How COP28 can boost green hydrogen – an interview with Frank Wouters
The veteran energy sector analyst wants to see clear commitments to triple renewables by 2030 and much more money to move green H2 projects to FID; ‘getting gigawatts into Mauritania’
Frank Wouters is Senior Vice President, Reliance Industries Ltd. He is Chairman, MENA Hydrogen Alliance and Chairman of the Advisory Board, Dii Desert Energy. He is Co-president of Long Duration Energy Storage Council, which is a founding member of the Global Renewables Alliance. He serves on the board of several associations and is Director of MED-GEM to create and operate a Mediterranean Green Electrons & Molecules (MED-GEM) Network.
We spoke last week in Dubai.
Energy & Utilities Frank, how are you engaging with COP28?
Frank Wouters In many ways. I will moderate a session with thyssenkrupp. I will also be there as part of the Long Duration Energy Storage Council, a founding member of the Global Renewables Alliance (GRA), which is an ‘anchor organization’ in the renewables space. We will be at COP28, located next to IRENA.
We are champions of the tripling renewables by 2030 target. GRA, IRENA, and the COP28 Presidency together launched our report last month (Tripling renewable power and doubling energy efficiency by 2030: Crucial steps towards 1.5°C).
E&U For advocates of hydrogen and related technologies, what will be good outcomes of COP28?
FW There’s two for me.
First that countries don’t just pledge but actually give money for what they have committed to for years. We’ve been lagging in earlier targets, such as the $100bn per year that never fully materialized. Now there is loss and damage.
Then, the tripling of the renewables target is instrumental for hydrogen, because without it we can’t make green hydrogen.
E&U The tripling of renewables by 2030 should be clearly stated?
FW It is a clear target of the Presidency. But it’s a political bargaining chip. In the pre-COP discussions we haven’t seen breakthroughs in the sense that this is very clear, it’s going to happen.
You would think that tripling renewables doesn’t hurt anyone, it’s sensible, so is should be easy but as a bargaining chip it may become political and difficult.
E&U The IEA has said that renewable power production will need to increase by a factor of 10 to achieve hydrogen production targets in 2050. In this context, it seems like the tripling of renewable power by 2030 looks like an achievable objective.
FW Yes, but we still need to do it. Part of where we’re struggling is mobilizing capital, especially for developing countries. Looking at where it makes sense to build more renewables, there is a lot more space in Africa, the Sahel region, the Sahara, and elsewhere, and these places have fantastic renewable energy resources. But it’s difficult to mobilize capital to get to these investments.
Compare that to my village in the Netherlands, 40 percent of roofs have solar panels, because people have money to invest and it saves them money. But getting gigawatts into Mauritania, that’s where we need a lot more focus. We’re told it’s too high risk, etcetera. We need to figure something out.
E&U Mauritania has one of the ten largest hydrogen proposals in the world now.
E&U Another big one is NEOM, which has actually closed financing, started construction, secured an off-take agreement. Is it the leading green hydrogen project in the world now?
FW It’s the only one at the scale that we need. The financial close earlier this year had something like 23 banks involved. The off-take is with Air Products, which is one of the three partners, and I suspect they financed it with a large chunk of their balance sheet.
We need to go beyond that, because there is a limit to companies’ balance sheets. We need to go into project finance, where the financing is based on future cashflows.
And the question is, how to kick-start that?
The IEA recently made an analysis, there is a growing pipeline of green hydrogen projects, but the actual FIDs are lagging. It’s only about 4 percent of all the initiatives are close to or reached FID.
So, there’s still something missing. I think industry has been doing its part, the growing pipeline of projects is testament to that. Now it’s up to governments again.
Because obviously there is still the cost gap. In making green hydrogen, you’re competing with other things, where maybe the carbon pricing doesn’t cover the emissions harm. And we’re not making electrolysers at any scale, they’re still expensive, so we have to go down on the cost curve. It can only be done by actually building systems.
So there is still a cost gap that, one way or other, somebody has to pay for.
What we’re seeing now, the government incentives, whether quotas, subsidies, etcetera, are not yet there.
I think, right now, we have to get governments to make these things work and get the industry going. Like we did for renewables. We had all kinds of support mechanisms, and now it’s in the money it’s commercial.
