The integration of wind subsidiary Gamesa will still need time until synergies (supply chains, joint purchasing power) and cost reduction potentials become visible in good, or initially at least better, figures. Nothing else is to be expected. The increased loss in the first quarter (Sep. 30, 2022) of fiscal year 2022/23 (fiscal 2023) of 598 million EUR (−246 million EUR in Q1 2022) seems to be owed to the transition phase, but we think will be able to improve over the course of the year.
Remarkable is the order intake totaling 12.7 billion EUR in the first quarter of the fiscal year, which allowed a plus of over 50 percent from the same period the previous year, so we assume that only new such orders will be taken, from which a reasonable return or profit margin is possible.
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In the USA, the Inflation Reduction Act (IRA) is providing positive incentives, as green hydrogen is be subsidized with 3 USD per kg and certain projects can become worth starting. Since Siemens Energy operates production facilities in the USA, the company benefits from or can participate in IRA programs. Siemens Energy is represented in the USA with 84 locations and 26 production facilities with a total of 9,600 employees, so there are a large number of support opportunities in the IRA that Siemens Energy can take advantage of. Similar programs will soon be ready for implementation in Europe, so the company can also expect some support there.
Now, it is first a matter of creating an inflow of capital by issuing new shares. Up to 363.3 million new shares could be placed, to generate more than 2 billion EUR in new capital. For this, Siemens Energy is likely bargaining with various big sovereign wealth funds, according to an article in Handelsblatt.
The financing via new issuance of shares should not be a problem, as many institutional investors want to more strongly invest exactly in companies like Siemens Energy in the future. The story is a story of growth and, at the same time, of recovery from a speculation (Gamesa). At the end of the day, Siemens Energy will be a success story – accompanied by rising prices. The stock market will anticipate the future. Analysts see the share at 25 EUR – I see it at over 30 EUR in two years – a good 50 percent chance.
I am often asked to include other companies in this analysis and to discuss securities like Nel ASA, SFC, ITM Power, Powercell, and many others. For me, however, subjectively, many of these players unfortunately do not possess the charm of those discussed here.
The concentration on just a few players in the H2 cosmos is also necessary in view of the abundance of information, which is not only about performance indicators and growth prospects. As a whole, they all will benefit from the megatrend that is hydrogen – including in the development of their share prices.
Allow me to point out that investors can acquire or invest in all these securities together with those of big companies, such as those from the gas industry (Linde, Air Products, Air Liquide), via funds and ETFs. Most investors would do well to invest in hydrogen in the form of funds, instead of speculating with individual shares (risk tolerance). The cost averaging system is greatly suited for this, as for example one can invest fixed monthly amounts and thereby attain a good average rate and earn good money from the hydrogen megatrend in the medium to long term, and achieve a high return. Every bank offers suitable funds for this or brokers them.
My analysis has yielded that many H2 funds hold the same H2 shares and in the same ratio in the portfolio, since there are not yet so many listed companies in this industry anyway. My own Wikifolio BZVision (BZ is the German abbreviation for fuel cells) at www.wikifolio.com, in contrast, is very concentrated, highly speculative and has only the three securities Bloom Energy, Ballard Power and Nikola Motors in the portfolio.
The reason for this speculative asset allocation: These three companies together cover hydrogen and hydrogen-related areas perfectly. This refers to the different markets, applications and H2 production. These shares possess for me – subjectively – the greatest potential in the coming years.
Disclaimer
Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.
Written by author Sven Jösting, March 5th, 2023
Scheme of a future energy supplySource: Siemens Energy
Hydrogen is becoming a commodity – an article of commerce. The H2 industry has been waiting for this for a long time. Decades have passed in which suitable applications for fuel cells were sought – mainly in vain – before it became clear that hydrogen has the potential, as a storage medium for renewable energies, to turn the entire energy supply system around. This has now been understood by not only numerous politicians around the world, but also the big players in the globalized economy. But what does this realization mean for society? Will H2 now sweep all fossil fuels off the market and thus also halt global warming? Or will the global hunger for energy continue to rise and perhaps even fuel the climate crisis? And what role do the big companies that have dominated the oil and gas market so far, and are now rushing into hydrogen, have in this?
For years, hydrogen was a niche topic. H2-international has been reporting on it for 22 years. Everything is stored and readily accessible in the online archive – when and why which hype arose and which areas of utilization have already been tried. Some major companies were indeed involved in the past. The energy corporation RWE had its own fuel cell division 15 years ago, German automotive companies developed generations of test and demonstration vehicles, and oil companies established and cleared away their H2 departments over the decades.
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All these activities– in particular those of the energy and auto corporations – were always accompanied by large marketing campaigns. Full-page print ads could already be seen of cars with garden hoses stuck into the filler neck. Marketing-effective fuel cell cars traveled around the world, and speed records with H2 combustion engines were made.
Today, it is a little different, but yet so similar. The difference is we’re not talking about another brief hype – the global hydrogen industry is coming, even if it is not yet clear which energy sectors will be most strongly affected. Yet marketing departments have not changed their behaviors very much. Large, globally active companies in particular are using the image of green hydrogen to clean up their own.
