The new Schleswig-Holstein problem is about hydrogen

The Schleswig-Holstein problem is a 19th-century diplomatic conundrum that only three people are said to have understood. British statesman Lord Palmerston said they died in varying degrees, went mad or forgot the details. Now, the northern German state is at the heart of a thoroughly modern conundrum.

How should Germany transport renewable energy from resource-rich places, including windy Schleswig-Holstein, to places where it is needed but not served by the grid? For some investors and policymakers, the answer is simple: hydrogen.

This certainly makes sense for renewable energy project developer HH2E. It wants to build an electrolysis plant in northern Germany to convert electricity from wind farms into natural gas, hoping to earn an internal rate of return “in the teens and teens”.

HH2E has just raised a €12 million equity stake from investors including HydrogenOne, a business backed by British chemical tycoon Jim Ratcliffe. The partners have conditionally agreed to contribute to a hydrogen energy project costing more than 500 million euros across Germany.

HH2E originally planned to produce green hydrogen at a time when renewable electricity was cheap to fuel cars and chemical plants. Hydrogen has generated particular enthusiasm in Germany as an industrial low-carbon fuel. Germany is an environmentally conscious country with a three-party coalition government that includes the Greens. It is also Europe’s industrial powerhouse and largest emitter of carbon dioxide.

Coal-fired power stations are largely to blame, and efforts to reduce Russia’s hydrocarbon imports have done little to alleviate the problem. The steel industry is another culprit. Coking coal was used to produce most of Germany’s 40 million tonnes of steel a year last year, producing about one-tenth of its carbon emissions.

Earlier this year, steelmaker Salzgitter pledged to switch to a smelter powered by hydrogen and electricity by 2033. Bigger rival Thyssenkrupp has pledged to cut steelmaking emissions by a third by 2030. At the same time, it plans to list its hydrogen-making subsidiary Nucera’s refinery unit at a valuation of as much as 6 billion euros.

Politicians are also ardent proponents of hydrogen.A few weeks ago, the European Commission set a goal The EU produces 10 million tonnes of domestic green hydrogen annually by 2030, importing the same amount.German lawmakers eager to install hydrogen plants 10 GW Renewable energy generation by the same deadline.

We should rejoice in hydrogen, an industrial gas that, if it were the author of confessional literature, would admit to being “in a dark place.” In the 1930s, a promising role in the airship business exploded. Until a few years ago, anyone who proposed that hydrogen might be useful in a circular economy risked being classified as a crank.

There are now high hopes for hydrogen and the private sector investors that need to fund new manufacturing capabilities. For example, switching the German steel industry from coking coal to hydrogen would be a huge effort. Some rough numbers underscore this.

According to my calculations, German steelmakers need about 180 terawatt hours of energy per year, which is equivalent to 5.4 million tons of hydrogen. But converting electricity to natural gas is inefficient. So the electrolysis plant will absorb about 270 TWh of juice. That would be slightly less than half of Germany’s projected renewable energy output.

The cost will be high. In current emerging markets, hydrogen prices are difficult to predict. Motorists are currently paying around 9 euros per kilo, said Rafi Ghazi, HH2E’s treasurer. Wholesale prices are expected to stabilize at a low level of 3 to 4 euros per kilogram as production increases. Coking coal produces the same energy at a much lower financial cost, but at a much higher price for carbon emissions.

By bending statistical assumptions, you can quickly drive yourself crazy like an expert on the Schleswig-Holstein problem. The bottom line is that it would be expensive to wean German furnaces off coking coal.

To attract tens of billions of euros in hydrogen production investments, the German government must do two things. First, write a detailed transition plan and let investors know what to expect. Second, make up the price gap with fuels such as coking coal. The cost will be borne by the taxpayer in one way or another.

This is hardly a welcome message when the cost of living is soaring. But is there a good time to tell someone the bad news?

jonathan.guthrie@ft.com

hydrogen rainbow colors

sea ​​sunset and wind turbines

© Christopher Furlong/Getty Images

green hydrogen By electrolyzing water (H2O) using clean electricity from renewable energy sources, hydrogen atoms are separated from their molecular twin oxygen. Expensive at the moment.


blue hydrogen Produced using natural gas, but carbon emissions are captured, stored or reused. Due to the lack of capture items, the quantities in production are negligible.


grey hydrogen This is the most common form of hydrogen production. It comes from natural gas through steam methane reforming, but no emissions capture.


brown hydrogen Due to the use of thermal coal in the production process, hydrogen is the least expensive to manufacture, but also the most damaging to the environment.


Turquoise Hydrogen Hydrogen gas and solid carbon are produced using a process called methane pyrolysis. Not proven on a large scale. Concerns about methane leaks.

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