Lisbon — Portugal will launch a pioneering auction in the second half of this year for rights to sell hydrogen for injection into the national gas grid, which some see as a key step in kickstarting Europe’s fledgling hydrogen market.
Under the terms of the auction, energy group Galp Energia will contract to buy hydrogen mixed with natural gas from producers and resell it to meet demand, a system designed to boost investment in production by giving suppliers a guaranteed buyer.
That would remove the need for dozens of bilateral contracts between suppliers and consumers.
The first auction for transporting hydrogen to consumers in Europe via pipeline is being watched to see if it can resolve one of the sector’s stickiest conundrums – balancing producers’ need for a demand pickup with clients’ desire for supply and price guarantees before making costly technology switches.
Investors have pledged about $76 billion to build green hydrogen plants, according to the Hydrogen Council and McKinsey & Company, but just $6 billion had reached the final investment decision stage as of May 2022.
The auction is designed to foster the development of hydrogen technology in Portugal, “ensuring that there is a firm offtaker at a time when private demand is still at an early stage”, Environment Minister Duarte Cordeiro’s office said in written responses to Reuters.
The Portugal solution could be an effective way of resolving the “chicken and egg” situation of waiting for demand to justify investment, said Dilara Caglayan, senior research associate for hydrogen at Aurora Energy Research.
Blending hydrogen into the existing gas network could help generate demand to get the market up and running, she said.
Hydrogen auctions in other countries are targeting heavy industry. Germany is planning a “double auction” in which hydrogen or its derivatives are bought cheaply on the world market and sold to the EU’s highest bidder.
Portugal’s largest gas distributor Floene has since October been testing whether its polyethylene pipelines for gas can also carry hydrogen, providing 80 industrial and residential customers in Seixal, near Lisbon, with gas blended with 2% of hydrogen. Portugal eventually plans to lift that share to 20%.
Floene CEO Gabriel Sousa said the tests prove polyethylene is suitable to receive “100% hydrogen without any gas leaks”.
Reporting by Sergio Goncalves and Charlie Devereux – Reuters
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