This was also the case around 2008, when electromobility experienced its first boom and ladybirds and stickers with “0 g CO2” were emblazoned everywhere on vehicles at the IAA fair. Then, nothing happened for years. Therefore, the question must be allowed of how credible the announcements of oil companies, gas companies and car manufacturers are if today they loftily describe sustainably produced hydrogen as the “fuel of the future” while at the same time ignoring their fossil-fueled past?
Of course, the clean energy transition will not take place overnight. Obviously, we can’t immediately ban petrol and diesel and then only burn solar-generated H2 gas. But how reliable is it when a Swedish company already advertises green steel today although the amount of this metal produced in the pilot plant with the aid of green hydrogen constitutes only a thousandth percent of what is produced by the company every day?
Is it okay for a petroleum company in this country to portray itself as a pioneer in setting up H2 refueling stations while it expands a highly controversial heated pipeline for crude oil in Africa hundreds of kilometers through previously untouched nature?
Just as committed as we are to discussing the deals with Qatar – be it the World Cup or the LNG exports to Germany – every energy supplier and every energy consumer should think about what is authentic and what is greenwashing.
Because there is one thing we should always remember: Even multi-millions for marketing campaigns is nothing compared to the investments and profits made by the corporations. Need examples?
BP is heading a 36-billion-dollar project in Australia named Asian Renewable Energy Hub, where 26 GW of solar and wind power plants are to be built for H2 generation and subsequent ammonia production – against the environmental concerns that were raised beforehand. Likewise, the French TotalEnergies and the Indian Adani Group together intend to invest 50 billion USD in H2 and ammonia production from renewables for a capacity of 30 GW. Shell and Chevron are also planning comparable gigawatt H2 projects. Because of course these companies can still profit by staying in the molecule trade. After all, H2 molecules are like hydrocarbons but without the C. And the use of hydrogen as a commodity is a much better support for continued use of the existing fossil fuel infrastructure than mere electrons.
Indeed, it is definitely worth backing the installation of large solar and wind plants, because we need much more renewable energy worldwide. However, how worthwhile, when the activities disproportionately involve fossil energy carriers, should not be lost from sight. Furthermore, lock-in effects should be avoided, whether in the case of the LNG terminals in Wilhelmshaven or in the continued use of the existing oil-based infrastructure.
Companies that are seriously dedicated to creating the rapid change from a fossil to a renewable system of energy supply are expressly not meant here.
P.S. My daughter suggested donating the money obtained from clear greenwashing campaigns.
In recent years, many compressor manufacturers have intensified their engagement in the hydrogen sector. Several medium-sized companies entered into new partnerships, and there have been several corporate takeovers. And individually dealing with compressors is no longer a separate ordeal for many, but is now offered in package with other services that are also needed for the development of a hydrogen infrastructure. But what distinguishes the different manufacturers and various products from each other? H2-international asked manufacturers about technologies, trends and special features, and has gathered the results here – with no claim of completeness.
Without compressors, hydrogen technology could not go anywhere. In order for H2 gas to be stored and transported, it is necessary to press as many of these little molecules as possible into gas cylinders, cavities or car tanks, to produce the highest possible energy density. This is more difficult with hydrogen than with other gases, since the tiny molecules can escape through the smallest crevice. At the same time, sealing materials can be potential sources of contamination of the hydrogen.
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Compressors differ in both their compression and drive technology. The driver could be, for example, compressed air, hydraulics or an electric motor. Which compression method is right depends, among other things, on the required throughput, the pressure level and the purity needed.
An essential aspect is the initial pressure, so the inlet pressure, for the compressor. If the hydrogen is taken, for example, from a gas container in which the pressure is low or only atmospheric, much more compression work is required than, for example, when already pre-compressed up to 100 bar from an upstream electrolyzer. Since the energy required to compress gases is very high, it may be more economic to apply 30 bar to the feed water at the input side of the electrolyzer than to compress the hydrogen downstream.
Market overview
H2-international has asked manufacturers of compressors for hydrogen fueling stations about their products, innovations and trends. We did not create a tabular market overview, like that for the electrolyzers in the February 2022 issue of H2-international, as the technical specifications given for different compressors are already too different in nature and there are no uniform standardized conditions for measuring inlet and discharge pressure. But the main features are summarized in this article. If the manufacturer has given us specifications about their product, this information is featured in a profile and sorted under the appropriate parameters. Included were H2 compressors for fueling stations at which the output pressures generally amounted to 350 or 700 bar.
Reciprocating compressors
Piston compressors are the classics known from engine technology They are robust and can deliver high pressures and medium to high throughputs (starting from about 4 tonnes per day). Gasoline and diesel engines of common vehicles are lubricated with oil. Even with oil scraping rings, there is always a thin film of oil remaining on the walls of the combustion chambers, which is desirable to reduce friction. In piston compressors of hydrogen vehicles, this is not desirable, as this oil contaminates the medium to be compressed. A downstream fuel cell in which this gas is destined for use would be contaminated and fail after a short time. For this reason, oil-lubricated piston compressors can only be used in hydrogen systems in combination with subsequent purification of the gas.
