Charting pathways towards net-zero in Europe: the role of hydrogen in the European energy transition

The European Green Deal set unprecedented greenhouse gas emissions reduction targets, aiming for net-zero in 2050. This represents a formidable decarbonisation challenge for the energy system in Europe. It is uncertain whether renewables, electrification, and gains in energy efficiency can contribute enough to reach those goals. Renewable and low-carbon hydrogen can complement those enablers, providing a cost-effective solution to the limits of deep electrification and energy efficiency improvements in the hard-to-abate sectors of the economy. To concretize this potential, the European Commission published its hydrogen strategy outlining the deployment of hydrogen capacity to reach 6 GW of electrolyzers by 2024 and 40 GW by 2030.

To better understand the role of hydrogen in the European energy transition, Deloitte’s experts teamed up with research partners IFPEN and SINTEF for a joint-industry research project: Hydrogen4EU. It is a modelling-based study aiming to guide policymakers and industrials in harnessing the full potential of low-carbon and renewable technologies to create an optimal pathway to net-zero emissions in 2050. Underneath the hood of this research project steered by the Economic Advisory team at Deloitte is a powerful and robust optimization engine. The modelling architecture links HyPE, MIRET-EU, and Integrate Europe, three state-of-the-art mathematical models of the energy system from Deloitte, IFPEN, and SINTEF. This joint effort thus models learning-by-doing effects of the energy system at the highest level of geographical, sectoral, and technical details for Europe, North Africa, Middle East, Russia, and Ukraine.

Our research shows that hydrogen plays a key role in enabling a cost-effective transition to net zero. Propelled by strong policy and industrial momentum, demand for hydrogen could triple the European Commission’s goal of 10 million tons of H2 in 2030 and exceed 100 million tons of H2 by 2050. Transport and industry represent the bulk of the demand for renewable and low-carbon hydrogen. In the transport sector, heavy-duty trucks, aviation, and shipping consume hydrogen directly in fuel cells or as e-fuels in traditional combustion engines. Iron & steel is the largest consumer in industry, followed by the chemical industry and by the production of process steam and heat in other sub-sectors.

To better understand which technology options underpin these developments, our study explores two pathways that lead to carbon neutrality. The “Technology Diversification” pathway provides insights into how an inclusive approach, that harnesses a wide-range of decarbonisation technologies, can help minimizing the cost of the energy transition. The “Renewable Push” pathway, examines the possible impact of a deliberate focus on renewable technologies, a prominent feature of the current policy debate. Both scenarios are aligned with the EU policy agenda and comply with the overarching energy policy goals, including the 2030 Framework for Climate and Energy and the European Green Deal.

Our findings suggest that renewable and low-carbon hydrogen are needed together in both pathways explored by the study. The two pathways show the complementarity between low-carbon and renewable routes. While low-carbon hydrogen plays a critical role in establishing a hydrogen economy between 2020 and 2030, renewable hydrogen develops mainly after 2030 and meets the bulk of the additional demand growth. In the Technology Diversification pathway, the production mix is very balanced in 2050 with low-carbon and renewable sources both providing about half of the European output. In the Renewable Push pathway, renewable hydrogen plays a dominant role, underpinned by bigger targets in terms of renewables development in Europe. Renewable hydrogen is mainly produced by off-grid electrolysis. Low-carbon hydrogen shows good potential for reformers with CCS and, to a lesser extent, for pyrolysis.

The study confirms the importance of investing in renewables from the coming decade. In the Renewable Push scenario, more than 1,800 GW of dedicated solar and wind capacities and 1,600 GW of electrolyzers are needed by 2050. Sustaining an accelerated renewable deployment could require as much as a trillion euros more than pursuing a more technologically diverse approach. Considering the whole value chain, our results show that trillions of euros in investment are needed to leverage the full potential of hydrogen in the energy transition. These investments in infrastructure, renewables, CCUS or electrolyzer manufacturing need to start in a timely manner to ensure demand and supply grow in lockstep, avoid technology lock-outs, and mitigate risks of stranded assets. Of note, CO2 storage injection need could reach up to 1.4 Gt in 2050, showing the critical need for Europe to invest in it.

The study also confirms that domestic production is complemented by hydrogen imports from Russia, North Africa or the Middle East. Such imports gradually ramp up over the 2030s. By 2050, between 10% and 15% of Europe’s hydrogen supply come from the international trade market. Traditional exporters of natural gas are also well placed to become major hydrogen exporters to Europe. This is notably the case for Russia and Algeria. Our modelling shows that access to existing cross-border pipeline infrastructure is a significant advantage, as maritime transport is a costly alternative.

Assessing the potential for hydrogen imports in Europe: focus on the Hype model

In alignment with the EU hydrogen strategy, hydrogen imports from the neighbouring regions have been assessed in the Hydrogen for Europe project. Our energy modelling experts at Deloitte have developed a tailor-made, state of the art quantitative tool that aims at modelling the potential hydrogen imports from outside Europe.

The Hydrogen Pathway Exploration model (HyPE) follows a value chain approach in which onsite production, transport modes and conversion/reconversion steps are included from the different possible origin sites to the various entry points into Europe. The approach considers the trade-offs between different transport routes and modes to calculate levelized cost of hydrogen¹ (LCOH) curves following a cost, insurance and freight perspective² (CIF) for each import terminal in Europe.

By representing the international hydrogen trades, the model can help to answer numerous analytical questions. For instance, the model can help to understand the relation between costs and distance. It can help identify the cheaper hydrogen importing routes or better understanding the needs in terms of infrastructure (ports, pipes, ships, etc.).

1 The levelized cost of hydrogen adopts the life cycle costing methodology. It is defined as the summation of all the discounted fixed and variable costs necessary for the production of hydrogen over the expected lifetime of the installation, divided by the total volume produced during its lifetime.

2 Cost, insurance and freight, as defined in Incoterms 2010, means that the exporter delivers the product at the port of destination, so the cost at the loading port includes the cost of transport and logistics.