New clean hydrogen technology is unlikely to disrupt European utilities, at least in the next five years, despite being an increasingly important element in Europe's energy transition and economic recovery plans, says S&P Global Ratings in a report published today on RatingsDirect:
"Clean Hydrogen Investment Is Still A Leap Of Faith For European Utilities"
"We still see major hurdles to a large scale-up of clean hydrogen, including lack of cost competitiveness, still immature technology, insufficient regulatory support, uncertainty about future demand development, and the lack of renewable power infrastructure necessary to produce clean hydrogen," said S&P Global Ratings credit analyst Pierre Georges.
We therefore don't think clean hydrogen technology will significantly transform the European energy market or disrupt utilities' business models at least until 2025, and thereafter only if the numerous pilot projects currently under way are successful.
We think European utilities will ultimately benefit from a rise in clean hydrogen industries because it would significantly increase demand for electricity to produce hydrogen. It would also create a new role for existing gas infrastructure assets, if they are adapted to store and transport hydrogen.
Europe targets an increase in electrolyzer capacity of 40 gigawatts by 2030. Western European countries currently have announced plans to invest over €32 billion in hydrogen projects over the next decade
Ultimately, we estimate aggregate investments from the 15 major European utilities that we rate to be less than €1 billion per year over the next three years. This represents a marginal amount of the of aggregate total annual investments of about €65 billion per year by these utilities, according to our estimates. We also understand projects will be developed primarily through industrial partnerships as market players try to understand how a clean hydrogen deployment will play out, and where the value will come from.
"Overall, for large renewables players investments in clean hydrogen technology may pay off because future success for hydrogen will also depend on more stringent regulations on carbon, such as higher prices or stricter environmental standards. We think these developments could create space for hydrogen," said Mr. Georges.