Such cleaning can be done with scrubbers based on activated carbon. One of the providers of this technology is Bauer Kompressoren GmbH. The Bavarians started 15 years ago with a, by today’s standards, small H2 project in Spain. The production rate was 35 m3 per hour with up to 350 bar. In addition to activated carbon, the Munich-based company used a molecular sieve, which allowed it to provide hydrogen in 3.7 to 5.0 purity grade (≥99.97% to ≥99.999%). Bauer has been active in the high-pressure sector for 77 years, for example with diving cylinders.
With its H450 compressor, Borsig GmbH manufactures piston compressors for truck fueling stations. A special feature, according to the manufacturer, is the gas seal in the last compression stage. In addition, this compressor can be operated safely even under tough environmental conditions, it was said.
Manufacturer
Borsig GmbH
Name of compressor
H450
Compressor type
Reciprocating (without fueling station)
Pressure classes
350 bar
H2 capacity
275 kg/h
Input power (el)
375 kW
Dimensions (L x W x H)
3.4 x 1.3 x 0.8 m
Energy requirement
1.3 kWh/kgH2 (40 bar input pressure, 450 bar output pressure)
Sauer Compressors as well is positioned in the medium power range and offers oil-lubricated piston compressors with downstream treatment. The family-run compressor manufacturer headquartered in Kiel, Germany touts robustness as the foremost advantage of this technology. The piston compressors can handle variation of the load as well as fluctuating temperatures. This makes these compressors interesting for use in microgrids and other applications that require a high degree of self-dependence. In addition, according to information by the manufacturer, they are easy to repair. One unique thing about Sauer is that the customers are trained so that they can maintain and repair the compressors themselves – and may do so without voiding the warranty.
To Sauer also belongs the St. Gallen, Switzerland-based company Haug Sauer Kompressoren AG, which manufactures smaller, oil-free compressors. The dry-running units from Haug can deliver up to 1,000 m3 per hour. The model HAUG.Mercure 22E presented at H2Expo, for example, compresses 7 to 13 m3H2/h from up to 24 bar to a maximum of 350 bar.
Dry-running compressors use, for example, PTFE piston rings as an alternative to oil lubrication in the cylinder. The rings are offered by, among others, ElringKlinger and are quite low-wear, but leave traces of abraded material in the compressed medium, which must then be removed with particle filters. Some of these compressors use an oil pan at the bottom of the crankcase for lubrication. However, in these cases, this area is separated from the compression space by a three-stage sealing system so that no impurities emerge there. Oil-free piston compressors can typically be used for pressures from 150 to 450 bar; some at higher pressures as well.
In 2022, together with Bosch Rexroth, Maximator HydrogenGmbH presented the new compressing unit MAX Compression 2.0 (see H2-international August 2022). This has up to five times the throughput of its predecessor, within the same construction volume. The energy requirement was also minimized by the providers, according to the press release. The highlight is that although compression still takes place in two stages, the hydrogen no longer needs to be stored between these stages. In the 75-kW class, the throughput should increase by 20 percent at the same driving power, which should decrease costs accordingly. The power classes additionally range from 75 to 250 kW. This allows the capacity of a hydrogen fueling station to be increased if necessary without major reconstruction.
A special feature is the automatic changing out of the seals (automatic seal exchange, ASX). The bar loader used for this purpose can hold up to 20 interchangeable seals. Per seal, it takes about 15 seconds for the exchange, so seal replacement for the whole system should be complete within three minutes.
In November 2022, the company from Nordhausen reported reception of a major order from Sweden. From autumn 2023 to the end of 2025, Maximator is to provide compressors for the in total 24 hydrogen fueling stations that are to arise in the course of the project REH2. These are to supply primarily heavy trucks, and 23 of the 24 are planned to be installed at highway rest stations. REH2 wants to supply exclusively green hydrogen that is produced primarily with local energy sources such as wind and water. Majority owner of the project is the investment company Qarlbo AB.
The FSS High Capacity Station from the company Resato is a modular system. The number of compressors and dispensers can be varied to suit demand. Thus, a high production capacity is possible by joining the standardized components, which are available in the modular sizes for 1,000 or for 2,000 kgH2/day. The hydrogen can be supplied by tube trailers or multiple element gas containers (MEGCs) coming directly from an electrolyzer or from the pipeline. The available hydrogen quantity, according to Resato, sets the limit for the capacity of the fueling station.
According to Resato, the fueling stations are user-friendly, reliable and have a favorable marginal cost. In addition, the supplier has a Europe-wide network for after-sales support.
