Green Hydrogen and Spain’s Strategic Role in Europe

Although still an early-stage energy carrier, green hydrogen is widely promoted as a transformative tool for the energy transition and achieving net-zero. Has it and will it live up to its ‘hype’?

Spain has positioned itself at the forefront of the European push for green hydrogen. In September 2024, through the Boletin Oficial del Estado (BOE), Spain updated its green hydrogen target, aiming to have an electrolyser capacity of 12GW by 2030, up from a previous4GW. It aims to have 74% of its hydrogen used in industry to be green hydrogen by the end of the decade, exceeding the European Union's mandatory target of 42%.  

What it is and what it isn’t

Hydrogen is primarily used today as a feedstock in the industrial and chemical sectors for oil refining, ammonia fertiliser and methanol synthesis. Around 99% of the hydrogen used in Spain today is ‘grey hydrogen’ which is produced through a process called Steam Methane Reforming (SMR), a carbon-intensive process that produces hydrogen alongside significant CO2 emissions. In contrast, green hydrogen, which currently accounts for less than 1% of hydrogen use, is produced with or near zero emissions. This is achieved using electrolysis powered by renewable electricity. In short, green hydrogen is not a new energy source, but a low-carbon way of supplying an existing industrial input.

Much of the hype around green hydrogen is because of its versatility with applications beyond the substitution of grey hydrogen, such as large-scale and long-term energy storage, as well as heavy transportation, metallurgy and chemicals in the hard-to-abate sectors.  

Current green hydrogen projects and future pipeline projections have consistently fallen short of previous national and European ambitions. In Europe green hydrogen is currently 2-4 times more expensive to produce than grey hydrogen, making demand and scalability slow. A key supporting policy that helps narrow this cost gap within Europe is the EU Emissions Trading System (ETS) carbon price, which often exceeds prices in other regions.

On top of this European benefit, Spain has a booming renewables sector which has resulted in having levelized cost of energy (LCOE) for renewables that are 40-50% lower than the EU average which by 2030 could translate to green hydrogen production costs 10-20% lower than central Europe. Combining this with Spain having one of the most mature PPA markets, it is ideally placed to lead the future of European green hydrogen.

From Blackout to opportunity

It has become clear that with the growing share of renewables in power production, reliability has become a core point of focus for the future of our energy system. The intermittent nature of renewables paired with fluctuating demand has applied intense pressure on strained grids, illustrated by the grid blackout last April. One of the potential purposes of green hydrogen would be as an energy storage medium, acting as a grid stabiliser by absorbing excess energy during periods of high production and low demand, reducing curtailment and negative prices, which have become common in Spain. As green hydrogen can also provide large scale and long-term storage, it can be used to dampen seasonal fluctuations as well as act as a stabiliser from external geopolitical shocks by reducing Spanish dependency on oil and gas, fostering a localised energy system and supporting greater national autonomy.  

While this seems promising, with large amounts of depleted gas fields in Spain already being tested for potential underground hydrogen storage by companies like Enagás and EUH2STARS, only 5% of announced possible storage projects have reached final investment decision (FID), raising questions over whether this will materialise at scale.  

The last mile is the longest

Decarbonising hard-to-abate sectors will be difficult but essential if the EU is to reach net-zero by 2050. Could green hydrogen be the silver bullet?

The answer is likely more nuanced.

Today, most green hydrogen demand replaces grey hydrogen, which is forecast to account for 50% of Spain’s total green hydrogen demand by 2050. The rest will likely come from industry decarbonisation and stricter regulations for aviation and shipping fuels.

Electrification alone cannot decarbonise steel or other energy-intensive processes. Green hydrogen derivatives are emerging as the key pathway toward net-zero. While no green steel plants in Spain are yet producing commercially at scale, major players like ArcelorMittal are investing in hydrogen-ready plants, such as the Sestao plant in the Basque Country, drawn by Spain’s growing position as a green hydrogen producer.

Long-term viability and scale of green hydrogen in industry requires capital-intensive retrofitting of existing furnaces, kilns, and burners to be hydrogen compatible as well as the guaranteed competitive production of green hydrogen.  

In aviation, it seems hydrogen based sustainable aviation fuels (e-SAF) are likely to be the long-term solution due to their scalability, energy density and compatibility with existing engines. Synthetic fuels as such require large quantities of CO₂ as an input. Spain currently emits nine megatons per annum (Mtpa) of biogenic CO₂ which if captured could supply enough CO₂ for the 2030 and 2040 suspected demand of synthetic fuel production.  

Similar can be said for shipping fuels, however there are many more uncertainties focused around demand, mixed competition from nonhydrogen-based fuels and the need for large port refuelling infrastructure.

The combination of cheap renewable power and expanding green hydrogen with industry sector investment and available CO₂ could position Spain to become Europe’s hub for decarbonising industry, aviation, and shipping. It is too early to call green hydrogen a silver bullet, but it is evident it will play a key role for the last mile to net-zero.  

Reality Check

This all sounds promising, but what is the reality?  

Green hydrogen is still in very early stages, and recent projections have been more pessimistic than they were a decade ago. Cost competitiveness of green hydrogen is a necessity, which is likely to improve but over the long term and less than previously hoped.Inflation, higher electricity prices, interest rates and capex as well as cheaper natural gas have all contributed to hindering the cost gap reduction.  

In terms of demand, not only does it depend on reducing the relative price of green hydrogen but there is also a need to convert currently non-hydrogen end user equipment and processes to be hydrogen compatible. Moreover, policy must be designed to foster astable environment that pushes this demand growth and attract increasing investment from the private sector.  

The process of adopting innovative technologies can be lengthy and uneven. This applies to other clean energy technology developments, such as for solar PV, which took 25 years from market introduction to reach a 1% share of a national electricity supply market for the first time. We are already seeing green hydrogen follow a similar staggered development pathway. By 2030 it is likely that a substantial portion of today’s hydrogen use will be green, however deployment beyond this is uncertain, and depends heavily on achieving cost competitiveness, reliable demand and supportive policy frameworks. What is certain however, is Spain is attempting to position itself as a European leader and has the capacity to do so.  

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