Hydrogen revolution

Driver 2

To achieve complete independence from fossil fuel imports, the EU has doubled its hydrogen targets under the RePowerEU plan in March 2022. The new target of 20 MT by 2030 comprises 10 MT of domestically produced and 10 MT of imported hydrogen. Given the energy security aspect, N1 focuses on areas in the EU or nearby, like Ukraine or Balkan countries.

Enabler 1

As the costs of PV and wind decrease and gas costs rise due to geopolitics, the power mix sees an increasing share of renewables, a trend driven by these economic shifts and regulations, leading to the availability of surplus electricity that is traded at negative or low rates. Internalising CO2 costs directly through regulation like the EU Emissions Trading System or indirectly through the Carbon Border Adjustment Mechanism further improves the business case for green H2. We had seen it before electric batteries or solar PV were initially supported by state aid; today, PV has the cheapest LCOE, and electric cars enjoy double-digit global sales growth.

Enabler 2

The European Hydrogen Backbone for 2040 envisages using 60% of repurposed natural gas pipelines and 40% of new pipeline stretches. This significantly drives down the required cost for building the network and gives prospective consumers a reliable and simple alternative to natural gas. Transporting hydrogen in the proposed backbone costs €0.11‑0.21 per kg of hydrogen over 1000km, making it the most cost-effective option for large-scale, long-distance hydrogen transport. Adding storage to the Backbone enables a competitive H2 ecosystem within the EU and neighbouring countries fully competitive with global renewable energy "superpowers" like Australia, Chile, and Morocco.

Driver 1

Green H2 is currently the only solution to decarbonise industries with hard-to-abate emissions, such as basic chemicals, aviation, steel production, and shipping. Furthermore, green hydrogen or its derivatives offer a viable solution to seasonal energy storage, spanning weeks and even months.

Investment Opportunity

BCG's calculations suggest that low-carbon hydrogen represents a massive investment opportunity, projected to reach $6-12 trillion over the next three decades leading up to 2050. While the potential of this emerging industry is enormous, its structure is still taking shape, presenting a dynamic that shares similarities with the early days of renewable energy sectors like solar and wind power. Investing in low-carbon hydrogen presents an opportunity for investors to generate high returns by being early movers in this rapidly developing sector.

Investing in low-carbon hydrogen presents an opportunity for investors to generate high returns by being early movers in this rapidly developing sector.

Historically, firms that invested in early-stage infrastructure sectors such as renewable energy have reported higher internal rates of return. Additionally, early investors gain important advantages beyond financial returns. These include learning to manage risks as the segment, and players scale and mature, capturing scarce resources such as talent, and building relationships across the value chain. Early movers also gain valuable visibility, providing preferential access to promising investment opportunities as they emerge.