Manufacturer
Resato
Name of compressor
FSS – High Capacity Station
Compressor type
Electrohydraulic piston compressor and fueling station system
Pressure classes
350 bar, 700 bar
H2 capacity
>1,000 kg/day, >2,000 kg/day
Input power (el)
185 kW
Base area
10 m x 12 m (without hydrogen provision)
Diaphragm compressors
Membrane compressors are suited for higher pressures up to 1,000 bar. They too essentially use a piston to compress gas. However, this does not act directly on the gas, but on an oil, which in turn moves a membrane. The gas to be compressed is enclosed by this membrane (diaphragm). This way, neither hydrogen gets out nor contaminants get in. Membrane compressors are therefore free of contamination and have no loss from leakage. They are suitable for frequent or continuous operation. However, they are technically limited to H2 throughputs on the order of 1 to 2 tonnes per day. This makes them less of interest for hydrogen truck fueling stations, for example.
Andreas Hofer Hochdrucktechnik GmbH, which belongs to Neuman & Esser (NEA Group), according to its own statement, can guarantee pressures of 5,000 bar with diaphragm compressors and up to 3,000 bar for dry-running, hydraulically driven piston compressors.
The MD10-L membrane compressor from Burckhardt Compression is available as a standardized mobile container-installed solution or as a bare unit. It can also be supplied with noise reduction and a closed cooling water system, if needed. The size is adapted to a 2.5-MW electrolysis unit. The membrane compressor ensures high hydrogen purity and gas tightness. For higher throughputs, Burckhardt Compression recommends its own 3CS oil-free piston compressor. According to the company, it supplied its first hydrogen compressor as early as 1972. The manufacturer has a service network that reaches around the world and offers a comprehensive after-sales service.
Manufacturer
Burckhardt Compression
Name of compressor
MD10-L
Compressor type
Diaphragm compressor
Pressure classes
350 bar
H2 capacity
45 kg/h
Input power (el)
81 kW (rated power at specifications given below)
Energy requirement
Approx. 1.8 kWh/kgH2 (30 bar input pressure, 550 bar output pressure, 45 kg H2/hour)
Dimensions (L x W x H)
6.1 m x 2.44 m x 2.59 m
Centrifugal and screw rotary compressors
For lower pressure levels, centrifugal (turbo) compressors and screw compressors are the go-tos. Their typical pressure range lies at about 1 to 20 bar, and the throughput at up to 50,000 m3H2 per hour. For hydrogen fueling stations, they can therefore only serve in the pre-compression stage, to build up the ingoing pressure required for the other compressor types. The operating principle of a screw compressor is two interthreading screw rotors rotating inwards of each other (see Fig. 1).
In this way, the volume to be acted on is increasingly reduced. Similarly to the case with piston compressors, a pulsation accordingly arises in dependence on the rotational speed of the screw, which could be 1,500 to 2,000 rpm for large units and up to 5,000 rpm for small units. In general, screw compressors have a higher leakage rate compared to other compressor types and thus higher efficiency losses. To reduce friction and improve tightness, oil is used similarly to the use for piston compressors.
One manufacturer of screw compressors is Aerzener Maschinenfabrik GmbH. A new innovation by the engineering company is the substitution of oil with water. The water film seals similarly well to oil, prevents contamination and, at the same time, leads to a thoroughly desired humidification of the H2 gas. This method, however, is still in the testing phase.
In addition to this, there are ionic compressors, such as those manufactured by Linde.
Manufacturers, business models and trends
Some of the companies listed here are primarily focused on the manufacture of compressors. Others, on the other hand, see their area of business as turnkey hydrogen fueling stations. Especially amongst the makers specializing in compressors are family-owned companies steeped in the technological tradition of the German-speaking area. A prime example and, by its own statement, the world market leader for reciprocating compressors is Burckhardt Compression AG from Winterthur, Switzerland, with now 2,700 employees.
According to the company, Burckhardt Compression works on membrane as well as piston compressors that can deliver pressures of over 900 bar and additionally are suitable for high throughput volumes. The company, which has been listed on the stock exchange since 2006, shows – not only in the H2 sector – a clear willingness to grow globally, as evidenced by recent acquisitions: Industrie- und Kompressorenservice GmbH from Bremen (2016); CSM Compressor Supplies & Machine Work Ltd from Canada (2017); Arkos Field Services from the USA (2019); The Japan Steel Works Ltd from the USA (2020); Shenyang Yuanda Compressor Manufacturing Co, Ltd from China (2021).
In the hydrogen sector, the company founded in 1844 is engaged not only in H2 station and trailer refueling solutions, but also power-to-gas projects and offshore H2 production. In spring 2022, Burckhardt Compression began construction of its very own H2 testing facility at its headquarters in Winterthur. There, the company intends to further develop sealing technologies for heavy hydrogen commercial vehicle fueling stations that would allow oil-free compression up to 900 bar (as booster). The goal is to get in business with Shell New Energies. Burckhardt Compression says it’s one of the finalists in the race for the energy giant’s fueling station business. The testing facility is to go into operation in early 2023, and the tests should be completed by the end of the year.
In 2022, Burckhardt Compression entered into a partnership with the H2 fueling station developer HRS (formerly TSM). This involves the delivery of several membrane compressors within the next two years for the fueling stations of HRS, the capacity of each of which is to be between one and two tonnes per day. The target group for these fueling stations is heavy transport (buses, trucks, port vehicles) and light commercial vehicles, like taxi fleets. With the partnership, the two companies want to equip other areas of hydrogen mobility already as well, such as ships, trains and planes.
