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Hydrogen is the most ubiquitous element and lightest gas. It has been around as an industrial gas for over a century. But its use in consumer applications lost appeal after the Hindenburg Zeppelin exploded in flames. Now, with global interest in identifying new technologies to alleviate climate change increasing, ideas of a hydrogen economy have advanced.
As an industrial nation, Sweden has had a share of companies with hydrogen expertise. However, historically, Sweden has not been a leading player in hydrogen. Rather, its technology expertise has centred around its resource industries – hydropower, iron and steel and forestry. And in recent years, Sweden has invested a large amount of political capital and engineering resource in developing its biofuels potential. Unfortunately for Sweden, biofuels as a product class have fallen out of favour in Brussels, with early products either competing with food production (rape oil, methanol from sugar) or being targeted by activists who accuse them of depleting pristine areas such as rainforest (palm oil).
With its preferred option of biofuels out of favour, Sweden wants to get on board the hydrogen train before it leaves the station. A number of Swedish corporates – most notably SSAB, a steel maker, and LKAB, an iron ore miner, are pushing for a dramatic scale up in Sweden’s ambitions. These firms joined forces with around 30 others, and a government facilitator called Fossilfree Sweden to publish a hydrogen strategy on January 21. But, the ink had barely dried on the presentation of Fossilfree Sweden’s hydrogen strategy before the government announced that another strategy was to be developed by the Energy Agency (Energimyndigheten). That two Swedish agencies would develop hydrogen strategies in such a short time says something.
Separating hype from hydrogen
Mundus has been somewhat sceptical about the potential for a hydrogen economy, on both safety and cost grounds (see our previous blog). These are connected, in that the safety issues are a contributing factor to the high costs. However, if Europe, and other countries are committed to making hydrogen a success by driving down the cost curve, then hydrogen has a number of attractive features. I’d highly recommend reading Michael Liebreich’s piece, Separating hype from hydrogen, which looks at the economics of producing hydrogen.
In July, 2020, the European Commission published “A hydrogen strategy for a climate-neutral Europe”. This communication document summarised a wealth of analysis by the Commission, and laid out a roadmap for the growth of a European hydrogen economy. The main points were;
- The EU wants to develop renewable “green” hydrogen, meaning hydrogen produced via electrolysis from wind and solar energy.
- Despite this green dream, in the short and medium term, other forms of low-carbon hydrogen are needed, primarily to rapidly reduce emissions from existing hydrogen production. This is code for “blue” hydrogen produced from natural gas with the CO2 captured and stored (CCS).
- The EU expects a “hydrogen ecosystem” in Europe to develop slowly
- In the first phase of its strategy, from 2020 up to 2024, the strategic objective is to install at least 6 GW of renewable hydrogen electrolysers in the EU and the production of up to 1 million tonnes of renewable hydrogen, to decarbonise existing hydrogen production in the chemical sector.
- In a second phase, from 2025 to 2030, hydrogen needs to become an “intrinsic part of an integrated energy system” with a strategic objective to install at least 40 GW of renewable hydrogen electrolysers by 2030 and the production of up to 10 million tonnes of renewable hydrogen in the EU
- “Local hydrogen clusters”, relying on local production of hydrogen based and local demand, transported over short distances will be key. In other words, dont expect hydrogen to be piped all over Europe in the same way that e.g. gas is.
- From 2030 onwards, and towards 2050, renewable hydrogen technologies should reach maturity and be deployed at large scale to reach all hard-to-decarbonise sectors where other alternatives might not be feasible or have higher costs.
None of this comes cheaply. For renewable hydrogen to be generated, Europe is going to need to build massive amounts more renewable power, which then needs to be distributed across the continent. According to Liebreich, “The hydrogen strategy could drive up to a doubling of Europe’s power demand, a doubling of its power supply, a doubling of its power distribution capacity, and a Europe-wide hydrogen pipeline network.” The Commission estimates that the total investment cost for this will come to between one third and a half a trillion Euros. This price tag gives some insight into why some are sceptical about hydrogen as a technology.
To stimulate interest and incentivise companies to develop, the EU has a large pot of funds to allocate to hydrogen technology development. Swedish politicians, such as the Centre Party’s energy spokesperson, Rickard Nordin, are keen to see Sweden “take home the money from Brussels”. So, what would Sweden do with EU funds, if it won them?
