D2.1 Drivers of renewable hydrogen production in the Dutch integrated energy system

This study tries to answer two fundamental questions related to the introduction of hydrogen in the Netherlands’ energy system in the period until 2030:

• what is the likely order of magnitude of electrolyser capacity investment in the Netherlands and what are their main drivers; and
• given such investment, and given the different sizes of electrolyser installations (varying from a scale of some MWs to GW-scale), where will those investments most likely be located and what are the most likely drivers of the choices of location?

Both questions are highly relevant for the TSO and DSO’s responsible for hydrogen transport. The more hydrogen will be produced domestically as opposed to imported via the main harbours, the more transport capacity will need to be developed to service the market. The better the understanding of where hydrogen production will most likely be concentrated, the better the TSO but the DSO’s in particular will be able to plan their future hydrogen related transport capacities.

Magnitude of electrolyser capacity investment

So far virtually all investment in electrolyser capacity has been characterized by a spirit of pilot and demonstration activity. The commercial exploitation of electrolysers still is something of the future given the current stage of scaling up and learning. This means that serious investment in electrolyser capacity will not come off the ground without public support, either by way of subsidies or by way of command and control via prescribing the introduction clean hydrogen to replace grey hydrogen. In assessing what the main drivers are for investment in electrolyser capacity, public support therefore clearly will be the main factor, at least in the period considered i.e. until 2030.

In the Netherlands support policies to stimulate hydrogen value chain development and electrolyser investment in the country have come off the ground fairly intensively during the last years: the Netherlands is the first country in Europe to invest in a national hydrogen backbone linking most of the main industrial clusters with links to Germany and Belgium; the Netherlands introduced serious subsidy volumes (several billions of Euros) to support investment in electrolyser capacity and hydrogen transport capacity and also support measures have been introduced via a certificate system for hydrogen in mobility including hydrogen refinery for that purpose; the Netherlands recently doubled its 2030 targets for both offshore wind and electrolyser capacity (to 21 GW and 6-8 GW respectively); a wave of pilots related to small scale introduction of hydrogen in industry, mobility and the built environment meanwhile has been introduced to test hydrogen applications. All such support activity has boosted hydrogen developments. The question whether or not hydrogen support initiatives in the country have been relatively substantial compared to other EU countries was outside the scope of the current study. That the support measures have been effective is, however, clear: given the current information it seems very likely that the first GW cumulative electrolyser capacity in the country will already be operational by 2026.

In the study an extensive simulation has been carried out to assess for (the period until) 2030 how much public support/subsidy is probably needed per MWh of green hydrogen produced domestically to close the business case. Obviously the result was sensitive to many investment specific factors, but boiled down to figures ranging from close to zero to about 100 €/MWh with most simulations ranging between some 10-35 €/MWh H2, or some 0.5-1 €/kg H2. Key factors reducing subsidy needs turned out to be: the overall installed capacity of renewable energy in the country; national demand for hydrogen; national demand for electricity; and to a lesser extent the natural gas and CO2 prices. The simulations assumed that the hydrogen market until 2030 will be typically national because the international shipping transport systems are expected to initially focus on demand of the hydrogen carriers (e.g. ammonia or methanol).

Another fundamental factor that, next to public support measures, will most likely have a crucial impact on domestic electrolyser capacity built up is to what extent the country will rely on the imports of hydrogen and hydrogen carriers for satisfying domestic demand. It is still an open issue to what extent nationally produced hydrogen can compete with hydrogen imported from foreign sources. The assessment of HyDelta 1 7A.2 suggested that for at least 2030 hydrogen production based on North Sea wind capacity could compete well with almost all other sources of green hydrogen production because differences in transport costs more than compensated those of production costs. For hydrogen carriers the assessment concluded no clear difference in competitiveness between domestic and foreign sources. This may explain why in the various simulation studies on the issue, no clear answer is provided on the issue what share of hydrogen supply will be generated nationally. A major complexity in this respect is that hydrogen and hydrogen carriers are just commodities that will be traded internationally so that a significant part of hydrogen and hydrogen carriers entering the country as imports, will be transported further to the surrounding countries. All in all, the expectation is that ‘pure hydrogen’ may well be produced domestically typically based on North Sea wind capacities, whereas hydrogen derived chemicals such as ammonia and methanol will typically be imported.

Locations of electrolyser investment

It seems likely that different scales of electrolyser capacity clusters will be introduced in the future ranging from small electrolysers (say with capacities ranging from about 1 MW to several MWs), and medium sized electrolysers (say with capacities between some tens to some hundreds of MWs) to large electrolysers (with capacities anywhere between 250 MW and several GWs). Obviously the range of likely locations of such investment will differ depending on the scale of the investment clusters.

So far significant investment of electrolyser capacity of medium sized and large scale is foreseen to emerge in or near four of the five main industrial clusters (Eemshaven-Delfzijl, het Noordzeekanaalgebied (NZKG), the Rotterdam-Moerdijk area, the Schelde-Delta region in Zeeland, and Chemelot in Limburg). The locational advantages of these main industrial clusters are clear: large scale demand, the presence of major companies with considerable investment capacities, and a cluster scope supporting the economics of scale, logistics and permitting procedures. The few existing scenarios so far, for the after 2030 period on average suggest that the major part (60-75%, depending on the scenario) of the Netherlands electrolyser capacity in the future will be located in the four coastal industrial clusters and the region of Den Helder and/or offshore. The remaining, mostly smaller electrolyser capacities will be located at the Chemelot industrial cluster and elsewhere throughout the country.

Clearly, the backbone will act as another major catalyst for electrolyser investment in its neighbourhood; all coastal main industrial clusters mentioned are positioned close to the backbone. Also, all four clusters located near the coast are already connected to energy supply networks based on power, also from offshore wind capacities, which adds to their abilities to balance and to their strong locational advantage for large scale electrolyser capacities until 2030. After 2030, the future location of offshore wind capacities may be increasingly decisive which – due to windfarms increasingly being planned in the Northern part of the Netherlands North Sea continental shelf –  explains why the scenarios and investment plans suggest an increasing focus of electrolyser capacities in the North of the country.

An interesting issue, also for the DSOs in view of their network investment planning, is where electrolyser capacities can be expected to emerge inland. Where are the clusters of industrial and other economic activities that may consider installing electrolyser capacities to secure stable, green and affordable energy by way of hydrogen as the optimal energy mode? An assessment showed that currently 27 small electrolyser projects are in operation or development, representing a total capacity of 100-150 MW. Clearly, factors determining such locational choices are: the threat of e-grid supply-side congestion becoming a problem, the presence of a serious industrial activity (usually referred to as cluster 6 locations) potentially in combination with a built environment, the availability of the production of green power in the area in combination with local demand for ‘ultra-pure’ hydrogen for mobility that cannot be delivered via the public grid (and purification may be considered too costly). This last category of cases could typically lead to the installation of small scale electrolysers for mobility; similarly small scale electrolysers may be introduced into the future to service pockets of the built environment looking for self-sufficiency, especially to be able to store and improve the use of locally produced renewable power capacities.