The Dutch hydrogen quest: What it takes to decarbonize hydrogen demand

The Netherlands is the second-largest user of gray hydrogen in Europe after Germany, consuming almost 1.3 million metric tons (MT) of gray hydrogen per year. Most gray hydrogen is used in the refinery and ammonia industry as a feedstock. The production of gray hydrogen is a very emission- intensive process that is responsible for the emission of 13MT carbon dioxide (CO2) per year in the Netherlands. To put things into perspective: the total emissions for the Netherlands were 68.5MT CO2 in 2022 and 74.1MT in 2021.

To achieve a net-zero economy, the Netherlands must address these emissions. This means that the hydrogen-using industry must shift away from gray hydrogen – produced from fossil fuels – and adopt renewable hydrogen generated through water electrolysis, using renewable electricity.

In this publication we will have a look at the requirements for producing 1.3MT of renewable hydrogen and explore the associated investments. Not all this renewable hydrogen will be produced domestically. Instead, a significant proportion of the Dutch demand is likely to be imported through the Port of Rotterdam. Additionally, part of Germany’s hydrogen needs will also be imported through the same port. We will therefore take a closer look at the Port of Rotterdam, which is poised to play an important role in the near future as a hydrogen hub for northwest Europe.

This publication focuses on renewable hydrogen. Although RaboResearch expects low-carbon[1] hydrogen to develop faster and in larger volumes, we assume that low-carbon hydrogen is part of a temporary transitory phase toward a net-zero economy.

Since this publication contains many numbers and conversions with varying underlying assumptions, which may be confusing to the reader, we have included table 1 at the end of this publication, which lists all the numbers and conversions used.

[1] Low-carbon hydrogen is gray hydrogen in which most of the CO2 released is captured and stored.

Currently, the industrial sector in the Netherlands produces about 180 petajoule s (in Dutch) of gray hydrogen annually. This equals almost 1.3MT[2] per year. The refinery and ammonia industries consume about two-thirds of the total production. The bulk of the produced ammonia is used as feedstock in the fertilizer industry.

Sometimes, hydrogen is formed as a by-product in another production process. These gasses are often omitted from the analysis. Including these residual gasses, the total reaches 1.5MT of hydrogen. We will also leave these residual gasses out of our analysis in this report.

The production of gray hydrogen is emission-intensive. Every kilogram of gray hydrogen also produces 9kg of CO2. To address the emission of CO2, the production of gray hydrogen must be decarbonized. This means that the 1.3MT of gray hydrogen needs to be replaced with renewable hydrogen.

[2] Using the higher heating value of 39.39kWh per kg of renewable hydrogen.

The Dutch government has published a renewable hydrogen strategy (Kabinetsvisie waterstof (in Dutch)). Since electrolyzers are essential for producing renewable hydrogen, this strategy includes a target to achieve 3 to 4 gigawatts (GW) of installed electrolysis capacity by 2030. Additionally, the government aims to scale up to 8GW by 2032, but this depends, among other factors, on the availability of sufficient offshore wind. Given the delays in the Offshore Wind Energy Roadmap 2030, achieving the latter goal is highly unlikely.

However, the 4GW and 8GW targets are unrelated to the electrolysis capacity required for producing 1.3MT renewable hydrogen, which would allow the current users of gray hydrogen to switch to renewable hydrogen. The required electrolysis capacity depends on various assumptions related to efficiency, number of full load hours and the amount of kWh per kg hydrogen. Estimates range from 10GW to 20GW, depending on the assumptions (see also table 1 for the used assumptions).

Using the assumptions of a study (in Dutch) published by the Netherlands Environmental Assessment Agency (PBL), to produce 1.3MT of renewable hydrogen we would need 15GW[3] of electrolysis capacity. To power the electrolysis process requires 69 terawatt hour (TWh) of renewable electricity per year. Meeting this electricity demand would require 15GW of offshore wind capacity,[4] according to the PBL assumptions. To put this in perspective, the Netherlands total annual electricity consumption in 2022 (including both gray and renewable electricity) was 120TWh. Therefore, the additional electricity needed to produce 1.3MT of renewable hydrogen per year exceeds half of the current Dutch total annual electricity consumption.

[3] Assuming 4,740 full load hours (FLH), an efficiency of 62% for the electrolyzers and using the lower heating value of hydrogen of 33.33kWh/kg.

[4] Assuming 4,740 FLH for offshore turbines, an electrolyzer efficiency of 62% and using the lower heating value of hydrogen of 33.33kWh/kg.

The costs of building 15GW electrolysis plants, also depend on many assumptions. The best estimates available today are from the PBL report “Eindadvies basisbedragen SDE++ 2024” (in Dutch) and the BloombergNEF Electrolyzer Price Survey 2024.

