BRUSSELS INSIDER #1 - October 23, 2018
Synthetic fuels generated from renewable electricity – also called power-to-X or PtX – could become a massive new market, according to a new report from the World Energy Council Germany. German industry is in the forefront of this new development, reports Sonja van Renssen, who attended the launch of the report in Berlin. But the Germans want to get the rest of Europe, indeed the world, involved too.
In a new report released last week, the World Energy Council Germany sets out a roadmap to create an international market for power-to-X (PtX) products like hydrogen and synthetic methane. If it sounds ambitious, it is. Germany, which has led the power-to-gas development in Europe, is exploring PtX as a source of renewable energy imports. Meanwhile back in Brussels, the gas industry is lining up behind ‘green’ gas in a bid to secure a central role in a decarbonising society. The big challenge to PtX is regulatory. Sonja van Renssen reports from Brussels and Berlin.
Germany is once again gearing up to drag Europe forward, this time into the next phase of its Energiewende or energy transition. The new buzzwords in Berlin – and they are rising stars in Brussels too – are sector coupling, hydrogen and power-to-X, where the ‘X’ stands for any fuel or feedstock made from renewable power via electrolysis. Think hydrogen, synthetic methane, ammonia or methanol.
PtX allows seasonal storage of renewable electricity (which only pumped hydro has been able to do to date) and offers “drop-in” fuels and feedstocks for hard-to-electrify sectors such as aviation and some industrial processes. Thus, PtX can carry the benefits of a decarbonised power supply into other sectors – hence the associated term ‘sector coupling’ – and constitute a stabilising force for the energy system at the same time.
Just as it was for renewables, Germany is at the forefront of this latest trend. On Thursday 18 October, the World Energy Council (WEC) Germany hosted the launch of a new report in Berlin about how to create a global market for PtX.
“Germany will need renewable electricity imports,” explained Jens Perner, Associate Director at UK-based consultancy Frontier Economics, who prepared the report. “For this, we need PtX.”
Germany currently imports about two-thirds of its energy, Perner clarified: “It is highly unlikely we can replace all this by domestic energy production.” The logic is that PtX products are the most practical, cost-effective way of importing renewable power. For this reason, Perner believes that PtX can become a “massive” market.
This is a grand vision of the future compared to where we are today. “PtX is originally a local [German] discussion about how to make use of surplus electricity,” Perner acknowledged. “Our study is completely different. We are talking about building renewables installations dedicated to PtX and export infrastructure to take these products to demand centres. It has nothing to do with surplus energy.”
The study homes in on Norway (‘Frontrunners’), Chile (‘Hidden Champions’), Morocco (‘Hyped Potentials’), Saudi Arabia (‘Converters’), Australia (‘Giants’), and China (‘Uncertain Candidates’) as potential PtX suppliers. It estimates global demand for PtX of 10-20,000 TWh/year by 2050, most of that destined for industry and transport (especially aviation), though there is some going to households too. Total demand would add up to about 15% of global energy consumption, Perner said.
In terms of electrolyser capacity, it equates to about 3-6,000 GW – up from 20 GW today. No surprise then that the first of three recommendations put forward in the WEC study is that PtX technologies need to be scaled up dramatically to bring down costs.
From 10MW to 100MW
“Only very few (and no large scale) international projects based on renewable energies currently exist demonstrating the feasibility and technical capability of PtX exports,” notes the report.
The researchers calculate that electricity and the electrolyser together make up the biggest share of PtX’s total cost, about a third each. They expect both to come down over time.
In another report that Frontier Economics prepared for German think tanks Agora Energiewende and Agora Verkehrswende this autumn, it estimates that to bring down PtX’s technology costs, global electrolysis capacity has to reach 100GW. Good news: “The range of estimated capacity additions for Germany already meet this requirement,” the consultants add.
Germany has led the way in Europe with power-to-gas demonstration projects. These are currently in the 1-10MW range. “Now, 100MW projects are being announced,” Perner said in Berlin. On 16 October, electricity network operator Tennet and gas companies Gasunie and Thyssengas announced plans for a 100MW renewable-power-to-gas plant in Lower Saxony in Germany. That follows a similar announcement from electricity transmission company Amprion and gas transmission company Open Grid Europe back in June for several 50-100MW plants, also in Germany.
“For us it’s key that gas can contribute to the energy transition and climate change,” said Jörg Bergmann, Chairman of the Board of Management at Open Grid Europe at the event in Berlin.