The Neuman & Esser Group (NEA) as well is a heavyweight in the compressor sector. The family business from Übach-Palenberg, with its 1,200 employees, is making a name for itself through, among other things, the two managing partners, as Stefanie and Alexander Peters are both strongly engaged in lobby associations as well as on the political administration level. Stefanie Peters is active in the German hydrogen council (Nationaler Wasserstoffrat, NWR), among other things, while her brother is director of the compressor and vacuum division within the German association for mechanical engineers (Verband Deutscher Maschinen- und Anlagenbau, VDMA). In addition, at the beginning of December 2022, he was voted to become an executive director of the German hydrogen and fuel cell association (Deutscher Wasserstoff- und Brennstoffzellen-Verband, DWV).
PDC Machines from Pennsylvania is, by its own statement, the world’s leading manufacturer of diaphragm compressors for hydrogen. H2 applications are the second mainstay of the US company alongside classic industrial compressors. In addition to the compressors, the portfolio includes a complete mini refueling unit named SimpleFuel as well as turnkey hydrogen refueling stations.
In 2022, PDC Machines announced a cooperation with US supplier Gilbarco Veeder-Root. The company plans to establish an end-to-end infrastructure for refueling that in addition to the compressors from PDC machines and the dispensing stations, also encompasses the necessary software for operation. This is to occur via the wholly owned subsidiary ANGI Energy Systems, which is responsible for Gilbarco’s compressed gas business and has already been developing complete solutions for its customers for 30 years.
PDC Machines is currently benefiting, like many US companies, from the US Inflation Reduction Act. Among other things, this provides for a ten-year tax bonus for clean hydrogen and H2 storage systems. In addition, there are to be tax advantages for fuel cell vehicles and better tax credits for “clean fueling stations.”
Hiperbaric, headquartered in Burgos, Spain, has been active in H2 compression since 2021. The company started in 1999 with solutions for the food industry. In the hydrogen sector, Hiperbaric has devoted itself to compressor units preinstalled in portable packages for use at filling stations and research facilities or for gas storage. In addition to the high-pressure piston compressors themselves, the containerized solutions contain the controls, cooling, ventilation and the pneumatic and hydraulic systems. The compression takes place in two stages.
The compressor unit is available in options for up to 500 or up to 950 bar. The 500-bar unit has a throughput of up to 26 kg of hydrogen per hour, and the 950-bar unit up to 15 kg per hour. With a second compressor installed in the container, the rate can be doubled. The offer includes a complete service, with maintenance. The remote monitoring and diagnostics service should ensure that errors are detected before a failure in the system occurs.
Compressor trends
The question of how to offer more and larger compression and refueling station solutions for hydrogen as easily as possible is on the minds of all manufacturers. Borsig names standardization and scaling as the keys to reducing costs. Resato sees itself well prepared for capacity expansions with the modular approach. The company wants to think less in terms of individual projects in the future and instead turn hydrogen fueling stations into a “business tool.” Instead of a single fueling station optimized for low investment and operating costs, customers should receive a complete product with business model included. The decisive optimization variables here are reliability and the question of what it costs to put one kilogram of hydrogen into the tank of a vehicle.
Unrestricted hydrogen production that is not aligned with the supply of renewable energy significantly increases electricity generation by fossil fuel power plants, thus raising the levels of carbon dioxide emissions. Not only is that disastrous for the climate, it’s also something we absolutely cannot afford given the current gas shortage.
Electrolyzers make an important contribution to the energy transition when their operating hours correlate with the times at which a large amount of electricity is available from renewable sources. This is why they should, first and foremost, serve as flexible options in the energy system.
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If, on the other hand, electrolyzers run virtually uninterrupted, then they necessarily fall back on the prevailing German power mix which still comprises high proportions of fossil-based energy sources. If there is insufficient green electricity available, then a conventional power plant has to be fired up for the purposes of hydrogen production in order to cover the additional demand arising from the electrolyzers.
Due to the ongoing lack of renewables and the way conventional market mechanisms operate, the facilities that are mostly used to cover such peak loads are fossil-fueled and environmentally damaging power plants – particularly quick-starting gas power plants. Consequently, the unrestricted operation of electrolyzers provokes a rise in the consumption of expensive, scarce natural gas. This situation will be further exacerbated if – as planned by the German government and many industry players – large numbers of high-performance and inflexible electrolyzers enter service at an ever faster rate but the expansion in renewables fails to keep pace. That is certainly unwise and definitely not at all good for the climate.
Instead, electrolyzers should primarily serve as flexible options in the electricity system at this present stage of the energy transition. Of course, with highly flexible operation comes challenges: Electrolyzers need to be controlled intelligently according to the availability of wind and solar power. Peripheral equipment, too, must ensure this flexibility. And the off-take of hydrogen needs to work smoothly in the face of fluctuating hydrogen production.
