Planning for Disruption: The Hydrogen Revolution and the War in Ukraine
Predictability is good for business, and reliability is the basis for stable relations – between individuals, trading partners, or states. Russia’s attack on Ukraine, which took experts by surprise and has overturned long-held beliefs regarding security policy and international relations, has had significant knock-on effects beyond the military sphere. A position paper by the Fraunhofer Institute for Systems and Innovation Research (ISI) examines the implications for the future of the hydrogen economy in Germany and Europe. In an interview with Supertrends, experts Martin Wietschel and Florian Roth discuss the war’s impact on global trade, energy, and industry policies.
The much-anticipated shift to a hydrogen economy will bring disruptions in many areas of the world and in many societal sectors, from industry and energy systems to mobility and logistics. But following Russia’s invasion of Ukraine, this nascent energy transformation itself has been disrupted by the new realities of sanctions, embargos, and supply chains thrown into disarray.
How will the war in Eastern Europe shape and affect the efforts to build up stable global partnerships for hydrogen supply? How should European policymakers deal with these disruptions and manage the attendant political and economic risks? A recent publication by the Fraunhofer Institute for Systems and Innovation Research (ISI) in Karlsruhe, Germany analyzes these questions and discusses the interplay between trade, security, international relations, and technology pathways that may determine the development of the European continent for decades to come.
High hopes for hydrogen
In the EU, hydrogen is seen as a potential game-changer in the quest for sustainable development and as a cornerstone of the green energy transition. Hydrogen can enable extensive decarbonization as a storage medium for clean electricity generated mainly from wind and solar power. As a source of process energy, hydrogen – much of it currently still extracted from natural gas – as well as its synthetic derivatives methanol and ammonia play an important role in industry sectors like metalworking or chemical plants and refineries, and are expected to see increased use in international shipping and air transport in the future.
“It’s very likely that the renewable energy potentials in Germany and the EU will not be sufficient to meet this demand. Therefore, we need to import hydrogen,” says Martin Wietschel, the head of the Competence Center Energy Technology and Energy Systems at Fraunhofer ISI. These imports form an important pillar of the hydrogen strategy both in Germany and the EU. Research and development projects in the Asia-Pacific region, in Africa, and in South and North America, as well as hydrogen partnerships with countries in Africa and the Middle East have already been initiated.
“Renewable energy potentials in Germany and the EU will not be sufficient to meet demand. Therefore, we need to import hydrogen.”
Prof. Dr. Martin Wietschel
Head of Competence Center Energy Technology and Energy Systems, Fraunhofer ISI
Resilient supply chains required
However, in view of the sudden destabilization of relations with Russia, a major supplier of fossil energy carriers to Europe, the authors of the Fraunhofer ISI position paper believe that new hydrogen trade links must be guided by clear criteria and take political risks into account. This means choosing partners not only on the basis of availability and pricing, but also with consideration of supply sovereignty as well as the systemic and political resilience and reliability of hydrogen suppliers, together with more general geostrategic and values-based concerns.
“Resilience concepts are already in use in many disciplines,” says Florian Roth, senior researcher at the Fraunhofer ISI Competence Center Politics and Society. “They are very useful for guiding political decisions, and also for choosing partner countries in different domains.” The challenge is to gauge resilience and to select trade partners not only based on past developments, but also in terms of the stability and predictability of their political structures. “We really have to get an understanding of these complex systems to inform our decisions. And that’s where resilience concepts can really support our decisions,” Roth believes.
“Resilience concepts are very useful for guiding political decisions and choosing partner countries in different domains.”
Dr. Florian Roth
Senior Researcher, Competence Center Politics and Society, Fraunhofer ISI
Ukraine as a potential hydrogen supplier
Russia’s invasion of its neighbor not only marked a watershed in geostrategic terms, but also had very significant immediate economic implications, ranging from far-reaching sanctions and the cancellation of the Nord Stream Two pipeline project to calls for the diversification of energy sources, including demands for an end of Russian oil and gas imports and possibly even a temporary revival of coal power plants. In this context, Ukraine – until now a transit country for Russian gas – is also being considered as a possible future supplier of green hydrogen.
