Study conducted by DNV on behalf of the NGO Clean Air Task Force (CATF) shows that replacing existing grey hydrogen production with low carbon or green hydrogen alone could meet 60% of the Dutch industrial emissions target, but requires the acceleration of policy support.
NV has found that policies implemented to support carbon capture and storage (CCS) in the Netherlands have so far been successful in encouraging industrial decarbonization.
The classification society has also found that despite its availability in quantities that could feed a solid market, hydrogen (either blue or green) is not yet sufficiently incentivized by policy mechanisms to bring confidence to investors and industry. However, a recently announced redesign of the hydrogen subsidy scheme, if implemented, could kick-start the hydrogen economy and accelerate decarbonization.
To drive the energy transition, the Netherlands requires its domestic industries to reduce GHG emissions by 59% by 2030, and become climate neutral by 2050. The challenge for the Dutch industry is to decarbonize in adherence to the Nationally Determined Contribution to the Paris Agreement (NDC), while maintaining international competitiveness.
Public ambitions have driven the adoption of policy instruments prioritizing well-established and cost-effective decarbonization solutions over emerging technologies such as green hydrogen and electrification. The Dutch government has therefore established a Sustainable Energy Transition subsidy scheme (Stimulering Duurzame Energietransitie – SDE++), working as contract-for-difference scheme that compensates the additional costs for adopting low-carbon technologies that are already used or close to deployment, such as carbon capture and storage (CCS).
While, CCS is mainly perceived as a transitionary technology to prevent fossil fuel lock-in, SDE++ backing has been crucial in enabling its early deployment in the Netherlands, and proving it to be a cost-effective solution for industrial decarbonization. Subsidized CCS projects can contribute to up to 7.8 megatons of CO2 emission reduction by 2035.
On the other hand, hydrogen projects are not sufficiently incentivized under SDE++ to align with emission reduction targets, and their profitability remains low in the Netherlands, despite DNV’s analysis that the significant amount of grey or fossil hydrogen currently produced (exceeding 6 GW) could support solid market opportunities for green or low-carbon hydrogen.
Blue hydrogen has the potential to develop the hydrogen economy in the Netherlands and pave the way for green hydrogen in the longer term. Announced projects, if executed, could lead to a reduction of up to 5.2 megatons of CO2 emissions by 2030
Replacing grey hydrogen with blue hydrogen through the application of CCS could reduce industrial emissions by more than 8.5 megatons (nearly 60% of industrial emissions target). Replacing the existing grey hydrogen with green hydrogen can reduce emissions by more than 11 megatons (nearly 78% of industrial emissions target).
Public support is currently insufficient to enable the scaling up of green hydrogen projects, since its correction amount within SDE++ is determined by the indexed Title Transfer Facility (TTF) gas price, and thus does not take power price into consideration. This exposes operators to power market risks, and scaling costs cannot be recovered within the current framework.
After recent announcements, new SDE++ tender categories for costlier technologies are expected to be introduced by the government during the 2023 subsidy auctions.
DNV analysis finds that such a redesign of the SDE++ scheme would support investment in emerging technologies, and could radically change the Dutch hydrogen landscape by improving the business case for green and blue hydrogen.
The Netherlands is strategically positioned to take a leading role in the energy transition, with good conditions for offshore wind close to the country’s industrial clusters, a network of some of the world’s largest and busiest seaports, and extensive natural gas infrastructures that can be utilized for both domestic and cross-borders hydrogen and CO2 transport
Prajeev Rasiah, Executive Vice President for Energy Systems, Northern Europe at DNV said.