The German government is taking PtX “very seriously” announced State Secretary Thomas Bareiss from the German Federal Ministry for Economic Affairs and Energy at the WEC report’s launch. Last month, the German Energy Agency (Dena) launched a Global Alliance for Power Fuels also with the goal of facilitating an international market for PtX.
“Power fuels [PtX] are the third pillar of the energy transition [after renewables and energy efficiency],” said Dena’s Director for Energy Systems Christoph Jugel, at a conference in Brussels on 16 October. He added that while some of these might be produced in Germany “a big part” would be imported. “Energy autonomy is not a goal for electricity or power fuels,” Jugel said.
In fact the WEC study’s second recommendation is all about how to fuel a European market for PtX. Key to this, the researchers say, is to reward these products for their carbon neutrality. One very concete example would be to exempt electricity used for PtX production from taxes and levies, at least in the short term. They also suggest enabling “crediting PtX against renewable energy and CO2-reduction targets/obligations”.
Everyone at the WEC event agreed that only policy and regulation can create a PtX market. But one immediate opportunity to incentivise the technology looks to have already been missed.
The obvious place to incentivise PtX right now is in a new EU law on car CO2 standards that is currently being negotiated in Brussels. Transport is seen as one of the most promising end-uses of PtX. But whilst this new law will contain sales targets for electric vehicles for 2025 and 2030, neither MEPs nor Member States have so far backed a provision that would allow carmakers to use PtX to help meet their CO2 targets.
Moreover, in a parallel vote on truck CO2 standards last week, the European Parliament’s environment committee also voted down an amendment to take the contribution of low carbon fuels into account. As they did for cars, MEPs did back a sales target for electric trucks, however. The committee’s vote still needs plenary approval next month.
Nils Aldag, Founder and Managing Director of Sunfire, a German-based start-up that makes PtX products, told the event in Berlin that a new EU renewable energy directive for 2030 does not provide PtX investors with regulatory certainty either.
Aldag urged EU policymakers to clarify through secondary legislation as soon as possible, that PtX can source power from the grid (and not just dedicated renewable energy installations) and that it can source CO2 from “all unavoidable sources” (i.e. industrial emissions as well as direct air capture). The technological issues facing PtX are “almost trivial” compared to the regulatory challenges, he said.
The WEC study’s third and final recommendation centres on driving investments in PtX technologies and plants in potential producer countries. “PtX should be part of the political agenda of multilateral negotiations such as the UNFCCC conferences,” the researchers suggest. They also advocate standards, monitoring and certification schemes to guarantee sustainability amongst others. A global PtX market needs green certificates similar to the Guarantees of Origin (GOs) that exist for renewable electricity, the WEC study says, echoing Eurogas.
One of the most common arguments against PtX, namely that it needs vast volumes of power and is far less efficient than direct electrification, was rejected at the event in Berlin. Both Perner and a representative from the International Energy Agency (IEA), Uwe Remme, argued that having some PtX in the mix makes sense from an overall energy system cost perspective.
The consensus really was that the main challenge to PtX is regulatory. However, PtX and hydrogen are building momentum in EU policy circles. To illustrate, they took centre stage at last week’s annual meeting of the Madrid Forum, dedicated to the European gas market. The main agenda item was the “role of gases in the decarbonisation of the EU’s energy sector”, with presentations from Eurelectric, Eurogas, the European Commission (a new 2050 gas infrastructure study), the Netherlands, electricity transmissions system operators, distribution system operators, regulators, Dena, Agora, and Amprion and Open Grid Europe on their new power-to-gas project.
But the challenges cannot be underestimated. Despite Perner’s and Remme’s insistence that PtX does not contradict energy efficiency, many argue that it can be at best a niche solution (with electrification taking care of the rest). On the supply side, the PtX vision requires the building of enormous renewable power capacities with shipment of the final product to Europe… It sounds a lot like Desertec! The lesson from that failed attempt to harness North African resources is that there must be an economic benefit for producer countries, said Paul van Son, CEO of Dii Desert Energy (and former CEO of the Desertec project), in Berlin.
Finally, on the demand side, Europe may well find itself competing with Japan for example, for PtX products from Australia. “It will come down to how much do you want to buy and how much are you willing to pay?” said Alison Reeve, Director for Clean Energy Technology Innovation at the Department of the Environment and Energy, Australia. For now the PtX global market is still an exotic vision that will face some harsh realities.