Yet these challenges are solvable, as representatives from the eco-energy space in particular are able to demonstrate. The solutions, however, require further research, development and, undeniably in some areas, also creativity. In other words, it would indeed be feasible. Nevertheless, as it stands there are practically no effective incentives, thanks to the current laxity of criteria for hydrogen production.
As long as the rules governing electrolyzer operation fail to make maximum climate protection their guiding principle, the operators are in no way required to meet the challenges outlined – the upshot being that we will struggle to find the necessary solutions to ensure an efficient and renewable energy system.
The European Commission therefore needs to create a framework which, from the get-go, has the synchronization of hydrogen production and renewables provision at its center. Transitional rules can be helpful at the beginning. However, they should in no way cement the status quo. By contrast, they should put in place the requirements right now that will ensure that the electrolyzer projects being rolled out in the next few years use high and increasing proportions of green power.
For the reasons mentioned above, we need binding and ambitious green power criteria to enable a fast ramp-up of environmentally responsible hydrogen production. This should incentivize the flexible operation of electrolyzers by limiting their full-load hours. This limit could be specified, for example, in line with the renewables share in a particular member state. Furthermore, electrolyzer-based hydrogen production should be harmonized with the supply of renewable energy by means of hourly synchronization.
Further and highly ambitious expansion of renewable energy sources is the central foundation and prerequisite for establishing a sustainable hydrogen economy. Therefore all European member states should likewise be driving forward this renewables expansion. Because of the difficulties of procuring electricity from new plants in the short term, though, unsubsidized electricity supplies should be used for hydrogen production in the interim. This ensures a certain level of financial support for renewable generating facilities thanks to the electrolyzers acting as off-takers for the green power produced, while at the same time older plants could be used to produce hydrogen.
The geographical relationship between electrolyzers and solar/wind plants is highly relevant since the operation of electrolyzers must not lead to an increase in grid congestion. Introducing these rules at a European level is difficult due to major differences in infrastructure, control areas and electricity market design across member states. This is where individual EU states should themselves take action and, where necessary, use the opportunity to further restrict the geographical relationship. In Germany, electrolyzers could, for instance, be considered as part of congestion management within redispatching, with the choice of electrolyzer location taking into account the congestion event.
By implementing these criteria and taking a flexible approach to electrolyzer deployment, it is possible to produce hydrogen that is both low in emissions and low in cost.
Author: Carolin Dähling, Green Planet Energy eG, Hamburg,Carolin.Daehling@green-planet-energy.de
Without legal certainty, businesses cannot invest. But why haven’t European legislators succeeded yet in creating clarity for the hydrogen industry? And what is already known about the future sustainability criteria for green hydrogen?
Producing renewable hydrogen-based fuels is only worthwhile if they can be counted towards fulfilment of the minimum quota in the meaning of the EU’s Renewable Energy Directive (RED II). Currently, a binding minimum quota for the percentage of renewable energies in the total energy consumption only applies to the transport sector. However, mandatory quotas for the industrial sector are foreseeable. Once creditability is given, green H2 producers will be able to earn more money than with conventional gray hydrogen.
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What is the state of affairs?
Whether a produced RFNBO (renewable fuel of non-biological origin) molecule is creditable depends on whether the sustainability criteria were met during its production. The EU Commission was tasked in the 2018 Renewable Energy Directive with setting sustainability criteria for RFNBOs by December 31, 2021 in two so-called delegated acts. The first of these is to stipulate the electricity obtainment criteria (Art. 27 (3)) and thus the criterion of renewability. The second defines the method for calculating greenhouse gas intensity (Art. 28 (5)) and thus the criterion of greenhouse gas saving.
The challenge for the EU Commission is immense. If the criteria are too strict, production costs could be so high that market ramp-up would be severely limited or only feasible with the help of high financial support. If the criteria are too soft, hydrogen as a climate protection technology would be rendered meaningless. If for example water electrolysis is run with the average electricity from the German grid instead of purely renewable electricity, however, this would produce higher overall greenhouse gas (GHG) emissions than the production of fossil (gray) hydrogen.
The delegated acts have caused real excitement in the course of their preparation. From the beginning, the industrial sector as well as EU member states and civil society organizations have paid them much attention. In addition to stakeholder workshops and consultations with officials, they were the subject of numerous open letters, expert opinions and discussions.
After the Commission had nevertheless, or precisely because of this, kept quiet for a long time, starting 2021 the first details on the shape of the legal acts were announced. Following initial reactions and particularly after the public consultation on the first official drafts in the summer of 2022, the Commission moved towards the industry’s concerns on a number of points, but has not however backed away from its basic interpretation of the criteria already laid down in the Directive. The current state of the criteria is as follows:
When is electricity obtainment deemed additional?
According to the Renewable Energy Directive, the “additionality” of the electricity used in the production of the fuel needs to be established (obtained from additional renewable energy generation capacity added to energy grid of EU member state). Furthermore, the production of the renewable electricity must be temporally and spatially correlated with its application. This means the electricity needs to be generated in the vicinity of the water electrolysis system and near to the time of the hydrogen production.
