European green hydrogen project investments will increase in the coming years but the pace of the market ramp-up to 2030 and beyond is uncertain amid political pressure around the cost of energy and the geopolitical landscape, James Samworth, partner at UK-based investor Schroders Greencoat LLP, told Platts, part of S&P Global Commodity Insights.

In Europe alone, positive final investment decisions on electrolyzer projects amount to more than 3 GW, according to Commodity Insights data.

While most of those are at a smaller scale, several larger projects of at least 100 MW have also taken FID. That includes developments by Shell, BP and Iberdrola, as well as the massive 700-MW Stegra green steel plant in Sweden.

Bigger developments are "getting more doable," but such projects require a "step-up" in terms of public and private investment at a time of fiscal tightening, Samworth said in an interview.

"I think it is a little bit more uncertain how fast governments will choose to move," Samworth said. "It will come down to political and economic trade-offs, and that will affect how fast this industry grows and scales."

Reducing the cost of green hydrogen has been a major focus in recent years, with the industry long touting a range of Eur2/kg to Eur3/kg as being competitive with fossil fuels. However, that target has proven elusive since the energy price spikes sparked by Russia's war in Ukraine.

With lower-cost US LNG likely being the long-term marginal energy supply, that will "make it hard" to produce green hydrogen at the Eur2-3/kg range "anytime soon," said Samworth, who is also co-head of Schroders Greencoat's energy transition team.

Meanwhile, the belief that curtailed generation, for instance from solar or offshore wind, could be used to power an electrolyzer has also "come and gone."

"Of course, there is a bit of that, but not really for very much of a year," Samworth said. "It is quite hard to build an electrolyzer that runs 15% of a year."

Green hydrogen strategy

Schroders Greencoat, the renewable energy infrastructure arm of Schroders Capital, made its first investment in the green hydrogen space nearly two years ago, forming a joint venture with developer Carlton Power for a portfolio of projects in the UK.

In December 2023, the companies were awarded funding in the UK's first Hydrogen Allocation Round (HAR1) for three projects totaling 55 MW. Those contracts are expected to be signed "soon," and the partners have also entered projects into the HAR2 round, Samworth said.

The UK Department for Energy Security and Net-Zero told Platts it expects to publish shortlisted HAR2 projects in the coming weeks.

The successful HAR1 projects were awarded at a weighted average strike price of GBP241/MWh (around GBP9.50/kg).

Platts assessed the cost of proton exchange membrane hydrogen production in the UK (including capex) at GBP6.24/kg ($8.07/kg) on March 12, based on month-ahead grid power prices.

Schroders Greencoat plans to build 500 MW of projects with Carlton Power in the UK by 2030, financing assets with equity at first, before bringing in debt at a portfolio level later.

"We have had inbound approaches from a lot of lenders wanting to talk to us," Samworth said. "Well-structured projects ought to be fundamentally bankable."

Differing UK, EU approaches

That belief is unpinned by confidence in the UK's revenue support for hydrogen, which is structured as a contract for difference (CFD), much like the country's support program for renewable power generation.

The major advantage of the UK approach "is that you have very high revenue certainty for your project once signed," Samworth said.

The company is focused on PEM electrolysis for early projects, given its responsiveness to variable power input from renewables.

In the EU, where Schroders Greencoat is also exploring project opportunities, support for green hydrogen comes via the fixed premium European Hydrogen Bank auctions, the second of which closed in February, with results expected later in spring.

Samworth said the EU system forces a "prioritization" of different offtakers' willingness to pay a premium for green hydrogen, unlike the UK's bilaterally negotiated contracts, with offtake largely displacing natural gas consumption in industrial settings.

"So, what at some level, you might argue, makes [the EU system] less bankable, maybe is not a terrible thing from a society's point of view because we probably ought to be focusing scarce resources on those that need it most," Samworth said.

There is little incentive for offtakers in the UK CFD round to pay above the natural gas floor price, the investor added.

Offtake sector evolution

In the UK, Schroders Greencoat has lined up consumer goods company Kimberly Clark and mining firms Sibelco and Imerys Minerals as offtakers on its three HAR1 projects.

In the short term, Samworth said the offtake market will likely be dominated by customers who can switch to renewable hydrogen easily and those brand-aware businesses that want the exposure of going green.

"Those are not going to be the big markets for hydrogen in 15 years' time," Samworth said, adding that hard-to-abate industries like steel, fertilizers and the fuels supply chain will rise to become the largest offtakers.

"They have no interest in 20 MW worth of hydrogen. It does not touch the sides," the investor said. "So, they really need the 100-, 200-, 300-, 500-MW projects to engage with because they are the ones that are actually useful to them."