Green hydrogen is a precious commodity, hard won from scarce renewable energy and costly electrolyser capacity, with energy losses at each step of production. There are a myriad uses for it, not least its essential role in decarbonising industry, and there is also a growing interest in transporting it across the world as ammonia or methanol.
So why would any climate-conscious business decide to add carbon to green hydrogen to create e-methane (CH4), a product that is chemically identical to fossil methane, and try to compete in a market dominated by oil majors with deep pockets and all the benefits of mass production?
Thomas Zirngibl, board member of the 200MW Kristinestad e-methane project on Finland’s west coast— which has this week awarded front-end engineering and design (FEED) contracts — tells Hydrogen Insight that there is at least one very good reason to do so: a ready supply of offtakers today, something he argues that producers of green hydrogen, ammonia and methanol do not currently have.
Specifically, Zirngibl is referring to offtakers in the Kristinestad project’s chosen market segment — heavy trucking in Germany.
Unlike most corners of the world, Germany’s road freight sector is an enthusiastic consumer of liquefied natural gas (LNG), buoyed by a series of government incentives, including tax breaks, emissions reductions quotas for fillings stations and, until the end of this year, toll-free use of the country’s roads.
“Ships that are being built to run on methanol, they need to be built still,” Zirngibl says, estimating that there are up to 5,000 trucks in Germany operating on LNG right now. “We are targeting an existing market that is also very hard to decarbonise.
“The German government is looking at all sectors and making progress on all sectors except for the transport sector. And so they are pushing to decarbonise that with other incentive schemes that make it a very interesting offtake market commercially.”
Zirngibl tells Hydrogen Insight that the project already has a buyer for its e-methane — German filling station operator Alternoil, which enters into "benefit-sharing" partnerships with its suppliers rather than signing a price-based offtake agreement.
Koppö Energia Oy (KEO), the joint venture company behind the Kristinestad project — which is 75%-owned by German infrastructure fund Prime Capital AG and 25% by Finnish wind developer CPC — is targeting final investment decision on the project by spring 2024, depending on permitting, with commercial operation starting in 2026.
Powered by 500MW of Finnish onshore wind and 100MW of solar, the 200MW pressurised alkaline electrolyser will be located on the site of an old coal-fired power station — close to Prime Capital’s existing Lappfjard wind farm — and aims to produce 25,000 tonnes of green hydrogen per year, which will be converted into 50,000 tonnes of liquefied e-methane (e-LNG) for export via ship to Germany.
But the process of making e-methane, like all production of hydrogen-based fuels is energy intensive and sustains substantial energy losses throughout. The electricity produced by the project’s wind farms will lose around 30% of its energy content during electrolysis, and a further 40-50% during the Sabatier methanation process, through which carbon is combined with the hydrogen, and energy losses in the combustion engine, leaving just 20-30% of original energy content.
However, before liquefaction, which takes an additional 3% of energy content, the energy losses associated with production of e-methane are comparable to those associated with production of other hydrogen derivatives such as ammonia or methanol, says KEO — but comes with far fewer transport headaches.
Zirngibl explains that KEO is trying to solve a major conundrum facing Nordic power producers: how to get abundant renewable electricity in this relatively sparsely populated area of Europe to major demand centres such as Germany, which has already committed to importing massive volumes of hydrogen-derived products.
“You have all the new production potential, let's say in the Nordic region where we are very active,” says Zirngibl. “Bringing it to Germany via the grid — so staying electric — is impossible and bringing it to Germany via hydrogen, even though the distances are much shorter than from [the 2GW] Neom [project in Saudi Arabia] for example, or even Australia, it's still complicated.”
LNG, which has been used as a maritime fuel for years and shipped safely around the world as a cargo for decades, needs to be kept at temperatures of minus 162°C. The ships, skills and infrastructure required to manage this already exist.
By comparison, liquid hydrogen must be stored at minus 253°C, which is hugely expensive to maintain. Methanol is not widely used as a transport fuel in heavy trucking, and neither is ammonia, which comes with additional safety concerns.
So while shipping green hydrogen as ammonia and methanol would make economic sense for a project targeting fertiliser or shipping fuel customers, or in a scheme where the hydrogen were to be retrieved from the derivative later — the approach taken by Neom — e-methane is the obvious solution for KEO's laser focus on the German LNG market.
