- Power Purchase Agreements
- Energy Attribute Certificates
- Green Hydrogen
24/7 Clean PPAs Accelerate Green Hydrogen Production in Europe
This blog is part of a series by Guidehouse Insights on power purchase agreements (PPAs); to learn more about the PPA market, check out the new Guidehouse Insights’ PPA Tracker.
The European Commission has set a goal to produce 10 million tons of renewable hydrogen by 2030. This renewable hydrogen will not only replace current fossil-based hydrogen for fertilizer and steel production but will also be used as a grid-balancing strategy for surplus solar and wind energy.
The Cost of Additionality
To achieve this goal, the EU adopted a hydrogen strategy in 2020 and set a goal to install at least 40 GW of renewable hydrogen electrolyzers by 2030. According to the Guidehouse Insights’ Hydrogen Electrolyzer Tracker, 38 GW of electrolyzer capacity is either operational or in development. Yet there is another hurdle on the road. To produce 10 million tons of renewable hydrogen, around 520 TWh of renewable electricity is required (assuming a 19.25 kg/MWh conversion rate); this equates to 80% of the EU’s wind and solar electricity generation in 2022.
The European Commission is very aware of the potential impact of renewable hydrogen production on the electric grid. In a February 2023 delegated regulation, it clarified that hydrogen electrolyzers must be connected to new renewable electricity production in order for the hydrogen to be considered a renewable fuel of non-biological origin, or RFNBO, under the EU Renewable Energy Directive (RED-II). In other words, to comply with RED-II, renewable hydrogen production must bring “additionality” to the grid.
This additionality requirement puts more pressure on already hard-to-finance hydrogen electrolyzer projects. The additional cost of building new renewable energy generation plus the required battery storage to achieve “true” green hydrogen is around $8,200 per ton of renewable hydrogen produced—which would push the levelized cost of renewable hydrogen to $11,200-$14,200 per ton. However, even with a battery storage facility, there is a risk of not enough renewable electricity if only one or two renewable electricity facilities are available.
Where PPAs Come into Play
The extra cost of additionality can be massively reduced by sourcing the renewable electricity through a renewable power purchase agreement (PPA) with hourly energy attribute certificates (EACs)—also referred to as a 24/7 clean PPA.
A renewable PPA is a type of offtake agreement with renewable electricity as the delivered goods. The contract usually contains EACs like renewable energy certificates or guarantees of origin that confirm the renewable electricity usage. Renewable PPAs have been used to support gigawatt-level electricity requirements in Ireland’s Green Marlin project from Zenith Energy and EIH2 and in Sweden’s H2 Green Steel project. However, EACs can be measured monthly or annually; when there is a gap in renewable electricity supply (e.g., no sunshine or wind), other supplies, including thermal power plants, contribute to the power supply while the EACs are still valid for that timeframe. This causes PPA offtakers to unconsciously greenwash their electricity usage.
PPAs with Granular EACs
To address this issue, initiatives like EnergyTag are promoting a standardized market with granular EACs—also known as time-based EACs—to allow users to verify the source of their electricity and emissions in real time. Various companies, such as ENTRNCE, FlexiDAO, Google, Granular Energy, and Powerledger, are providing software solutions that track energy usage on an hourly basis and can issue hourly EACs. Assisted by digital solutions, traditional renewable PPAs can thus be upgraded to 24/7 clean PPAs.
24/7 clean PPAs will allow offtakers like renewable hydrogen producers to secure renewable electricity at all times without being involved in renewable energy project construction. It also allows offtakers to diversify their energy sources to match their demand profile more closely, thereby reducing the demand for battery storage systems. With 24/7 clean PPAs, renewable hydrogen producers that wish to comply with the EU’s RED-II can fulfill the additionality requirement without the extra project financing or maintenance burden.
Interested in learning more about PPAs signed or hydrogen electrolyzers deployed across the globe? Check out Guidehouse Insights’ latest Renewable Power Purchase Agreement Tracker and Hydrogen Electrolyzer Tracker, as well as the other blogs in this series: “Power Purchase Agreements Primer” and “Power Purchase Agreements Emerge around the World.”