With hydrogen we still need to go through that phase.
E&U You’ve said before, we have to move fast and take big steps. Where are we moving fast now? Any good news on the horizon?
FW Again, the pipeline is there. In Mauritania, in Australia, in Oman, in Namibia.
But these projects haven’t closed, because it’s still not clear who’s going to buy all that stuff, under what conditions and why. That’s where governments need to come in.
There are some attempts. The Germans have started H2 Global, that’s now being Europeanized with the Hydrogen Bank, there’s about $3bn in that bank, by no means enough to get to the gigawatts, actually terawatts that we need.
So we still need to think and innovate, especially on the financing side. Concerning offtake, why would anyone pay the premium, which there is for a number of years, until we’re in the money. I haven’t seen the silver bullet yet – that one simple, scalable model where an industry can really start replicating projects.
We had feed-in tariffs for a long time, at the beginning of renewables, which were really simple and replicable.
We need something along those lines. Right now we have a complex system of support structures, which obviously are not yet good enough. In Europe we have carbon pricing, CBAM, subsidies, quotas, auctions on the supply side and off-take side.
The Germans launched the first H2 Global auction in November last year, they haven’t signed yet. What I’m hearing is early next year.
So it’s complex, we’re getting there, but we also need to simplify things.
E&U What about the US ‘hydrogen hubs’, which are funded.
FW It’s good, it’s $9bn, a billion or so for each hub, it’s a good catalyst, can start building eco-systems. But if you look at the bigger scheme of things, we just need a lot more. We need to be thinking in the scale of hundreds of billions.
The US Energy secretary had to pitch in another billion this summer because nobody was signing contracts, before the announcement of the hubs. So there, even with the $3 per kilo, we’re not there yet.
E&U What about Oman, the large project at Duqm, and Egypt? These seem to be the largest projects in the Middle East, in addition to NEOM.
FW In Oman, I think the government is doing good work, they’re building shared infrastructure for the projects to begin. Initially they were all, let’s say, unsolicited proposals, which is fine. Then the government ran auctions. The risk is that you get disjointed initiatives in a country. The government has said, let us build the infrastructure, pipelines, water, electricity, etc.
That’s an approach you would like to see, where the government takes charge. Obviously the Omani government is not that wealthy, that it can cover all of the cost difference, so they are looking at mostly export at the moment.
Then the question is, where to sell the hydrogen or ammonia, who’s going to pay the premium, and why?
People are looking at Europe for obvious reasons. Same for Egypt.
E&U Egypt seems to have unique geographic advantage. Otherwise it faces the same lack of funding.
FW Yes. Egypt could eventually build pipelines to Europe, that would be great.
But in the short-term people are looking more toward liquids, looking at ammonia, and others.
Part of what’s exciting in Oman, as well as in Egypt, is actually using the green hydrogen domestically to make products to sell. To make green ammonia, ‘green steel’, which is also something Mauritania is looking toward, selling green steel to Europe rather than the more complex route of selling the fuel.
And when you make green steel, what else can you make from this in the country? This is exciting with a lot of promise. But we still need to close the cost gap.
E&U Is there a similar possibility for NEOM green hydrogen, for domestic industry to launch the market?
FW Yes. In refining, and other areas, there’s a lot you can do, more efficient than sending the fuels to Europe for further processing or use.
Obviously, Saudi Arabia doesn’t have a price on carbon, so there it becomes a little more complex. But if you can find a way of recognizing the carbon footprint impact, that would be fantastic. I know the NEOM people are looking at it.
But the carbon border adjustment mechanism – the CBAM in Europe – could be something that can actually make it happen. That’s now operational and given the low cost of hydrogen in Saudi Arabia, it’s much cheaper to produce it there than in Europe.
E&U It seems the Saudis would have the resources to close the carbon price gap, in a way other countries don’t, to get a domestic hydrogen industry going.
FW Yes. But experience also shows that any kind of subsidies is not endless. What would really help is a price on carbon, which has proven to be the most cost effective to actually reduce emissions. We’ve seen this in Europe.
They’ve started, there is infrastructure now, the Saudi stock exchange has a carbon trading platform, same in the UAE, for voluntary schemes. Hopefully soon we will have a carbon pricing mechanism.