“Ukraine has a high potential for producing green electricity and synthesis products based on wind, photovoltaics, and biomass,” says Wietschel. Theoretically, the country could generate up to 1,400 terawatt-hours’ worth of hydrogen by 2050. “Furthermore, we have an existing gas pipeline network between Ukraine and Germany and the EU. With some modifications, this could be used to transport hydrogen in a very cheap way. A free post-war Ukraine could become a very reliable hydrogen partner for Germany and the EU.”
Not only would this generate much-needed revenues for reconstruction, but Ukraine could also benefit from a know-how transfer and the modernization of its energy industry, including significant investments in wind turbines, photovoltaic and solar thermal energy, and processing plants for synthesis products.
Diversifying supply takes time
For the European countries, a diversification of supplier countries offers protection against economic risk from overdependency on individual states with too much market power. On the other hand, building up broad-based, diverse production and transport capacities and supply chains cannot be done at short notice and may increase import costs. Much depends on the infrastructure requirements: Liquefaction and shipping of hydrogen will increase costs by about 25 percent compared to pipeline transport. Since the war in Ukraine is now forcing Germany to quickly import large quantities of natural gas from other suppliers, such as the US and Norway, some existing transport, storage, and seaport infrastructures cannot immediately be repurposed for hydrogen.
Realigning the energy system will take time, says Wietschel. This will include expanding renewable generation and electrolyzer capacity and building up a viable import infrastructure – this alone will probably take five to ten years, he believes, though it may be possible to speed up the process for synthetic hydrogen products like ammonia and methanol, which are already produced from fossil fuels today and imported via established supply chains. “They also have a higher energy density, and this means that in the end, the transport costs are lower compared to hydrogen,” Wietschel adds.
Sustainability comes at a price
He points out that while there are many studies on the cost of switching to a sustainable hydrogen economy, most consider only the manufacturing costs. The most important factor in pricing hydrogen, says Wietschel, is the cost of producing green electricity, followed by investment in electrolyzers and the cost of hydrogen liquefaction and shipping if pipeline transport is not an option. For producing ammonia and methanol, the costs of CO2 and conversion plants must also be taken into account. When additional costs such as risk premiums, corporate profits, selling costs, warranty, research and development costs, taxes, etc. are added to the equation, it becomes very difficult to forecast the future price tags of hydrogen and green synthesis products.
A key question is whether Europe can eventually become self-sufficient in terms of hydrogen supply. While the EU has significant potential to generate renewable energy from solar power in the south and from wind power in the north, much depends on public acceptance of the need to build up the respective generation capacities and on the construction of transport and distribution lines. Ultimately, there will be a trade-off between achieving energy independence or relying on cheaper imports from outside the EU.
The political cost is hard to calculate
If the economic cost of a switch to hydrogen is hard to predict, this is even more true for the political cost. “The current situation really forces us to reconsider some of the basic assumptions of our foreign policies, and our trade policies in particular,” says Roth. One casualty of the war in Ukraine has been the concept of “Wandel durch Handel”, or “transformation through trade” – a longstanding tenet of German foreign policy that trade increases interdependence between partners who rely on imports and revenues, respectively.
The current situation really forces us to reconsider some of the basic assumptions of our foreign policies.
“It was often beyond our imagination that foreign partners would do so much harm to their own economy by breaking the bridges,” says Roth. “What we actually see at this very moment is that the Putin regime in Russia is imposing high costs on its own economy. We have to admit that this is something that other non-democratic leaders are ready to do.” Another flawed assumption has been that trade relations build trust. And finally, as Roth points out, “our whole development cooperation and foreign trade was built on the assumption that by doing trade with partner nations, we would increase economic growth, and that through a trickle-down effect, the whole society would benefit. This may have been over-simplistic.”
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HYPAT Working Paper 01/2022 – Hintergrundpapier zu nachhaltigem grünen Wasserstoff und Syntheseprodukten [Background paper on sustainable green hydrogen and synthesis products – in German only]
HYPAT Policy Brief 02/2020 – Technologiesouveränität: Von der Forderung zum Konzept [Technology sovereignty: From demand to concept – in German only]