Strengthened climate ambitions in Europe affect not only its energy policy planning but also the way countries look at potential opportunities to develop domestic and regional low carbon value chains. North‑western Europe1 played an important role as an oil and gas producer in the past and is poised for similar impact in the future based on the large offshore wind potential of the North Sea. The IEA report, Offshore Wind Outlook 2019, labels the North Sea as one of the most promising regions for offshore wind due to its high load/capacity factors and relative shallow waters. By 2018, 18 GW of offshore wind capacity were already installed in the North Sea, entailing the majority of the 23 GW installed worldwide. Integration of such large volumes of wind energy into north-western European countries’ energy systems require investments to upgrade power grids and to incorporate technologies that can facilitate balancing the mismatch between supply and demand that results from a large penetration of renewables in the power system.

Conversion into hydrogen can help increase the volume of wind generation absorbed by energy systems/markets, while high-capacity factors and falling costs of offshore wind can enable scale up of low-carbon hydrogen. This is particularly important in north‑western Europe, which today concentrates a significant share of Europe’s hydrogen production and demand in its industrial clusters. These clusters, located at the shore and in deep water ports, are ideal locations to start scaling up low‑carbon hydrogen production and consumption, as identified in the IEA report, The Future of Hydrogen. Industrial ports in north-western Europe already produce and consume a lot of hydrogen that has been earmarked to be decarbonised, and involve substantial traffic in terms of heavy trucks, river barges and trains which could be converted to hydrogen. Importantly, these ports are all connected to the gas grid which can be re-purposed to carry hydrogen relatively cheaply compared to new built pipelines or grid enlargement. Furthermore, these ports are particularly well placed to become one of the main routes for hydrogen imports into Europe, which are likely required to achieve the continent’s net-zero ambitions.

This region also has a significant capacity to store hydrogen in geological formations and salt caverns, with a potential for more than 60 000 TWh of hydrogen storage.2 North‑western European countries have taken the lead in Europe in adoption of new hydrogen technologies. These countries have the highest concentration of fuel cell vehicles and installed capacity of water electrolysis and are home to the only two operating projects in Europe to produce hydrogen coupled with carbon capture, utilisation and storage (CCUS). Moreover, this region is particularly well placed for developing geological storage of CO₂ at large scale. Estimates of geological storage capacity in the North Sea range from roughly 50 to 150 billion tonnes (Gt) of CO₂, with the United Kingdom and Norway comprising the bulk of this capacity (35-140 Gt). However, further assessment is required to understand the maximum amount of CO₂ that can ultimately be stored, how the gas is contained in the formation and the risk of leakage.3,4

The north‑western European region therefore plays a crucial role in realising European hydrogen and decarbonisation ambitions. The large concentration of hydrogen demand in this region combined with the significant potential that the North Sea offers for deployment of electrolysis capacity, makes north‑western Europe critical in delivering the European 40 GW electrolysis target by 2030.5Moreover, the bulk of the hydrogen project pipeline originates in this part of Europe; recent analysis suggests that the countries within this region have the best hydrogen market opportunities in Europe.6

For this reason, governments in the region have started dialogues to address the potential development of a regional hydrogen market. Part of these dialogues have been established through the “Roundtable on the North-West European region” of the Clean Energy Ministerial Hydrogen Initiative. To inform these conversations, participants in this roundtable have commissioned the International Energy Agency (IEA) and the Clingendael International Energy Programme (CIEP) to develop this study to explore hydrogen developments, policies and potential for collaboration in this region.

In 2019, Europe witnessed two significant steps in energy policy making. In June, the UK Parliament passed an amendment of The Climate Change Act 2008, becoming the first major economy to adopt a legally binding target of net zero emissions by 2050.7 Later in December, the European Commission presented the EU Green Deal, also targeting carbon neutrality by 20508 which was followed by the proposal in March 2020 of a European Climate Law, incorporating a legally binding target of net‑zero greenhouse gas emissions by 2050 and raising the EU emissions reduction target for 2030 from 40% compared to 1990 to 55%.9 In line with these developments, several countries in north‑western Europe published their hydrogen strategies.

Reaching this point has required a progressive transformation of energy and climate policies also at the national level, including in the north‑western European countries. The EU Green Deal, with its revised CO₂ reduction targets for 2030, require national policies that involve decarbonisation of the other sectors besides the power sector, such as industry, transportation, agriculture and heating in the built environment. Decarbonisation progress in some of these areas has so far been slow. The national transposition of 2020 targets resulted in different policy approaches and emphasis in terms of CO₂ abatement efforts and types of renewable energy stimuli. Additionally, the 2008 financial crisis hampered governments’ ability to support projects and influenced the project portfolio initially considered.

Approaching 2020, the solution space began to converge due to sizeable cost and technological improvements, and solar and wind dominated the power sector investment landscape in many member states. The United Kingdom, Germany and Denmark made major strides in expanding their onshore and offshore wind production, while Belgium increased its solar and on- and offshore wind capacity. France also developed solar and onshore wind capacities and increased its ambitions for offshore wind, while its nuclear capabilities continue to play an important role. In the Netherlands, wind production projects, particularly offshore, grew while costs declined.

With increasing success in scaling up individual low-carbon technologies, particularly in power (solar and wind) and more recently in electrifying passenger car transportation, there has been increased recognition that isolated sectoral views are inefficient for reaching climate targets at the scale and pace required, especially as those targets become more ambitious. This is the case with the new EU 2030 energy and climate policy targets, which will necessarily involve an acceleration of decarbonisation efforts from other energy producing and consuming sectors of the economy. In preparation for these 2030 EU targets and their transposition to national policies, there has been a clear shift among policy makers to an integrated energy system transition.10,11

Achieving climate objectives will require comprehensive strategies that move beyond the need to integrate larger volumes of intermittent renewable power in the energy system. Much effort has been focused on decarbonising power, while the rest of the energy system was left largely untouched. In the future, not only the share of electricity is expected to increase but also of low-carbon gases and liquids. These comprehensive strategies must define a space for low carbon gas use in parts of the energy system where direct electrification combined with energy efficiency has limited potential (such as parts of heavy industries and long-distance transport) or can pose challenges to the electric grid (such as increased peak loads due to space heating in winter or electricity transmission issues). In various EU member states, the idea of building on existing integrated energy markets and their supporting infrastructures for natural gas and power to facilitate hydrogen integration and growing offshore wind and solar business has gained traction. This would help integrate these resources into the current energy system and assist with transportation and storage of large amounts of energy to meet various types of demand throughout the year.

This study brings together both national policies and project plans for future development of hydrogen to foster deeper discussion about how countries in the north‑western European region can collaborate and benefit from hydrogen developments in their neighbouring countries. It aims to accelerate national deployments and development of a regional hydrogen market. These countries are already part of an integrated regional market which includes a well-developed gas infrastructure, represents a large share of the European hydrogen market and aims to develop the offshore wind potential in the North Sea. For this purpose, the IEA has collected and analysed the current project portfolio in the region and projected hydrogen demand by 2030 under different scenarios, while CIEP reviewed national government strategies.

Governments in the region are willing to underpin hydrogen development with funding and investors are interested in realising the projects. However, several uncertainties remain before the projects and plans under development can reach final investment decision (FID), including a need for technical and safety studies and further changes to legislation in some countries that allow hydrogen to fulfil its envisaged new role. The intention of this report is therefore to provide an evidence-based picture of the potential outlook for hydrogen in the region and the policy needs for tapping into its potential.