On May 23rd, over 30 future Hydrogen Economy market actors and stakeholders to discuss hydrogen and electricity infrastructures and their market interplay.
For a viable hydrogen economy, one of the key questions yet to be solved is how market participants seize together the most industrial and societal value from the required investments in a sector-integrated system.
The key message of the day was clear: by implementing a sector-integrated energy system – where gas and electricity infrastructures and markets are highly interlinked – a viable market formation is possible by cost-effective designs and co-development. However, patience is required and capacity building from first projects is crucial.
The event was co-organized by BalticSeaH2 project, ABB’s H2Springboard leading company project, Gasgrid, Fingrid, and ABB.
First-mover reflections: creating market conditions before the hydrogen market and infrastructure exist
The first-mover projects are critical for creating appealing market designs – and where the voice of industry is to be heard of. The seminar was opened by the first-mover perspective by Tuomo Rinne (P2X Solutions). P2X Solutions is one of Finland’s hydrogen frontrunners with a 20 MW electrolyser in commercial operation and more in the pipeline.
Today, the hydrogen economy faces challenges similar to those once encountered by clean electricity. Just as the takeoff markets for wind energy did not emerge on their own, the market rules and conditions for hydrogen must be established favorable before demand and infrastructure can naturally converge into a functioning and sector-integrated market.
This raised difficult but essential questions. How do we incentivize investors to make long-term capital allocations, when the future demand for hydrogen is still uncertain? How should the location of electrolysis plants be chosen — close to renewable sources, end-users, or local hubs? Could the investment locations be guided through incentives that feed synergies in the system?
Infrastructure as a catalyst for market creation
Finland’s geographic location serves as a natural resource advantage for forming a remarkable hydrogen corridor in Europe. Affordable clean electricity projects and availability of biogenic CO2 are the required fundamentals – featured in the Finnish landscape.
In recent years, close collaboration between Transmission System Operators (TSOs) for electricity and gas in Finland has emerged as an additional advantage for market participants. While Fingrid is at the forefront to experience the most up-to-date development trends in the power sector through grid connection inquiries, the renewable power production projects are considered in Gasgrid’s hydrogen pipeline routing plans as one factor. Coordinated together, this can reinforce the cost-effectiveness of the required investments for energy transmission infrastructures and additionally serve as a mechanism to support sector integration between electricity and hydrogen.
From intermittency to stability: Flexibility from hydrogen production and infrastructure
Helen has long-term experience from electricity and heat markets as one of Finland’s largest energy company. Jaana Viitakangas introduced the 3H2 hydrogen production pilot plant (with 3 MW capacity) that is currently developed. Helen’s pilot plant will showcase how electrolyzers can operate in the heart of a sector-integrated system – where electrolyzer does not only produce hydrogen but also integrates with district heating via waste heat recovery.
It was discussed that storage capacity between hydrogen production and consumption is essential to equalize the peaks in electricity production. Mechanisms to leverage the limited storage capacity in the hydrogen transmission pipeline in the most efficient way remains a question to be solved. However, further improvement to the technology must be co-developed. The current CAPEX structure of electrolyzers further necessitates high utilization rates as well as wider ranges of flexibility. These features likely arrive along with the cost decline of electrolyzers.
Market models: Learnings from methane and electricity
Mika Myötyri from Gasgrid talked about the learnings that we could harness from the already matured and well-functioning methane markets when developing the hydrogen market model.
The Hydrogen market design will likely follow an entry-exit structure similar to methane. However, there is also fundamental difference to the methane markets that shall be taken into account: hydrogen market strongly interacts with the electricity market. While many established mechanisms can be implemented from the methane market model, room for rethinking and innovations must be reserved. A central insight was this: the TSO does not create markets – the market players do. This means that TSO sets the conditions for the market players on how to operate on the markets.
Drawing lessons from the liberalized electricity market, Jukka Ruusunen from LUT University built experiences on the lessons learned from formulating the electricity markets and emphasized the need for simple, scalable, and transparent market models. “First learn how to walk, then run” applies well to hydrogen market formulation; local projects with simple rules shall be used to build the markets, while wider regulated markets will later on increase liquidity.
The message from the session was pragmatic – don’t over-regulate, but don’t oversimplify either, room for learnings and innovations must be reserved while ensuring safety and security aspects.
How to valorize the benefits from an integrated energy system?
The integrated energy system forms a complex puzzle, shaped for instance by weather dependent intermittent power generation and related Power Purchase Agreements (PPAs), availability of stable and controllable sources of energy, storage possibilities, and elasticity of hydrogen offtakers. Taavi Leikola (Gasum) underlined the need for plant-level asset optimization to benefit all the market participants. The integrated electricity and hydrogen markets will provide multiple possibilities for this through different markets and products as well as market integration.
Looking ahead: Co-creating the hydrogen economy and well-functioning markets
Finland has a narrow opportunity window – the next ten years will determine its position in the European hydrogen landscape. To succeed, the transition needs to be actively orchestrated and coordinated at multiple fronts: from infrastructure planning, incentive schemes and market models to technologies for optimized investments.
As the hydrogen economy requires cross-sectoral and interdisciplinary collaboration, initiatives like BalticSeaH2 and H2 Springboard offer more than just a roadmap – they provide forums to make real progress, share learnings, and coordinate. H2 Springboard Ecosystem, led by ABB, coordinates a sizeable €150 million portfolio of projects, bringing together industry, technology developers, TSOs, and researchers. The goal is to deliver the lowest levelized cost of hydrogen (LCOH) and minimize the required capital investments – all while keeping the focus on market realities. This is enabled by aligning fragmented R&D efforts and infrastructure development and providing market-ready and validated technology packages.
We don’t wait for the hydrogen market to emerge. We shape it – together. The seminar delivered important findings to further build on. It is evident that the hydrogen economy must be built on integrated, efficient energy transmission infrastructures, where the hydrogen network – with a well-functioning market model – enables balancing towards the electricity markets. Coordinated infrastructure planning and a holistic view on energy networks and other investments is crucial both on national and regional level. This can also support the social acceptance of the projects.
It was concluded that long-term visions and today’s reality are not always aligned. Concrete incentives are needed to advance today’s realistic cases, increase knowhow and build capacity in order to achieve the long-term visions. Experiences from the existing methane and electricity markets shall be used to shape the sector-integrated hydrogen market design.