Geothermal: the next frontier?

Hydrogen projects are being included in the list of important projects of common European interest, which allows them to receive public support. These proposals and initiatives feature hydrogen in several ways, and provide further substance and backing for its development.

The enthusiasm for clean hydrogen extends to the national level, where EU members such as Germany, France, Portugal, and the Netherlands have designed their own hydrogen strategies. Germany has even promised to back hydrogen development with a public budget of €9 billion. France has committed €7 billion. In several countries, innovative support schemes are emerging to encourage deployment and to mitigate the most pressing issues.

Beyond these, the European Commission has also enlisted the support of industry and set up a European Clean Hydrogen Alliance to develop a pipeline of projects and help achieve the objectives of the hydrogen strategy. The Alliance brings together the industry, public authorities, and civil society to identify a pipeline of hydrogen investments. In November 2021, the Alliance announced a list of over 750 projects across Europe, representing billions in potential investment in the coming years. This underlines how much industry has also recognised the opportunity and importance of hydrogen in today’s context.

Large investments presenting challenges

Getting low-carbon hydrogen usage to serve the needs of the economies and industries will require very large investments – the EU’s Joint Research Centre estimates investments required by 2050 could amount to approximately €2 trillion in a scenario of large scale renewable power capacity and electrolyser deployment. Transport, storage infrastructure, and application-level assets will also need investment.

Before such investments can happen, low-carbon hydrogen needs to become more competitive against the technologies it could replace. In some use cases, renewable green hydrogen competes against fossil-based grey hydrogen. In others, hydrogen competes against natural gas. Hydrogen may also compete against completely different technologies altogether, in the case of steel production (traditional blast furnaces or electricity-based models) or transport (thermal engines, batteries).

In most cases, low-carbon hydrogen tends to be more expensive. It comes with a green premium that needs to be reduced over time by scaling up the low-carbon hydrogen value chain, which may bring costs down through economies of scale and industrial improvements. While some of the core technologies are mature, innovation is likely to remain important because improvements remain necessary in production, transport and storage, and actual usage applications.

In the case of green hydrogen, a critical capacity and cost lever will be the availability of very low-cost renewable power. The importance of renewable power for the clean hydrogen thesis cannot be overstated – in fact, the falling cost of renewables in the past decade – which the European Investment Bank (EIB) has supported through its financing –is seen as one of the key factors that provide a sound footing for hydrogen today.

Because a very large proportion of costs is linked to the electricity used for its production, the development of green hydrogen raises systemic questions about how to align low-cost production (for example, where renewable power is cheap and plentiful) with large and predictable use cases, typically in large industrial basins.

Across the board, the value of carbon will be a key component to help mitigate the green premium. Ensuring that avoided carbon emissions can be monetised could make or break initial low-carbon hydrogen projects. Conversely, a higher carbon price on fossil fuel-based approaches could make a comparison more compelling for low-carbon hydrogen. In addition, the regulation governing hydrogen transport and storage may need some adaptation to incentivise investment in the necessary infrastructure.

When it comes to financing, EIB’s feedback from recent investor consultations highlights that project risks, whether related to offtake certainty, technology performance, or operational risks, will need to be addressed to make low-cost financing available.

Investing as a catalyst

In the past decade, EIB has invested €550 million specifically related to hydrogen, which has helped generate over €1.2 billion in external investments in the sector. The company’s support has focused on financing research and development (R&D) in hydrogen transformation and application technologies, as well as public transport schemes deploying hydrogen buses and rolling stock and supply/refuelling infrastructure.

Today, the company’s energy lending policy focuses on decarbonisation, and features low-carbon gases such as hydrogen. EIB has approximately €1 billion of hydrogen-related projects in its pipeline, and is beginning to see industrial scale deployment projects come through its doors.

EIB is nevertheless looking for more projects to finance. To this end, the company has established advisory collaborations with key industry associations, such as the Hydrogen Council and Hydrogen Europe, and national associations such as France Hydrogène or the Polish Hydrogen Cluster, to identify promising projects and facilitate access to its advisory and financing solutions.

In the future, EIB wishes to support projects that expand the supply and use of hydrogen at a larger scale, and the company hopes that it will be able to do that with the right policy and regulatory framework at the EU and member state levels. Given sector challenges, the company’s technical assistance and advisory services can play a key role for these projects.