According to the BloombergNEF Electrolyzer Price Survey 2024, a western-made electrolyzer (including balance of plant and engineering, procurement, and construction) costs between EUR 1,800 and EUR 2,700/kW. Meanwhile, the “Eindadvies basisbedragen SDE++ 2024” by PBL assumes a total cost of EUR 2,200/kW for an electrolyzer connected to the electricity grid. Consequently, the investment for 15GW of installed electrolysis capacity would range from approximately EUR 27bn to EUR 40bn.

The average costs of 1MW of offshore wind in the North Sea off the coast of the Netherlands is currently EUR 1.9m per MW.[5] The total investment associated with 15GW of offshore wind would therefore be around EUR 29bn. This assumes a 1:1 ratio between electrolyzer capacity versus wind capacity (15GW of electrolyzer capacity versus 15 GW of wind capacity). It should be noted that a 1:2 configuration or higher (more wind capacity relative to electrolyzer capacity) results in a more efficient hydrogen production. This is because the number of full load hours for the electrolyzer would increase.

The total investment associated with 15GW of electrolyzers and 15GW of offshore wind would add up to an investment of between EUR 56bn and EUR 69bn. However, these estimates provide a simplified picture of reality because they are unadjusted for any learning curve effects[6] over time of the electrolyzers. For offshore wind, for example, a learning rate between roughly 27% to 31% was observed from 2001 to 2022. BloombergNEF therefore forecasts that electrolyzer costs will drop by 60% to 70% to around EUR 500/kW by 2030.

That said, BloombergNEF has consistently been overly optimistic about developments in the renewable hydrogen sector in its expectations and forecasts. We find this to be a highly unlikely learning curve. For now, it remains to be seen how costs will develop, but if we have learned anything so far, it is that we have only witnessed price increases, not decreases, for electrolyzer systems. A recent report prepared for the Dutch Ministry of Economic Affairs and Climate Policy confirms this trend. In a survey of projects in the Netherlands, the average investment for the electrolyzer system and indirect costs currently stands at EUR 3,050/kW.

[5] Source: TGS powered by 4C Offshore.

[6] The learning rate is the fractional reduction in cost for each doubling of cumulative capacity.

Currently, the total of announced electrolyzer projects in the Netherlands with a size of at least 100MW add up to 9GW of electrolysis capacity by 2030, according to the IEA. However, only one project of 200MW, Shell’s Holland Hydrogen One, has passed the final investment decision (FID) stage, and construction has started. All the others are still in a pre-FID phase, and it is highly likely that several projects will never come to fruition. We therefore expect domestic production to remain marginal compared to the volumes needed.

Moreover, there are other areas in the world where renewable hydrogen can be produced at a lower cost than in the Netherlands. These are areas where abundant onshore wind and solar resources create a more optimal load factor for electrolyzers than in the Netherlands, reducing the cost per kilogram.[7]

[7] Electrolyzer CAPEX = USD 450/kWe, efficiency (lower heating value) = 74%; Solar photovoltaic CAPEX and onshore wind CAPEX = between USD 400/kW – USD 1 000/kW and USD 900/kW – USD 2 500/kW depending on the region; discount rate = 8%.

The map in figure 2 displays the levelized cost of hydrogen in the long term. However, we think it should primarily be interpreted as a relative, rather than an absolute cost indicator. The dark red areas represent the areas with the lowest production costs, like Chili, part of Namibia, and China. The Netherlands can be found in the blue, less competitive end of the spectrum.

Although low costs are an important variable, they don’t tell the whole story. Other relevant factors for renewable hydrogen production include the abundant availability of deionized fresh or desalinated water, necessary infrastructure, and available land. For example, each kilogram of renewable hydrogen requires between 10 and 11 liters of deionized water. Landlocked production sites need a pipeline for unlocking production, while coastal zones require a port for overseas transport. Additionally, the costs of transporting hydrogen to Europe by vessel should be taken into account.

The Port of Rotterdam (PoR) currently serves as the energy hub for northwest Europe. It handles 8,800 petajoules (PJ) in fossil fuels annually. This is about 2,444TWh, or more than three times the Dutch primary energy consumption and 17% of the EU’s primary energy consumption in 2022. However, with the phase-out of fossil fuels, the PoR must shift its focus toward renewable fuel flows to maintain its relevance.

Through energy diplomacy, (in Dutch) the Dutch government actively seeks to position the Netherlands as a reliable trade partner and clean energy hub in northwest Europe. Partnerships, Memoranda of Understanding (MoUs), or other types of agreements are being signed with countries from across continents that aim to become clean energy exporters. European countries, Japan, and South Korea are expected to be the main importers. Leveraging its status as Europe’s largest energy hub, the PoR is well-positioned to become a central import hub for hydrogen and hydrogen derivatives in Europe. In addition to the government's energy diplomacy, the PoR also actively pursues MoUs and partnerships with official entities.