E&U A key technology will be long duration energy storage. Do you see an industry arising in the Middle East?
FW Yes. Here we have very low-cost renewables. Of course renewables are in the money now almost anywhere in the world. You see a rapid uptake of renewables, but a much slower build-out of grids.
What LDES provides is actually a solution for gird congestion. It takes 10 years on average in the US and Europe to build a grid expansion. We’re seeing massive bottlenecks, the ‘dark figure’ is 1500 GW of renewable power that could be deployed in almost shovel-ready initiatives, not being built because the grids are not there.
A grid requires 10 years, you can build a wind farm in two years, and that has been happening. And LDES is a short-term fix for this.
Longer term you need it for many reasons. But short term the grid congestion is going to be a massive driver. There are several ways to manage the variability of renewables, it’s either interconnection, or storage, or dispatchable supply. I think LDES will greatly increase because the interconnection is more difficult.
E&U What technologies are most interesting for LDES?
FW Everything has a place. There are a number of different technologies, chemical, electro-chemical, heat, gravity based. The major difference our council sees, with something more established like lithium-ion, is that they scale differently.
LI battery systems scale linearly. With other battery technologies, such as flow batteries, cost tapers down the longer the duration. That is why the longer-term storage tech is interesting, because it becomes cheaper with longer duration.
It’s still early days, so a lot of the technologies still need to prove themselves in economic terms and technical terms, but they are promising.
E&U Is there a key number for LDES – 12 hours or 18 hours?
FW Not really. The definition is anything beyond 8 hours. It can be intra-day, weeks, even seasonal.
The European natural gas demand is 400bn cubic meters per year, with 100bn cubic meters in storage. To de-fossilize this in the future, we will still need seasonal storage. That can be cost effectively done with hydrogen. That’s why you need the chemical conversion, electricity into molecules, for peak use when needed in winter.
E&U Would there be a unique Middle East market for LDES?
FW I don’t think so. Almost 80 percent of last year's power generation worldwide was with renewables. It’s a very clear trend because it’s now cheaper than anything else and has no carbon footprint. But it’s variable.
So the need for storage is growing with the addition of renewables. And again it gets squeezed with the grid. That’s a universal problem.
E&U Is there a need to strengthen international power connections in the region?
FW Definitely. The gird needs massive investment. Because electricity with renewables is cheap, without emissions, so you want to use as much as you can. For that you need the grid.
So what you want to have is at least 50 percent direct electrification. Now electricity is 20 percent of final energy, the rest is molecules, we want to increase it to 50, so two-and-half times more electricity, it goes to heat pumps, it goes to EVs, to industry, etcetera. But we need the grid in places where new generation is going to be. Which is offshore wind in Europe, solar from the desert, you still need to take this to the load centres.
So yes, we need to work on the grid much more.
E&U To think of it as regional, rather than national, perhaps the GCCIA needs to become something more like a European system with a spot market and easier movement of power?
FW That is under discussion. What is also interesting also is the India – Middle East – Europe corridor, which was launched at the G20 in India this summer, with an electricity backbone as part of it, as well as hydrogen.
E&U Going back to COP28, the MENA nations have their own council at the summits, what should they be asking for at this Summit?
FW I think we’re not tapping into the potential of the deserts yet. There’s a number of initiatives, great potential, but we need to think ‘outside the box’ in terms of how to finance these.
Again, the potential for really low-cost hydrogen and ‘green electricity’ in Mauritania is a great example. It’s massive. So it’s a fantastic resource, and we all think it’s a risky investment, because of the risk, the country credit rating, and so forth. And financing cost makes the investment more costly than its needs to be.
So if we find ways to market the products that Mauritania can make with its great renewable resource, internationally, that will reduce the cost of finance.
E&U So it comes back to that promised $100 bn?
FW For the energy transition, we need at least that, to open the potential of the region, of the deserts.
You know it’s relatively easy to finance something in Saudi Arabia, but a lot more difficult in Tunisia or Mauritania, or Libya, or even Egypt. So how can we connect markets in a smart way so that the investments are not as expensive as they currently are, for whatever reason that people think is risk related.
E&U So we should look for new money coming out of COP?
E&U Thank you Frank for a very interesting discussion.
FW My pleasure.
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