Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: Senior Portfolio Manager Jan-Willem Brommersma on the feasibility of Dutch industry running on hydrogen instead of gas. ‘A complete conversion of industry in the Netherlands to hydrogen is possible, but I don't see it happening before 2040.”
Recently, Minister Rob Jetten (Climate and Energy), along with companies such as Shell, Tata Steel and Gasunie, paid a visit to a hydrogen plant in Spain. The purpose of the trip: to investigate whether Spain can supply hydrogen to the Netherlands in the future. This is because to run the entire industry in the Netherlands on hydrogen, the Dutch (green) hydrogen production capacity is not sufficient. To completely replace industrial use of fossil fuels with hydrogen, additional capacity from abroad is needed. But how realistic is a completely hydrogen-based industry in the Netherlands? How soon can it be a reality and what still needs to be done to make it happen?
To answer that question, you first have to look at which industries cannot operate without hydrogen. And according to Brommersma - who as an investor focuses on the chemical companies, building materials sector and part of the industrial sector - these are mainly the industries in which something has to be heated to a very high temperature.
“To reach temperatures above 250-300 degrees you now need gas or coal. That applies, for example, to the production of steel, but also bricks. You also need a temperature of 1,200 degrees for glass wool. With electricity you can heat a well-insulated house, but for this kind of industrial production process electricity is not an option. Hydrogen is.”
Hydrogen has the advantage that you can store it for a very long time, unlike electricity. As a result, you can select the times when you purchase power to produce hydrogen in a targeted way.
Negative electricity price
"To produce hydrogen, you need so-called electrolyzers, but these are expensive to use. So, you have to turn them on when the power price is low or even negative. For example, if it is windy at night, there is a large supply of power from windmills, while the demand is very small. The electricity price may even be negative. You get money to buy electricity, but you have to be able to store it. The current batteries are not really suitable for that because of their limited capacity, but hydrogen is. So, the advantage of hydrogen is not only that you can produce it when the cost price is low, the production of hydrogen can also provide a more proportional distribution of energy consumption.”
When it comes to the question of how soon Dutch industry can run entirely on hydrogen, Brommersma says two main factors are decisive: the amount of hydrogen that can be guaranteed to be produced in the Netherlands and the investments that industry makes to switch over.
“In the transport sector, there is a debate about electrically powered trucks versus hydrogen-powered trucks. Battery technology is not yet advanced enough to electrify long-distance freight transport. But the advantage of electricity is that it is available everywhere and more easily. With the introduction of solid state batteries in the future, electricity for road transport will become a better alternative to hydrogen (solid state batteries are lighter, quicker to recharge and have greater storage capacity, ed.). In that case, you will no longer need hydrogen for the transport sector and you can use it for the sectors that do not have a clean alternative: industries whose production processes require high temperatures and fertilizer production.”
In any case, in order to base the entire industry on hydrogen, the Netherlands will have to import hydrogen from countries that can produce it cheaply.
“Spain, Morocco and Algeria have the lowest solar and wind energy production costs, making them countries of choice for green hydrogen production. There is enough space at the Maasvlakte to store large supplies of hydrogen that you import from other countries, just as is happening now, for example, with Liquified Natural Gas (LNG). Rotterdam could make agreements with these countries to further distribute the hydrogen in the Netherlands, Belgium and perhaps Germany. For example, to meet the needs of the chemical industry in those countries. Large-scale storage of hydrogen on the Maasvlakte does require safety measures etc. to be adapted.”
When talking about the switch from fossil fuels to hydrogen, there is one company in the Netherlands that Brommersma says you can’t ignore: Tata Steel in IJmuiden.
“A company like Tata Steel has to make huge investments to become hydrogen-based and the lead time is long. A company like that wants to be sure that the required amount of hydrogen will be available in due course. Will the government support that? Can it guarantee that that capacity will be there? In that light, I do understand Minister Jetten’s visit to Spain.”
The challenge becomes even clearer when Brommersma lists the figures in terms of hydrogen requirements and production capacity.
“To ‘green’ existing steel production, Tata Steel alone needs 5-6 gigawatts of hydrogen. Hydrogen production in the Netherlands is expected to be about 3-4 gigawatts by 2030. Add to that the fact that in the Netherlands we have relatively many energy-intensive companies - chemicals, steel et cetera - and we cannot avoid importing hydrogen from countries like Spain and Morocco. We would be crazy not to. So, I’d say a complete conversion of industry in the Netherlands to hydrogen is possible, but I don’t see it happening before 2040.”