Indeed, EIB can help innovators and governments put together projects in a way that can attract financing.

The company guides them in sorting through the various financial tools – debt products, guarantees, or equity instruments – that can reduce investor risks, particularly for new technologies or new industries trying to scale up. The company’s support goes beyond financial tools, however, to include market research and constructing new business models.

An example is the company’s support for the HyDeal initiative. It involves a number of industrial players – including gas transmission systems operators, electrolyser manufacturers, and solar photovoltaic (PV) developers – that are coming together to build a large scale, integrated hydrogen ecosystem designed to deliver low-cost green hydrogen for industrial clients. The hydrogen produced will come from solar-powered electrolysis, and will be transported via pipelines to a number of storage and delivery hubs. Other industrial or technology deployment projects may benefit from the company’s advisory support to address key technical issues or prepare for financing.

The EIB’s support goes beyond specific hydrogen projects. Building the low-carbon hydrogen ecosystem to the point that it could contribute to the replacement of fossil fuels would require enormous investment in renewable energy, such as wind and solar, or substantial new capacity for carbon capture and storage (CCS).

There is also the need and scope for further technological progress in hydrogen conversion technologies – from low-carbon electricity to hydrogen (electrolysers) and electricity (fuel cells). This is an area in which EIB has already accompanied multiple companies – small and large – in their R&D and innovation activities.

Time to act together

Active co-ordination among the EU institutions, national governments, and industry is essential to turn objectives into reality. Europe’s transition of its energy systems from high-emitting fossil fuels to low-carbon hydrogen will require massive investment and monumental co-ordination.

Launching initiatives to support EU members’ national strategies and to develop new financing mechanisms could help. At the same time, however, there is an urgent need for hydrogen production, storage, and distribution links to be built across EU members. Those cross-border projects will require specific co-ordination and an alignment of public resources.

EIB, which already co-operates with the European Battery Alliance, is looking forward to doing the same with the hydrogen industry. Higher-risk financing instruments, developed together with the European Commission, have proved helpful in addressing projects in this sector which entail significant technical and market risk. In addition, EIB advisory services can play a key role to help not-yet mature projects to develop.

The EU bank remains committed to continuing its support for investment in clean hydrogen – in line with the indications of the EU taxonomy – which could range from R&D investments to demonstration projects, as well as the building of the necessary infrastructure.

Brian Pye (Malaysia), Greg Rheaume (US), and Martin Rylance

(UK), THREE60 Energy, consider the opportunities presented by geothermal energy, and how these prospects can be realised through the transfer and application of oil and gas expertise.

Humans have been using geothermal energy for centuries, with the famous Roman bathhouses as a prime example. It is the thermal energy available from the high internal temperatures of the Earth. It is a potent energy source, as demonstrated by the power of a volcanic eruption.

In terms of modern uses for geothermal energy, power production and district heating are the primary applications. Power production uses geothermal heated water or steam to drive generators, while district heating uses hot water to transfer heat to buildings or neighbourhoods.

How does geothermal fit into the energy transition?

Governments, organisations, and individuals are all taking significant steps to reduce harmful emissions and limit the impact of climate change. The Paris Accord, which approximately 200 nations have signed, sets a target to limit global warming to 1.5˚C. However, to achieve these targets, global energy use will have to transition away from oil and gas to cleaner energy sources.

No one renewable source of energy can replace the current supply of energy from oil and gas. Solar, wind, biomass, and hydrogen are all well-known technologies contributing to the transition. Geothermal is less well-known by the public but is a viable renewable energy source that can help to meet global emission and climate change targets. A unique feature of geothermal energy is that it is always active and available, as opposed to wind and solar that are intermittent depending on environmental conditions.

Most, if not all, continents already use some geothermal energy to meet their needs, but there is potential for significant growth in the sector.

Rapid migration of assets and skills from oil and gas to geothermal

The energy transition not only requires the migration of energy from non-renewable to renewable sources, but it also requires the repurposing of oil and gas assets. Additionally, the declining oil and gas workforce requirements will leave many skilled resources looking for employment in alternative sectors.

Oil and gas wells can be repurposed for geothermal use. This is a significant benefit as the investment will have been written off against oil and gas production. Of course, there will be some modifications needed and challenges to address. Geothermal wells tend to be deeper and operate at higher temperatures than oil and gas wells. These conditions require different and