"The reason for e-methane is driven by the off-take," Zirngibl explains. "If the off-take solution is the fertiliser industry, then it needs to be ammonia. Since the off-take is the most important commercial factor in a power-to=X project, it makes sense to orient the plant design accordingly"
In order to make its green hydrogen into e-methane, KEO has sourced captured carbon for the methanation process from a Finnish industrial emitter, which will be delivered to the site by truck, essentially recycling a carbon molecule for one further cycle and enabling the project to market “carbon neutral” LNG.
KEO hasn’t yet revealed the total capex required to build the project, but Zirngibl believes it will cost €500-600m, met partly by equity from the joint venture partners, and partly with debt financing. The joint venture will additionally apply for grants from both the EU and the Finnish government.
Germany’s H2Global scheme, which aims to secure imports of green hydrogen and its derivatives for the German market, may also be an option in the future, although so far the programme has only auctioned contracts for ammonia, methanol and sustainable aviation fuels (SAFs).
The Kristinestad project aims to produce green hydrogen at a levelised cost of around €5 ($5.5) per kg, and Zirngibl is sceptical of claims that green hydrogen production as defined by the EU can be pushed lower than this at present.
“The main reason is that for power-to-X plants, especially those producing from wind power at higher capacity factors, 75% of LCOH cost is electricity and you need to bring down your levelised cost of electricity to bring down the LCOH,” he tells Hydrogen Insight. “Efficiency gains, etc, for now, on existing technologies probably will only be marginal.”
He continues: “It's really boiling down to how cheaply you can produce electricity and that value is not decreasing at all. It actually was going up quite significantly given the inflation, and now it's going up further with the increased interest rates. We are seeing those levelised costs of electricity still continuing to increase. That will not be offset by any projected efficiency gains or capex reductions, so I'm questioning those [LCOH projections of] €2/kg or even less without subsidies with that background.”
But the question remains of how Kristinestad can compete among the swathes of different fuels jostling for position in Germany’s “hard-to-decarbonise” heavy trucking market.
Crucially, KEO will be competing with other green fuels, not fossil fuels, due to German regulations that restrict the emissions intensity of the total volume of fuels sold by filling stations, beyond which they must pay a penalty to the state.
The rule is intended to incentivise filling stations to market “clean fuels”, including LNG, which means that KEO will be facing off against hydrogen and battery-electricity options.
Nevertheless, assessing the exact price — and the profit margin — on KEO’s e-methane is complex.
“The co-operation with our off-taker foresees a benefit-sharing mechanism so we have a joint interest in selling the products at the highest price possible together,” says Zirngibl. “It's not a negotiation where they want to buy for low and we sell high and then we establish a value in between, as you can see for typical electricity PPAs for wind farms, for example.”
For that reason, profit margins will be variable and will also depend on market factors, he explains.
And the project potentially has another problem. With battery-electric and hydrogen-powered trucks in line to seize a significant share of the heavy-duty transport market in the coming decades, it is possible that LNG does not have long-term future in this segment.
Speaking to Hydrogen Insight, Jamie Fox, principal analyst at research house Interact Analysis, agrees that LNG currently has a foothold in heavy-duty transport, but is cautious about its growth potential.
“Many of our customers are assessing this area and developing biogas and related products, and this is a hot topic at the moment,” he says. “It is likely a modest growth area but LNG and CNG [compressed natural gas] vehicles will not reach the same volumes as diesel or BEV [battery-electric vehicles].”
Zirngibl agrees that pure hydrogen and battery-electric options are proving interesting to KEO’s customers in long-haul transport, but says he is confident in LNG’s growth potential in Germany specifically.
He also emphasises that LNG has a head-start on BEVs and hydrogen solutions in heavy-duty trucking.
“We are very much aware of the fact that converting hydrogen into LNG has a very low efficiency,” says Zirngibl. “But it’s there at the moment and we need to start right now.”
The plant could also be adapted to a post-LNG future, as it would require very little investment to remove the methanation and liquefaction components of the plant — but only if the planned pipeline transport infrastructure materialises.
“We are located exactly along the route of the Finnish part of the Hydrogen Backbone [a plan to build a major trans-European hydrogen network],” he says. “So we’ll see how long it takes for that to be actually established. But let's assume in 2035 that is up and running, then we are in a position to maybe just produce hydrogen and feed it into the pipeline and use that route to market to Germany or wherever it is needed at that time.”
He adds: “By then we are expecting that the methanation and liquefaction section part of the plant — which require significantly lower capex than the electrolysers — have amortised and then we can also choose the direct hydrogen solution depending how the markets develop.”
CORRECTION: The initial version of this article stated that the annual e-methane production from the plant would be 5,000 tonnes a year. This should have read 50,000 tonnes, and has now been updated accordingly.