According to the current drafts of the European Commission, the delegated act on renewable electricity obtainment stipulates that the electricity for water electrolysis must be obtained through direct supply contracts (power purchase agreements, PPAs) in order to be counted. The renewable energy installations for the power outputs agreed in such a contract must have been put into operation no earlier than 36 months prior to the electrolyzer. They must also not have received any government funding, unless the installation was renovated (“repowered”) with investments comprising at least 30% of the investments for a new facility or unless it was a research or development project.
Furthermore, in a transitional phase up to January 1, 2027, softer criteria shall apply. In this time period, the electrical energy installations can have been subsidized. In Germany, for example, this would mean that post-EEG plants would be allowed to be used for PPAs. Plants in operation before January 1, 2027, according to the provisions of the transitional regulation, can continue to be used for up to ten years until the end of 2036 at the latest.
In addition, there is a provision for the use of so-called surplus power. Grid electricity used for the electrolysis that would have otherwise been curtailed can be credited as fully renewable. Still unclear is how the required proof of approval by the respective responsible transmission system operators can be brought forward.
Another exception is RFNBOs that are produced in (geographic) bidding zones with a previous year’s share of renewable energy (percentage of total sources for grid generation) of over 90% on average. In these bidding zones, the RFNBOs produced from grid power are considered entirely renewable and the electricity does not need to be purchased through PPAs.
These criteria are intended to ensure the additionality of electricity production. The basis for this was the desire of lawmakers to not divert the existing portions of renewable energy to meet the massive electricity demand of the hydrogen economy, but rather to create additional incentives for the expansion of renewable energies.
How will the temporal correlation be verified?
The temporal correlation of electricity generation and hydrogen production is considered to be fulfilled when electricity production and consumption lie within the same 60-minute interval. There is also a transitional rule for this criterion. Up until March 31, 2028, correlation within an interval of one quarter of a year is acceptable. To give producers more flexibility, electricity storage systems can be interposed, for which the same criteria shall apply. Furthermore, the non-transitional criterion automatically takes over once the electricity price at the market falls under 20 euros per MWh or under 0.36* emissions trading price (EU ETS).
When is there geographical correlation?
Geographical correlation is considered to be met if the electrolyzer and the electricity generating station are located in the same bidding zone. Alternatively, electricity may be sourced from adjacent offshore bidding zones. If no transmission constraints are present, the electricity can also be obtained at the same price from connected bidding zones. On this point, the EU member states are given room for maneuver, as they are allowed to enact further (stricter) criteria at national level to avoid grid congestion.
For the German federal government, this could be an option to avoid additional grid bottlenecks, which due to the good potential for renewable energies in northern Germany, could increasingly arise in consumption centers in southern Germany. For RFNBO producers, however, the member states’ interpretational leeway means additional uncertainty, as it could take more time for national regulations to be set and utilizable.
How is greenhouse gas intensity calculated?
RFNBOs are “low-carbon fuels” if they meet the minimum requirement of 70% greenhouse gas reduction compared to conventional fuels. In order to determine the greenhouse gas intensity, a binding, EU-wide uniform method of calculation is needed. The calculation methodology includes the value-adding steps of production, processing, transport, combustion and CO2 capture. It also sets the fossil reference value, compared to which the emissions (in CO2 equivalents) must be at least 70% lower, for hydrogen-based fuels. This reference value was set as 94 gCO2eq/MJ.
If RFNBOs are produced with renewable grid electricity (renewable according to criteria in Art. 27 (3)), the GHG intensity can be input as 0 gCO2eq/MJ. If grid electricity is used for water electrolysis in a way that is not compliant with the electricity obtainment criteria, then the GHG intensity is the CO2 intensity of the overall national power grid.
The more contentious aspects of the Commission’s proposals for this delegated act, however, are the CO2 sources that may be used for the synthesis of more complex RFNBOs, such as e-kerosene. Acceptable, according to the latest drafts, are biogenic sources such as CO2 from biogas plants, carbon capture from air (direct air capture, DAC), carbon capture from combustion of RFNBOs and recycled carbon fuels, and natural CO2 sources that would otherwise not be used.
CO2 capture from industrial sources such as cement works or power plants would be relatively cheap and is available. Capture from industrial sources, with the exclusion of electricity production plants, is therefore to be acceptable until December 31, 2040. To producers of RFNBOs, this has not been thought out far enough. However, the widely supported proposal to divide industrial sources into long-term avoidable and non-avoidable sources of CO2 (e.g. cement plants) was not taken up by the Commission.
What is to be expected next?
The proposals have varying appraisal among industrial stakeholders. While some can live with the proposed compromises or even call for stricter criteria, others find them unacceptable. Agreed by all is the need for the process to go faster: There must now be clarity as quickly as possible. This means that, firstly, the Commission should present the final versions as soon as possible and, secondly, that the member states should transpose the requirements into national law without delay after they appear. In Germany, this means the swift enactment of the 37th BImSchV, the 37th ordinance on the implementation of the German emissions reduction law (Bundes-Immissionsschutzgesetz).
