Green or blue hydrogen: Does it matter for the European power market?

THEMA Report 2022-4, 22 p.

Most hydrogen is currently produced in an emission-intensive process based on natural gas (aka grey hydrogen). The transition to green hydrogen from electrolysis based on renewable energy is key to secure deep emission cuts. However, production of green hydrogen requires a high volume of new renewable electricity capacity, for which investments are currently constrained by public and political opposition. Additional renewable electricity is also required for low-carbon transition through direct electrification in transport, heating, and industry. Blue hydrogen based on natural gas with carbon capture and storage (CCS) can therefore act as an important bridging technology to accelerate the hydrogen economy.

The relative share of green and blue hydrogen production may have significant impacts on the European power market, studied in this report. We find that satisfying demand for hydrogen exclusively by green hydrogen is indeed challenging, and that blue hydrogen can be a solution to significantly reduce the need for renewable generation to 2035. A closer study of impacts on the German power sector finds that the potential for wind generation is fully exploited in the case with mainly blue hydrogen, while in the all-green hydrogen case, higher demand for renewable electricity is provided by increased solar power generation and imports. Wind power generation realizes a higher market value in the green hydrogen case, as green hydrogen provides increased system flexibility. The study also shows that as the mix of green and blue hydrogen impacts the price structure and flexibility in the power system, it will also impact the value of Norwegian power exchange and flexible Norwegian hydropower.