies to designated H2 regions where research at the local and regional level is being done to determine how to produce green hydrogen and use it in various sectors.

One of the H2 regions is demarcated by the GET H2 Nukleus project, which involves building the first public hydrogen network, between Lingen in Lower Saxony and Gelsenkirchen in the Ruhr Region. The objective is to establish a 130-kilometer link between green H2 production sites and industrial consumers in the two federal states. In the middle of March, BP, Evonik, Nowega, OGE and RWE Generation signed a letter of intent for the development of the hydrogen network.

High production costs hamper demand and vice-versa

Although a great deal more PtG facilities are planned or being discussed, it will probably take quite some time for the technology to be marketable. After all, the cost of producing green hydrogen still clearly exceeds that of hydrogen obtained using fossil fuels. According to the German business periodical Handelsblatt, a kilogramme of green hydrogen costs about ten US dollars. By contrast, grey hydrogen, which is produced employing energy sources such as natural gas, costs an average of one to two US dollars per kilogramme.

It’s the infamous chicken-and-egg problem faced by new technologies: Demand for green hydrogen must be high enough to warrant industry-scale electrolysis. And vice-versa, demand only grows once the technology necessary for an affordable hydrogen supply is available. However, experts expect production costs to drop considerably. So far, Power-to-Gas plants have been fairly small and used solely to test the technology. Substantial increases in size and the resulting economies of scale should bring down prices significantly. In addition, on the one hand, electrolysers are still burdened with considerable taxes and duties today, which massively disadvantage green hydrogen. On the other hand, there is a lack of economic incentives for consumers, because they usually cannot count green hydrogen towards their greenhouse gas reduction goals.

Potential solutions to the chicken-and-egg problem

Various approaches are being taken to ensure that demand for hydrogen produced using electricity generated from renewables is created. For example, the Power-to-X Alliance, which unites energy associations and companies, presented the following model: An innovation credit is awarded for every metric ton of carbon dioxide from fossil fuels that is replaced by using renewable fuels resulting from Power-to-X processes. These credits are paid out by the state reconstruction bank KfW. The Power-to-X Alliance proposes inviting tenders for an electrolysis output of one gigawatt over a period of five years.

Another route has been suggested by the Global Powerfuels Alliance, the International Civil Aviation Organisation of the United Nations: Worldwide, a certain percentage of synthetic kerosene is added to conventional petroleum-based kerosene. The synthetic kerosene can be produced using electricity from renewables employing the Power-to-Liquid method. The idea is that the significant demand resulting from the quota triggers a chain reaction which has been observed in other areas of the energy transition: more investors, steeper learning curves, bigger plants and, in turn, substantial cost reductions.

The steel industry brings a third way into play, which comes via the demand side: In order to move steel production away from the traditional blast furnace process, in which coal is used for reduction and thus a lot of CO2 is emitted, ThyssenKrupp, Salzgitter and other steelmakers are focusing on direct reduction with hydrogen. However, because this is significantly more expensive than the conventional process, they are proposing the introduction of so-called “Carbon Contracts for Difference” with the help of Agora Energiewende. The idea is that steel producers avoid CO2 with this process – but the costs of CO2 avoidance are higher than what is feasible at the market. Whose premium, i.e. the difference, is the lowest, is awarded the contract for a subsidy for his plant in a tender.

It remains to be seen whether these proposals are ever put into practice. But one thing is for certain: Based on the state of the art, Power-to-X technologies are indispensable when it comes to making air, ocean and heavy-duty transport more environmentally friendly and decarbonising other sectors. Furthermore, these techniques could be used to store surplus electricity generated from wind and solar farms on a large scale – a task of mounting importance in light of the growing share of the electricity mix accounted for by renewable energy. Power-to-X could thus become an integral part of the energy transition.