In order to exert pressure on the Commission, the European Parliament has also intervened in the meantime. In a vote on the revision of the Renewable Energy Directive in mid-September 2022, the Parliament approved a motion tabled by Markus Pieper (European People’s Party) by 314 votes to 310. Accordingly, the Parliament is in favor of not defining the criteria for electricity obtainment in the form of delegated acts but rather in the main text of the Directive, in Article 27 (3). Furthermore, the principle of additionality is to be stricken. Unclear at this time is whether the Parliament will adhere to this position during the negotiations on the revision of the Renewable Energy Directive.
When clear criteria will be defined is still unclear. It would be possible for the Commission to present the final versions not long from now. The publication would be the starting signal for the two-month period during which member states can object to the draft by qualified majority vote. This period could optionally be extended by another two months. In this scenario, the criteria could be transposed into national law starting the second quarter of 2023 at the earliest.
Should trilogue negotiations between the EU Council, Parliament and Commission ensue in response to the Parliament’s proposals, the delegated acts of RED II would be in effect until the revision of RED II goes into EU law or until its national implementation (expectable starting 2025).
Another aspect could be clarified during the trilogues: So far, the criteria only apply to hydrogen-based fuels in the transport sector. However, it is possible that in the future they could also apply to other sectors, in particular the industrial sector.
As complex and controversial as the criteria may be, without them RFNBOs will not achieve their climate protection potential. Until an agreement is reached, the oft-invoked development of a hydrogen economy is at a standstill.
Author: Korinna Jörling, NOW GmbH, Berlin, Korinna.joerling@now-gmbh.de
When is green hydrogen actually green? Defining this is crucial for ramp-up of the H2 economy in Europe. And that is why it is good that the respective delegated act is finally to be published and provide an EU definition for the first time. This is good – despite its deficiencies, from my point of view.
Three criteria for the definition of green hydrogen are particularly important:
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Origin: The electricity used to generate green H2 must come from renewable energy plants or installations.
Simultaneity: The generation and the consumption of green electricity should demonstrably occur within one quarter of an hour.
Regionality: The production of green H2 should not lead to more grid bottlenecks. Accordingly, the generation of the electricity and its consumption in the electrolysis must be upstream of the next grid node, or generation and consumption must take place before the next grid bottleneck.
Only when all of these are fulfilled is the electrolysis grid-serving, because only then does it unburden our power grid. The delegated act would therefore have to be structured in a way that promotes the grid-serving nature of electrolysis and thus maximally accelerates the expansion of renewables throughout Europe. Because that is the foundation for the establishment of a green H2 economy as well as for the decarbonization of all sectors – and for meeting our climate targets.
Unfortunately, the delegated act does not match these criteria in all instances. Until April 2028, the temporal correlation is required within a time interval of one quarter of a year, rather than the quarter-hour interval already stipulated for electric grid feed-in/withdrawal accounting in Germany today. Starting in 2028, the correlation within one hour will be required.
The delegated act also does not try to guarantee the expansion of renewables via a compulsory grid-servitude but rather a so-called additionality, according to which almost exclusively electricity from new plants could be used as a basis for green hydrogen. For electrolysis stations that go into operation by the end of 2026, green electricity obtained from any eligible electricity generating installation that qualifies as renewable under the EEG laws (German renewables expansion) could have been included in some way, but the formulated exceptions only refer to the obtainment of electricity from the grid. Furthermore, in the case of a direct supplying of power, the electricity generating stations had to have gone into operation no earlier than 36 months before the electrolyzer. Yet for this, a spatially near direct supplying – including from old installations – would be much more grid-beneficial.
On the subject of spatial nearness: According to the latest draft of the delegated act, this criterion is already fulfilled when the electrolyzer and power generating structure lie in the same bidding zone. So I could produce electricity in Nordfriesland (extreme North of Germany) and run the electrolysis in Garmisch-Partenkirchen (extreme South). This is certainly not grid-serving.
Why is it nevertheless good that the delegated act will soon be in effect? Because only when legal certainty prevails will investments be made in the domestic green hydrogen economy.
The delegated act builds the foundation for targeted support of the use of green hydrogen via the generation of GHG (greenhouse gas) certificates. For this, the necessary adjustment of the crediting rules for e-fuels in the 37th BImSchV (ordinance on implementation of German emissions reduction law) has still to take place in 2022. Because only when the right incentives are created will significant quantities of green hydrogen be produced here in Germany and Europe.
Haste is needed: As part of the US Inflation Reduction Act, many billions are being invested in establishing the green hydrogen economy there. The consequence: US companies are currently buying up electrolyzers and the components needed for them. European electrolyzer manufacturers are considering moving production there, and US companies are increasingly acquiring interest in manufacturers from the EU in order to secure capacities for themselves.
For ramp-up of the hydrogen economy in Germany and Europe, equally strong incentives are urgently needed. Otherwise, after the solar and wind power plant industries exit, Europe is facing the collapse of the next crucial pillar of the energy transition.
Author: Ove Petersen, GP Joule, Reußenköge, Germany, info@gp-joule.de
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