Spain Wants to Be a Green Energy Hub, But Risks Moving Too Fast

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(Bloomberg) — In a port across from Gibraltar, two rare European monarchs showed up in June to lend their approval to a bold and risky attempt.

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King Philip VI of Spain and King Willem-Alexander of the Netherlands, together with Algeciras cargo ships, opened a new sea lane. It was the crucial cargo that caught the attention of the modern monarchs: green ammonia—a vehicle for hydrogen transportation and a key part of Spain’s plans to become the continent’s center for clean energy.

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The rest of Europe may not be ready.

Spain is ramping up investments of more than €18 billion ($19.5 billion) in the production and distribution of hydrogen generated from renewable energy — marking Europe’s most ambitious effort yet to apply critical technologies to become the world’s first climate-neutral continent.

The “field of dreams” approach assumes that once supply is built, demand will come. But countries including France and Germany are starting to dump parts of the EU’s so-called Green Deal – which aims to produce 10 million tonnes of clean hydrogen by 2030 – as the ambitious plan is being dragged into “culture wars” over concerns about the political and financial costs.

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Read more: Europe’s green transition under attack as political costs rise

And what raises doubts is that holding early elections on July 23 may lead to a new government that is less willing to spend on the sector. That history could repeat itself, with Spain scrapping a 2007 program to subsidize photovoltaic panels after liabilities spiraled out of control.

Spain’s projects extend from the coasts north to south and include Europe’s largest green hydrogen facility in Puertollano. Calvera Hydrogen SA in Zaragoza includes plans to build equipment for fuel generation and storage, including filling stations for cars, buses and trains. Overall, Spain is home to almost one in five strategic hydrogen projects around the world, second only to the United States.

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“Spain is uniquely and privilegedly positioned to become a kind of Saudi Arabia of green hydrogen,” said Carlos Barrasa, vice president of clean energy at local refiner Cepsa SA, which is investing €3 billion in projects dubbed Andalusian Green Hydrogen Valley.

Green hydrogen, made with renewable energy to break down water molecules, is seen as crucial to the shift away from fossil fuels. It is an efficient way to store energy from the sun, wind, and water in a way that can be transferred via pipelines and ships. To prevent the worst effects of global warming, the International Renewable Energy Agency estimates green hydrogen needs to increase to more than 500 million tonnes by 2050 from less than a million now.

Blessed with the best solar conditions in Europe, Spain aims to play a leading role. The danger is that it pushes too far, too quickly.

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“There is a hierarchy in terms of what logically needs to be done,” said Martin Lambert, head of hydrogen research at the Oxford Institute for Energy Studies. “The first step is to make the maximum effort to decarbonize the energy system domestically, then produce hydrogen from excess renewable energy for use domestically, and then move on to exports.”

Read more: With plenty of clean energy, Brazil aims for green hydrogen export market

As the royal appearance on Algeciras shows, Spain is already leaping forward with transit plans.

Ammonia is easier to transport, because the gas is easily liquefied. The compound, which is composed of nitrogen and hydrogen molecules, is considered “green” if it is made with renewable energy.

Cepsa plans to invest €1 billion in production at San Roque, which is due to be completed by 2027. The new commercial route — like a similar project in nearby Huelva from Iberdrola SA, Europe’s largest clean energy developer — expects to ship the chemical to the Dutch port of Rotterdam.

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But ammonia is highly toxic, flammable, and corrosive. Because of the health and environmental risks, it requires stringent safety standards, according to the nonprofit World Maritime Forum. This limits the number of vessels that can be used.

However, the backbone of Spain’s export ambitions is H2Med. The pipeline, worth 2.5 billion euros, can transport 2 million tons of hydrogen per year. The undersea link, which is set to receive EU funding, will run from Barcelona to Marseille and could eventually connect to Germany.

As Spain’s supply and transport links take shape, other countries lag far behind. Less than 10% of the hundreds of projects announced around the world are actually backed by committed capital, according to the Hydrogen Council, an industry group. Analysis firm Aurora Energy Research estimates that only 1% of the global pipeline is currently under construction.

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Among Europe’s laggards is Germany, which has fallen short of its target of having 10 terawatts of hydrogen capacity by the end of the decade.

Green hydrogen can cost more than twice as much to produce as the “gray” version derived from fossil fuels. While the US is touting the clean variant with tax credits to help bridge the gap, the European policy framework is more muddled, and nerves in Spain are starting to fray.

“We already have many green hydrogen projects in Spain and other countries, but we still don’t know what will be the support for these projects,” said Ignacio Galan, chairman of Bilbao-based Iberdrola, on a call with analysts after the report. first quarter earnings. “We need to hurry.”

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The first trial auctions in the EU to support producers through fixed price per kilogram will not be launched before this autumn, with full regulations not released until 2028.

Read more: Dismal sales undercut automakers pushing hydrogen fuel cells

With cheap wind and solar power, Spain is going ahead with places like Puertollano. About 240 kilometers (150 miles) south of Madrid, Iberdrola has built Europe’s largest industrial electrolyzer – the expensive equipment needed to split water into hydrogen and oxygen.

Inside the unassuming boxy structure, 16 cells house a polymer electrolyte membrane — or PEM, as the technology is known. The emerging technology is more energy efficient than alkaline versions, which generate hydrogen using potassium hydroxide, known as caustic potash, according to Maria Retuerto, a scientist with Spain’s National Research Council.

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The power comes from a nearby field with 246,000 solar panels, where sheep graze to keep the grass too short to catch fire and prevent obstruction of the sun collectors.

The €150 million facility can supply 3,000 tons of hydrogen per year. While this is only about 9% of the volume required for a domestic plant producing ammonia for fertilizer, it is an important test case for the technology. Iberdrola aims to grow its capacity 10-fold and invest €3 billion in green hydrogen business by 2030.

“Our idea is that the end consumer will be able to buy bread made through a completely green production chain,” said Javier Plaza, director of the facility.

Spain though needs about 300 facilities like the one in Puertollano to meet its green hydrogen demand before it can start shipping outside its borders, according to Javier Revuelta, senior manager at Afry Management Consulting.

Other countries are also targeting this sector. Solar energy has disadvantages compared to offshore wind, which offers higher production potential. To this end, the US company Plug Power plans to have a working hydrogen plant in Finland, which has the added benefit of being closer to manufacturing centers in Northern Europe.

“Whether exporting from Spain is the best option remains to be seen,” said Revuelta.

– With the help of the lamentable ashes.

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