Decarbonising society
with Power-to-X

As noted, replacing substantial existing fossil-based hydrogen demand with renewable hydrogen is a point of departure for industrialising production of renewable hydrogen and e-fuels. As long as fossil-based hydrogen remains significantly cheaper to source, however, the desired shift to renewable hydrogen will be negligible

Measures to incentivise and support use of renewable hydrogen and e-fuels could include renewable mandates and carbon pricing. In parallel, incentives to deliver e.g. steel or ammonia based on renewable hydrogen should support the growth of demand for such products to ensure that early industrial adopters are rewarded, not disincentivized.

In some sectors such as aviation and deep-sea cargo shipping, the technology to run on renewable e-fuels is not yet commercialised. This creates uncertainty for future suppliers and consumers. To produce more complex e-fuels, several new technologies must be deployed and scaled simultaneously, e.g. hydrogen electrolysers, carbon capture and e-fuel synthesis. In parallel, new infrastructure must be put in place for distribution and bunkering.

Flagship projects create a means to manage and overcome such uncertainties, ideally with both developers and consumers collaborating to develop solutions across the entire value chain. By nurturing new demand, flagship projects help industrialise production while also driving development of infrastructure and key off-taking technologies.

Policymakers can facilitate such projects through grants for initial establishment and scale up of production, distribution and consumption assets as well as support to bridge the initial cost gap of renewable hydrogen and e-fuels.

Strategically locating power-to-X facilities close to renewable energy sources – and co-locating energyintensive industries – is important. Regulators can help by designating dedicated ‘infeed zones’, situated near strong points in the transmission grid. For example, at the connection points for large offshore wind generation assets. By carefully designing transmission tariffs to be cost-reflective, electrolysers and power-to-X facilities can be incentivised to locate and operate in a way that can save large costs for the surrounding transmission grid. This will also be a critical part of the business case for power-to-X, as regular transmission tariffs represent a considerable share of total electricity costs to industrial consumers. Policymakers can also help by acknowleding hydrogen electrolysis as an energy intensive industry in terms of taxes and levies on power consumption, further reducing costs.

Policies that encourage locating large electrolysers in close proximity to large-scale renewable generation enable immediate consumption of a significant share of the power, thereby avoiding costs associated with extensive build-out of onshore transmission. Ultimately, this development strategy can also help stabilise the grid by providing flexible demand services once dedicated hydrogen grid and storage infrastructure is in place.

Eventually, infrastructure planning should include options for establishing hydrogen transmission grids to connect consumption and supply, as the market for renewable hydrogen scales.

Today, costs of generating power from solar, on- and offshore wind are lower than from new coal, gas or nuclear power plants. This is a game-changing enabler, making decarbonisation feasible through either direct or indirect electrification.

Access to stable and low-cost renewable energy is a prerequisite for sustainable production of renewable hydrogen or e-fuels. Hence, to enable power-to-X to expand, policymakers must ensure that renewable power generation can scale further as well. Specific actions should include taking steps to align policy targets, maritime spatial planning and long-term infrastructure development with the build-out rates needed to achieve decarbonisation.

Historically, political ambition and certainty have set in place a sufficient safety net to prompt the offshore wind industry to ‘take the leap’. Clear signs of sustained ambition gradually unlocked larger investments to support industrialisation of supply chains, technology and operations, in turn allowing the industry to mature and achieve ever-higher efficiency at lower costs.

Electrolysis and power-to-X is unique and will require customised regulation and incentives. As was the case for offshore wind, renewable hydrogen and e-fuels require an environment of high political ambition. To kick-start development and unlock private investment, clear evidence is needed that policy support, subsidies and favourable framework conditions will be in place over the years it takes to complete the cost-out journey.

On the other hand, countries moving early may stand to gain a significant economic upside. As power-to-X technologies will be a crucial part of any realistic global climate mitigation effort to reach net-zero emissions by 2050, one way or another, they must eventually be developed and deployed. Early action to set a supportive policy framework will translate into early opportunities for companies, countries and regions willing to take bold steps towards becoming suppliers of green fuels to global markets.