According to the PoR’s own estimation, it could import 4MT of renewable hydrogen by 2030. However, we believe this projection may be overly optimistic, given the current status of many projects worldwide. In 2022, the total installed electrolysis capacity in the world was 686MW, which could produce around 80,000 metric tons of renewable hydrogen per year.[8] In 2023, another 600MW of installed capacity was added, bringing the total to 1,286MW and yielding around 155,000 metric tons of renewable hydrogen per year. In other words, even total global production is still only a fraction of the 4MT the PoR would like to import in 2030.

The PoR estimates that its hinterland will require 20MT of renewable and low-carbon hydrogen per year by 2050. This covers not only the Netherlands, but also Germany and other industrial regions in northwest Europe. The PoR expects that 10% of this will be produced in the Netherlands. The other 90% will be imported, which amounts to 18MT per year.

The bulk of the imported hydrogen will be exported to Germany, as it is expected to become the largest consumer of renewable hydrogen in Europe. According to Germany’s updated hydrogen strategy, the country’s total hydrogen demand will grow to between 2.4MT and 3.3MT per year by 2030.[9] Imports are expected to make up 50% to 70% of Germany’s hydrogen needs by 2030, which equals approximately 1.1MT to 2.3MT per year. Germany needs renewable and low-carbon hydrogen to drive decarbonization across its industry, transportation, and electricity sectors.

[8] Assuming 4,700 full load hours per year and the Higher Heating Value (HHV).

[9] The updated German hydrogen strategy uses 95TWh - 130TWh, which converts to approximately 2.4MT - 3.3MT using the HHV.

While Germany has its own plans to build import facilities for hydrogen and hydrogen derivatives in its own ports, the PoR is expected to play an important role in supplying Germany with hydrogen. Renewable and low-carbon hydrogen arriving at the port will be exported to Germany through the future Hynetwork’s “hydrogen backbone”, a national infrastructure for hydrogen transport. Hynetwork operates as a full subsidiary of Gasunie, the Dutch natural gas transmission system operator (TSO).

Also, the planned Delta Rhine Corridor project, a collaboration between Gasunie, Shell, BASF and OGE, will be used for exports to Germany. The project involves a network of pipelines for transporting, among others, hydrogen, ammonia, and CO2. These pipelines will originate in the PoR and extend to the Ruhr area in Germany. The hydrogen pipeline is scheduled for commissioning in 2032, while the commission date for the other pipelines has not been set.

Apart from being a trade hub for hydrogen, the PoR will also function as a clean refueling hub for the maritime sector. In 2023, maritime shipping bunkered close to 10MT in fossil fuels. These fuels must also be partly decarbonized toward 2050. The PoR estimates that by 2050, it will supply 3.2MT of hydrogen or a hydrogen derivative to the maritime sector. The use of hydrogen derivatives in the maritime sector adds to the demand for renewable and low-carbon hydrogen. However, it is good to realize that the use of hydrogen in the refinery industry, which is currently the largest hydrogen user in the Netherlands, will slowly be phased out as fossil fuels become marginalized.

Before the hydrogen trade flows can materialize, many facilities still need to be built. There are a handful of larger-scale initiatives for crackers and terminals for hydrogen, ammonia, liquid organic hydrogen carriers, and methanol in the Netherlands. However, almost none of these initiatives have progressed beyond the FID phase. One exception is the project by Dutch chemical group OCI in the PoR, where OCI is realizing two ammonia terminals that will serve as bunkering points for ocean-going vessels and act as a hub for clean ammonia imports. The FID for the first stage was approved in 2022, and during this stage, the throughput capacity will increase to 1.2MT per year, up from 400,000 metric tons. In the second phase, a new ammonia tank with a capacity of 60,000 metric tons will allow for a potential increase in throughput to above 3MT per year.

Additionally, there’s a need for large-scale underground storage facilities. Currently, several salt caverns in the Netherlands are used for underground storage of natural gas. These same caverns can also be used for underground storage of hydrogen. HyStock, a full Gasunie subsidiary, is currently developing a salt cavern for hydrogen storage at Zuidwending. This cavern, named A5, has a storage capacity of 216GWh and is scheduled for commissioning in 2028. In the summer 2023, HyStock held an open season for the total A5 storage capacity of 216GWh, which was far outbid by interested parties.

Hynetwork has been appointed to build the hydrogen backbone. Approximately 85% to 90% of the 1,200km long pipeline will consist of repurposed existing pipelines. The first phase is expected to be commissioned in 2026, followed by the second phase in 2028. The third and final phase should be completed by 2030.

All the described developments show that we’re still in the early stages of creating global value chains for renewable and low-carbon hydrogen. Progress has been much slower than initially thought, with many initiatives facing challenges due to increased costs and the slow rollout and implementation of regulations and subsidies. It is clear that the investments required to replace the current gray hydrogen volumes used in the Netherlands with renewable hydrogen, are enormous, and most of this renewable hydrogen will likely be imported. The necessary infrastructure and the hydrogen plants still need to be built, both in the Netherlands and abroad. There’s still significant work ahead before Dutch hydrogen use will be fully decarbonized.