2 billion euros: this is the amount that the French government will bet on hydrogen until 2022 as part of its recovery plan. An amount that will increase to reach 5.7 billion by 2030. I4CE invited researchers Jean-Pierre Ponssard from Polytechnique/CNRS and Guy Meunier from INRAE, both members of the Energy & Prosperity Chair, to analyze France’s “hydrogen plan”. They highlight the many challenges that France will still have to take up if the hydrogen challenge is to be a winning bet, and in particular the challenge of evaluating the progress of the sector that will necessarily have to be made.
The French government’s hydrogen plan aims to encourage the development of territorial projects to produce “green” hydrogen for use in industry and mobility. This plan represents a change in scale from the previous “Hulot plan”, and will allow new projects to be launched and existing projects to be consolidated. Indeed, it should be noted that many hydrogen initiatives have emerged for several years now, both in France and abroad. A few lessons can be drawn from the current projects that allow us to measure the extent of the challenges France is facing.
The challenges of “green” hydrogen for industrial uses
The French plan opts for the production of “green” hydrogen by electrolysis from decarbonated electricity sources. Another method would consist of using methane and storing the CO2 emitted during the transformation, which gives what is called “blue hydrogen”. This method is used in the Rotterdam and Manchester areas, where large hydrogen production projects are being developed. With electrolysis, the cost is much higher: around 4.5 €/kg, compared to 2.5 €/kg for blue hydrogen and 1.5 €/kg for hydrogen currently produced by steam methane reforming. A high cost difference that can be a serious handicap for industrial uses, the cost of hydrogen being a critical factor given the volumes used.
This is why the plan provides for the introduction of a “compensation supplement” to encourage industrial use. But the resources to be devoted are not quantified. The bill is likely to be very high. If a carbon value in line with the Quinet report (54 €/tCO2 in 2020 increasing to 250 €/tCO2 in 2030) certainly makes it possible to socially justify these projects, the price of carbon on the European permit market is and will certainly remain too low to encourage industrialists to switch to hydrogen. Is the government capable of committing to make up the difference? And to do so in the long term? This is the first challenge posed by the choice of hydrogen by electrolysis for industry. And the policy reversals in feed-in tariffs used to promote renewable energies call for caution about the government’s ability to meet it.
The second challenge is the source of electricity used for electrolysis. The plan is based on the low carbon footprint of the French mix, thanks to renewable energies and nuclear power, and its low cost. But will France in the future have enough low-cost, decarbonized electricity production to produce hydrogen on a massive scale? It is currently struggling to rapidly develop renewable energies, and the objectives of the hydrogen plan could fuel arguments in favor of maintaining the nuclear fleet a sensitive issue. Let’s note that Japan and Germany have, for their part, signed partnerships with Australia and Morocco, respectively, to import massively hydrogen produced from cheap photovoltaic electricity.
The challenges of hydrogen in mobility
The second part of the plan focuses on the use of hydrogen in mobility, more specifically for heavy and light duty vehiclkes (trucks, buses, trains, light commercial vehicles…). This choice seems quite judicious; it is in this type of segments that hydrogen has advantages over batteries. Ongoing projects are most often developing around regional clusters, whose analysis highlights two challenges: the very large fixed costs of the infrastructure on the one hand, and the very high cost of vehicles on the other, whereas the question of the cost of hydrogen is much less critical than for industrial uses.
The first challenge must be solved locally by ensuring sufficient and predictable demand, for example by setting up supply-demand partnerships such as the Hype cab company in Paris, which brings together the cab operator, the hydrogen supplier Air Liquide, and Toyota, which supplies the vehicles. With the exception of this very special case, the various regional programs developed in France suffer structurally from a lack of coordination between the implementation of the infrastructure and the potential users. Encouraging the pooling of uses is particularly welcome, but it is complex to implement because the businesses may be so different. Money is not necessarily the keystone.
The challenge of the high cost of hydrogen vehicles – a diesel bus, for example, costs €210k, a battery bus about twice that and a hydrogen bus three times that – cannot be solved locally. Meeting this challenge calls for a national, and more likely European, approach to generate sufficient quantities to lower the cost of vehicles by relying on manufacturers. This calls for a remark. While France has major players in certain critical components (fuel cells, high-pressure tanks), French carmakers are slow to invest in hydrogen, as are German carmakers for that matter. Their priority commitment is to battery-powered electric vehicles. How can we create incentives for them to invest in another technology, knowing that they are also facing a crisis situation?
The challenges of evaluating the hydrogen plan
We have to assume that hydrogen is a gamble. This technology should have its place in a carbon-neutral economy, but there are many uncertainties about its production costs and its potential uses, which are numerous but difficult to estimate and for some in competition with other technologies. It is reasonable to make this wager, and it is just as reasonable to evaluate the progress of the hydrogen sector in order to adapt France’s strategy in this area, and therefore to regularly revisit the underlying economic models, at the risk of losing part of its stake in certain projects.
An evaluation of the hydrogen plan, of progress in terms of economic viability or the development of a “made in France” sector, is necessary and the division into two phases of the hydrogen plan, imposed by the recovery plan which is due to end in 2022, could allow an initial evaluation. But two years is very short: the feasibility studies for the H-Vision project, in the Rotterdam-Moerdijk industrial-port cluster in the Netherlands, were completed at the end of 2019; the investment decision is expected in 2021, with commissioning in 2026. The ZEV project, for hydrogen mobility uses in the Rhône-Alpes region, was launched in 2017, the project company created in 2019 and the 20 stations are planned for 2023 .
The evaluation of the projects that will be supported by the Hydrogen Plan will probably have to start later, but the challenges inherent in this evaluation must begin today. A methodology for evaluating the economic model of the projects will have to be agreed upon. It is obvious that they will not be profitable in the short term, so assumptions will have to be made about expected scale effects, learning effects, hydrogen demand, the discount rate, or the value of carbon and the value of local pollution reduction. These concepts are known but there is no consensus on the parameters to be retained in cost-benefit assessments. The choice of the discount rate in particular will be critical for such analyses over horizons of several decades.
These assessments will have to avoid the classic pitfall of very optimistic hypotheses on the use of hydrogen. A 2010 McKinsey report, carried out in partnership with industry, forecast a 15% market share for hydrogen vehicles in Germany by 2050. This projection was notably used to justify the H2 Mobility deployment plan of 400 stations by 2023. Some stations that were already open had to be closed due to a lack of customers. In France, the EasHyMob project, which aimed to deploy 15 stations in Normandy, remains well below the expectations put forward when it was launched in 2014.
Making French industrialists world champions?
France’s commitment to hydrogen is undoubtedly a response to the climate challenge. There is also the desire and hope to make French manufacturers “world champions” in this field. Some French industrialists are well placed at the international level, but competition will be tough against companies such as Balard, Hyundai, Toyota, BYD, Nikola to name but a few. And France is not alone in developing an industrial policy. There is of course Germany, but also, and above all, Japan, China, Korea… Whether it is to structure the French industry in this fierce international competition, or to meet all the challenges we mentioned earlier, the forthcoming Commissariat au Plan will have to take up the subject.