On Friday, July 14, Veronika Grimm joined Markus’ Academy for a lecture on Developing a Global Hydrogen Market. Veronika Grimm is a full professor of economics and Head of the Chair of Economic Theory at Friedrich-Alexander-Universität Erlangen-Nürnberg (FAU). She is also a member of the German Council of Economic Experts.
[55:20] Developing a global hydrogen market: a two-sided “H2Global” auction
A summary in four bullets
Hydrogen will be vital for the energy transition, but meeting the expected high demand will be a challenge given the large initial investments required: it is expected that German industry alone will demand up to 300 TWh of hydrogen or derivatives. Beyond home production and pipeline-based imports, overseas imports to Europe will be important to meet the demand. Investment costs differ greatly between different regions worldwide, a project that delivers 10 TWh from Australia requires an initial investment of around €10 billion.
The predominant method for transporting hydrogen overseas will be ammonia in the short run and a variety of other energy carriers in the future. Certification of clean hydrogen (derivatives) is not internationally harmonized. The US focuses on CO2 footprint, while the EU on green hydrogen (from electrolysis). There is also no natural commodity to link clean hydrogen prices to.
As a result, we currently have a chicken-egg-problem, requiring the simultaneous ramp-up of supply, logistics, and demand. It is important to establish mechanisms that generate price signals in order to learn more about costs and willingness to pay in this emerging market.
To address this, the German government has launched the H2Global Instrument to promote the creation of a global hydrogen market. This involves an intermediary conducting auctions worldwide for the procurement of hydrogen and across Europe for the sale of the procured hydrogen. The gap between purchase and sales price is covered by subsidies.