The CIP Foundation shows the way to an interconnected Danish hydrogen infrastructure

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In March this year, Danish Minister for Climate, Energy and Utilities Lars Aagaard and Vice Chancellor of Germany and German Federal Minister for Economic Affairs and Climate Robert Habeck made hydrogen history for the two countries when they signed a cooperation agreement to establish hydrogen interconnectors to transport Danish hydrogen to German consumers.

Energinet has since been tasked with establishing and operating the transmission infrastructure. However, work to plan and establish an interconnected hydrogen infrastructure is still ongoing.

This autumn, the political parties met to negotiate the framework conditions and financing for a future hydrogen infrastructure. The CIP Foundation has prepared a report as inspiration for the negotiations: Roadmap for a Danish hydrogen infrastructure for the future. The report contains concrete recommendations for deployment of an interconnected Danish infrastructure.

The recommendations outline a cost-effective phased deployment plan. The plan covers deployment of 1,300 km hydrogen pipelines up to 2045, as well as two dedicated hydrogen islands in the North Sea.

Green hydrogen produced from renewable energy will play a crucial role in the green transition of energy-intensive industries and the parts of agriculture and transport that cannot be electrified. Energy-intensive industries account for around 20 percent of total global emissions. Without hydrogen as the foundation for green fuels, the political targets for decarbonisation will not be achieved.

The report by the CIP Foundation stresses Denmark’s opportunity to reap major benefits from investing in a hydrogen pipeline infrastructure with interconnectors. Favourable conditions for the production of renewable energy and green hydrogen, and a production potential far beyond Denmark’s own hydrogen demand, mean there is a potential for exports of green hydrogen to neighbouring countries worth a total of around DKK 100 billion annually.

Realising this export potential requires a hydrogen infrastructure with interconnectors, initially to markets in Germany, the Netherlands and Belgium. This is a far-offshore venture, primarily in the North Sea, and it will require a total investment of DKK 130 billion over the next 15 to 20 years.

Denmark has unique competitive advantages

Denmark has favourable conditions for producing renewable energy at competitive prices, especially in the North Sea. There are vast areas with perfect conditions for offshore wind farms and energy islands: good wind conditions and shallow sea depths. This gives Denmark a cost advantage of up to 10% when producing hydrogen at large scale on energy islands or dedicated hydrogen islands with interconnectors to other countries.

Because Denmark will be self-sufficient in green energy by 2027, there is a basis for large-scale exports to neighbouring countries, and many of these already have strategies in place to import green hydrogen to fuel the transition of their energy-intensive sectors. This includes Germany, the Netherlands and Belgium.

In the long term, Denmark could produce more than 200 TWh of green hydrogen annually. After meeting domestic demand, Denmark could export hydrogen valued at DKK 100 billion annually (fixed prices). This is slightly more than Denmark’s current exports of green energy and environmental technologies. Furthermore, it exceeds net exports of oil in any year ever.

A hydrogen infrastructure is a necessary gateway to the market

We need an infrastructure of hydrogen pipelines to be able to reach our buyers. Because of the enormous export potential, it is crucial that we coordinate and secure interconnection of the Danish hydrogen infrastructure with the planned infrastructure of other countries in the North Sea, the Baltic Sea and onshore in Germany.

This will give us access to important buyers and will create economies of scale and lower costs. It is therefore paramount that Danish authorities and relevant players start collaboration with neighbouring countries as soon as possible, and in particular with our expected future primary export countries: Germany, the Netherlands and Belgium.

Design, timing and synergies

In its design of a hydrogen infrastructure, the CIP Foundation has been careful to consider flexibility in the total energy supply. This is to achieve the advantages of sector coupling and balancing between different energy sources.

As opposed to electricity, green hydrogen can be stored, and production can be increased or decreased depending on whether conditions are favourable for wind and solar power production. In other words, hydrogen production can help to balance the electricity grid and reduce the need to expand the grid to accommodate the large quantities of green electricity expected in the future. In fact, it is difficult to imagine an electricity grid in Denmark and neighbouring countries that will be able to absorb the large quantities of green electricity pledged in the political plans already set for the North Sea and the Baltic Sea.

Hydrogen is therefore a necessary piece of the puzzle if we are to meet the political targets. Furthermore, exports are a necessary consequence because the targets far exceed Danish hydrogen demand.

Hydrogen production relies on where and how much renewable energy is produced, and when it can be deployed. The CIP Foundation therefore recommends starting by establishing an onshore hydrogen infrastructure with interconnectors to Germany, followed by deployment of multiple offshore connections to create both synergies and improve security of supply.

Even though establishment of a hydrogen infrastructure in Jutland is the first part of the deployment plan, establishment of offshore infrastructure in the North Sea for exports is the key element in the overall plan. The phases in the deployment plan are designed so that they can stand alone and do not depend on future decisions. This adds security and robustness to the societal investment case.

In order to be able to realise the deployment plan, several key decisions have to be made within a short period of time. Among other things, the developers and the contractors who will be building the infrastructure have to be considered.

Most important is the crucial requirement that government tendering procedures for offshore wind power be completed so that there is sufficient renewable energy for both electrification and hydrogen production. The ambitions proposed by the CIP Foundation for the hydrogen infrastructure require six-seven-times more offshore wind energy than is included in the political agreement on the 9 GW tendering procedure that in the spring was called the largest offshore wind tendering procedure in the history of Denmark.

DKK 130 billion investment requirement

The report from the CIP Foundation has calculated the investment requirement on the basis of the capital investments following directly from the recommended infrastructure, i.e. hydrogen pipes, compressors, hydrogen islands and the known, derived need for electricity reinforcements. Costs of already decided installations such as the government energy islands in the North Sea and on Bornholm have not been included.

Neither do the hydrogen infrastructure investments include investments in the deployment of renewable energy and electrolysis, as these investments are linked to the production side. Here, market and technological developments are likely to push prices downwards. Furthermore, there are the implications of new possibilities to site offshore turbines closer together.

The total investment amounts to around DKK 130 billion over a period of around 20 years, of which most will be around 2030-2040 in connection with the construction of hydrogen islands and offshore hydrogen infrastructure.
If the CIP Foundation’s proposed hydrogen infrastructure is realised, it will be the largest construction investment in Danish history. In comparison, the Fehmarnbelt link has a construction budget of DKK 55 billion (2015 prices).

Need for clear framework

The market for green hydrogen is still immature and needs a framework that can help reduce risks for future market players. The market is also affected by the classic ‘chicken-or-egg’ dilemma with regard to decisions on large, capital-intensive and irreversible investments at an early stage of market development.

The CIP Foundation’s report points out that the government can play an active role in mitigating the risks entailed in establishing the hydrogen infrastructure. Firstly by taking on risks itself on behalf of the future users of the collective hydrogen infrastructure, which can then be paid back over time. Secondly by ensuring a relatively flexible and simple framework from the start to take into account that this is an emergent market and to meet the market’s need to know the long-term framework conditions. A kind of ‘regulatory sandbox’ for a period, which can later be developed into specific regulations. This is also the principle in the regulation of the hydrogen market proposed by the EU.

Finally, the government also plays an important role by appointing the central planning authority and the coordinator, and by supporting clear and more predictable approval processes. For example, through binding deadlines for case processing and/or parallel processes in various authorities. Timing and the speed of decisions are also crucial for the role Denmark will play in future hydrogen production. And also for how much Denmark can support European energy and security, and for what climate reductions Denmark can contribute internationally.

Read more about the report and analysis work by the CIP Foundation here, as well as the report in its full length.