Sweden’s strengths and weaknesses
Sweden has a number of foundational strengths to build on – especially its almost completely renewable electricity supply, of which there is considerable potential to build even more wind. This creates the opportunity for hydrogen as an intermediate chemical for both the iron/steel industries, and in the production of methanol (and other chemicals), using carbon sourced from trees as a building block. Given Sweden’s outstanding research capabilities in science and engineering, the rapid development of new Swedish process industries could spin-off downstream industries, e.g. in H2FC trucks, hydrogen jet engines and fuel-cell systems.
But Sweden faces some equally significant weaknesses. It lacks almost anything resembling a hydrogen-ready infrastructure. The UK is already trialling blending hydrogen into natural gas to produce lower carbon heating for homes. Sweden has almost no gas network, and no geological formations where hydrogen could be stored underground. And added to that, Sweden is developing a reputation for being slow moving in its ability to provide the necessary permits for new industrial development. It doesn’t help either that the political class start from a low base of understanding of hydrogen technologies.
And as the recent weather has highlighted, although in the past, Sweden had ample electricity from its large base of hydro and nuclear plants, today the situation is quite the opposite, especially in the south of the country. As the temperature dropped to record one of the coldest Januarys in decades, Sweden’s electricity prices shot up, and industries switched off. For Sweden to become a hydrogen powerhouse, it would need a lot more power! And, even worse, there are major network constraints that prohibit the electricity from moving from where there is spare capacity in the north, to the south, where many of the industries are located. And on top of that, Sweden is a very slow place to do some sorts of business – the sort that requires getting permits for major industrial projects. Which, as it happens, is the sort of business that hydrogen is.
To put this into perspective, in mid-January, Jan Moström, the CEO of LKAB, and Svante Axelsson, Director of Fossil-free Sweden (FFS), wrote opinion piece published in Dagens Nyheter, a leading paper. They totalled up the various possible demands for renewable electricity in Sweden in the next 30 years, and forecast a potential demand of 500TWh/yr of energy. That is more three times as much as the total demand of Sweden today.
Hence, the strategy paper that Fossilfree Sweden presented on January 21 took aim at the shortages in power generation and grid capacity. It called for Svenska kraftnät (the grid operator) to develop an urgent plan for the grid, and for special exceptions to be allowed “dealing with regulatory obstacles that hinder attempts at new solutions based on new technology”. It also wanted the government to set a planning goal of having 3 GW of installed electrolysis power by 2030 and at least 8 GW by 2045. To put that into perspective, 8 GW of hydrogen generation requires 55 TWh of electricity, around 40% of Sweden’s current supply.
A Swedish hydrogen industry isnt going to develop by itself – given the current poor economics, even with investment subsidies. A reform to taxation will also be required to create the incentives. The strategy says that a “Carbon Contract for Difference”, a system where the state provides support based on the project’s carbon dioxide reduction related to EU-ETS prices is needed.
And again, we underline that none of this comes cheaply. The EUs strategy calls for 40GW of electrolyser capacity to be built by 2030. Hence Sweden, with just 2% of the EU’s population, could be building 8% of the EUs capacity to generate green hydrogen. If the EUs guestimate for 40 GW to cost up to €500 billion is correct, then Sweden’s investment could be around €40 billion. That is around 10% of Swedish GDP!
Hence, while a hydrogen economy opens up massive opportunities for both fossil-freedom and new export industries in the future, it also entails some pretty large financial risks. And uncomfortably for the government, which also needs to deal with challenges such as the pandemic, industry is demanding that it takes action almost immediately. For a conservative and slow-moving government that likes to take its time to resolve contentious decisions (or avoid them altogether), those financial risks must sound like very major political risks.
A new inquiry for another strategy
And hence the Swedish government almost immediately called for another hydrogen strategy to be developed – this time by the Swedish Energy Agency (Energimyndigheten). The Terms of Reference for this strategy were published on 11 February. The brief sounds pretty familiar. The Government asks the Energy Agency to analyse and quantify the economics and potential for hydrogen production, to analyse the technical and economic conditions and identify obstacles to the introduction of hydrogen. These are pretty much the same issues that Fossilfree Sweden had just opined on. It is unclear at this stage exactly what is to be gained by a second investigation, except perhaps to buy the government 6 months to position the politics.