New Schleswig-Holstein question on hydrogen - Financial Times

New Schleswig-Holstein question on hydrogen – Financial Times

The Schleswig-Holstein Question was a 19th-century diplomatic puzzle supposedly understood by only three people. British statesman Lord Palmerston said they had either died, gone mad, or forgotten the details. The northern German state is now at the center of a completely modern dilemma.

How should Germany move renewable energy from the places where it is most abundant, including the windswept Schleswig-Holstein, to the places it needs but the grid cannot serve? For some investors and policy makers, the answer is simple: hydrogen.

This certainly makes sense for HH2E, the developer of the renewable energy project. And she hopes to scatter in northern Germany electrolysis plants that convert electricity from wind farms into gas, hoping to reap internal rates of return “in their low to mid-teens”.

HH2E has just raised €12 million in equity from investors including HydrogenOne, a company backed by British chemical magnate Jim Ratcliffe. The partners conditionally agreed to contribute to hydrogen projects costing more than 500 million euros across Germany.

HH2E initially plans to produce green hydrogen in the times of today when renewable electricity is cheap to fuel chemical vehicles and plants. Hydrogen is especially excited in Germany as a low-carbon fuel for industry. Germany is an environmentally conscious country whose three-party coalition government includes the Green Party. It is also the industrial powerhouse in Europe and the largest emitter of carbon dioxide.

Coal-fired power plants are largely to blame, a problem that the pressure to reduce Russian hydrocarbon imports is not alleviating. The steel industry is another culprit. The bulk of Germany’s 40 million tons of annual steel production last year was made with coke, generating about a tenth of all carbon emissions.

Earlier this year, steelmaker Salzgitter pledged to transition to hydrogen-electric smelters by 2033. Bigger competitor ThyssenKrupp has promised to cut steelmaking emissions by a third by 2030. Meanwhile, it plans to list Nucera, a subsidiary Hydrogen manufactures refining equipment, which has an objective valuation of 6 billion euros.

Politicians are ardent supporters of hydrogen, too. Two weeks ago, the European Commission set a goal The European Union should produce 10 million tons of domestic green hydrogen annually by 2030, with the same amount imported. German lawmakers aspire to install hydrogen stations that require 10 gigawatts of renewable electricity capacity at the same deadline.

We should be glad for hydrogen, an industrial gas, had he been an author of sectarian literature, to admit he “was in a dark place”. In the 30s of the last century, a promising role in the airship business ended explosively. Even a few years ago, anyone suggesting that hydrogen was useful in a circular economy risked turning into a crank.

Much is now expected from hydrogen – and from the private investors that will be needed to fund the new manufacturing capacity. For example, converting the German steel industry from coke to hydrogen would be a monumental endeavor. Some numbers on the back of the envelope confirm this.

German steelmakers need about 180 TWh of energy per year, I estimate, which is equivalent to 5.4 million tons of hydrogen. But converting electricity to gas is inefficient. So electrolysis plants suck about 270 TWh of juice. This would be just under half of Germany’s projected renewable energy production.

The cost will be high. Hydrogen prices are difficult to predict in the current emerging market. Ravi Ghazi, head of corporate finance at HH2E, says motorists are currently paying around €9 per kilogram. Wholesale prices are expected to stabilize at a lower level as production increases, at €3 per €4 per kilogram. Coke produces the same energy at a much lower financial cost but at a much higher carbon emissions price.

You can quickly drive yourself crazy as an expert on the Schleswig-Holstein question by reviewing statistical assumptions. The bottom line is that weaning German ovens off Coke would be expensive.

To attract tens of billions of euros to invest in hydrogen production, the German government must do two things. First, write a detailed transition plan, so investors know what to expect. Second, cover the price gap with fuels such as Coke. And taxpayers will bear the cost one way or another.

It is hardly a common message when the cost of living is rising. But is there a good time to tell someone bad news?

jonathan.guthrie@ft.com

Hydrogen rainbow colors

Sunset over the sea and wind turbines

© Christopher Furlong/Getty Images

green hydrogen It was made using clean electricity from renewable energy to electrolyze water (H2O), separating a hydrogen atom from molecular double oxygen. Expensive at the moment.


blue hydrogen It is produced using gas but with carbon emissions that are captured, stored or reused. Small quantities in production due to lack of capture projects.


gray hydrogen This is the most common form of hydrogen production. It comes from natural gas by reforming methane with steam but without emissions capture.


brown hydrogen The cheapest way to make hydrogen but also the most harmful to the environment due to the use of thermal coal in the production process.


turquoise hydrogen It uses a process called pyrolysis of methane to produce hydrogen and carbon solid. Not widely proven. Concerns about methane leaks.

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