Hydrogen Changing Power Dynamics in Energy Sector

Ansari suggested that European risk aversion might be a reason for Germany’s cautious approach, but it could imply larger risks and higher energy prices in the future.

Hydrogen-focused companies see a positive state of affairs. The recent US mechanisms meant to bring the entire supply chain for green hydrogen technology within its borders are pushing European institutions to develop an equally attractive framework to avoid technology providers resettling across the Atlantic.

“There is competition between policymakers. There is competition between customers to have their projects flying because most of the support schemes have expiry dates,” Manuel Kuehn, head of sales for sustainable energy systems at Siemens Energy, told DW.

On the other hand, according to Kuehn, intra-EU competition might be more dangerous, which is why he has called for unified EU regulations.

Many hydrogen developers also have an incentive to wait — and not only because of the regulatory framework. “Technology prices will decrease, mostly due to scale effects,” he said.

According to Siemens Energy, large regional projects are unlikely to start producing green hydrogen over the next two years. 

Regional Cooperation in the Middle East
Ansari pointed out that Gulf countries are advancing commercial agreements and political plans. A mix of collaboration and competition defines their strategies. For instance, since Kuwait and Bahrain do not have much leeway in the green hydrogen sphere, they are investing in other countries’ endeavors. 

“There are also Saudi actors in Oman’s hydrogen projects, and UAE players being active in Saudi ones,” said Ansari, underling that countries are trying to specialize in different segments of the upcoming hydrogen economy. “Besides exporting green hydrogen directly, Oman plans to go up in the production chain and set up plants for green steel and cement. Qatar is keeping it simple. It is committed to exporting LNG and supporting clients to produce hydrogen and ammonia from LNG directly in the destination country.”

According to Ansari, Gulf countries are overriding the model imposed for years by Western management consultancies, “which only look at their own profit and show neither interest in nor knowledge of the region. The region requires different logics.”

Technology Competition?
As the recent tensions over US incentives show, competition is not only a matter of hydrogen deliveries. It’s also a matter of hydrogen technology. If just half of the projects in the pipeline come online as planned, massive issues with the supply chain would arise, say experts. Technology providers will play a key role in the nascent hydrogen markets.

“We have to ramp up a whole industry on the supply side, and this could take some time,” said Kuehn. “Suppliers, often smaller companies, make investments when they receive orders. It takes time for the support schemes to trickle down to suppliers.”

At the same time, slower developments would decrease tensions. Companies would have time to standardize new components like electrolyzers — a key component to produce hydrogen from renewable sources — and scale up the production of others, like compressors, transformers and rectifiers.

Some countries, like China, could move faster in the entire supply chain. Experts also expect the supply chain to take advantage of American policies, like the Inflation Reduction Act. That is why the EU’s policies and regulatory framework are key to unlocking investments in Europe.

“In the next couple of years, players will decide what they want to be and which role they want to play in the energy transition. I would expect disruptions as it happened in the solar and wind industries a decade ago,” said Kuehn.

In general, experts agree that competition between technologies and countries will remain. But, given the high demand for these components, all the technology providers are set to benefit.

“There will be space for every player to achieve a certain degree of scale effect to reach the endgame,” concluded Kuehn.

Sergio Matalucci is a journalist and writer specializing in energy, geopolitics and international relations.This article was edited by Tim Rooks, and it is published courtesy of Deutsche Welle (DW).