Decarbonization of natural gas systems in the EU – Costs, barriers, and constraints of hydrogen production with a case study in Portugal

Abstract

The European Union (EU) imports a large amount of natural gas, and the injection of renewable hydrogen (H2) into the natural gas systems could help decarbonize the sector. The new geopolitical and energy market situation demands urgent actions in the clean energy transition and energy independence from fossil fuels. This paper aims to investigate techno-economic analysis, barriers, and constraints in the EU policies/frameworks that affect natural gas decarbonization. First, the study examines the levelized cost of hydrogen production (LCOH). The LCOH is evaluated for blue and grey hydrogen, i.e., Steam Methane Reforming (SMR) natural gas as the feedstock, with and without carbon capture, and green hydrogen (three type electrolyzers with electricity from the grid, solar, and wind) for the years 2020, 2030, and 2050. Second, the study evaluates the current policies and framework based on a SWOT (Strength, Weakness, Opportunities, and Weakness) analysis, which includes a PEST (Political, Economic, Social, and Technological) macro-economic factor assessment with a case study in Portugal. The results show that the cheapest production costs continue to be dominated by grey hydrogen (1.33 €/kg.H2) and blue hydrogen (1.68 €/kg.H2) in comparison to green hydrogen (4.65 €/kg.H2 and 3.54 €/kg.H2) from grid electricity and solar power in the PEM - Polymer Electrolyte Membrane for the year 2020, respectively. The costs are expected to decrease to 4.03 €/kg.H2 (grid-electricity) and 2.49 €/kg.H2 (solar – electricity) in 2030. The LCOH of the green grid-electricity and solar/wind-powered Alkaline Electrolyzer (ALK) and Solid Oxide Electrolyzer Cell (SOEC) are also expected to decrease in the time-span from 2020 to 2050. A sensitivity analysis shows that investments costs, electricity price, the efficiency of electrolyzers, and carbon tax (for SMR) could play a key role in reducing LCOH, thereby making the economic competitiveness of hydrogen production. The key barriers are costs, amendments in rules/regulations, institutions and market creation, public perception, provisions of incentives, and constraints in creating market demand.