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Insight from Brussels: Gas sector looks to P2G technology to survive low-carbon future

Summary:
Could using low-carbon electricity to turn water into hydrogen and other gases keep the EU’s gas industry relevant in an increasingly CO2-constrained future? The EU gas and power sectors are certainly interested in testing such technology at scale, as it could help them both with their different challenges going forward. Natural gas and LNG suppliers are facing an expected dramatic decline in demand for their fossil fuels as the EU works to decarbonize its energy sector by 2050, while gas grid operators could see their assets stranded. At the same time the power sector will have to integrate ever-increasing shares of renewable power, mostly variable wind and solar, creating huge demand for flexibility options to keep the grid balanced. Coupling the two sectors through power-to-gas

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Could using low-carbon electricity to turn water into hydrogen and other gases keep the EU’s gas industry relevant in an increasingly CO2-constrained future?

The EU gas and power sectors are certainly interested in testing such technology at scale, as it could help them both with their different challenges going forward.

Natural gas and LNG suppliers are facing an expected dramatic decline in demand for their fossil fuels as the EU works to decarbonize its energy sector by 2050, while gas grid operators could see their assets stranded.

At the same time the power sector will have to integrate ever-increasing shares of renewable power, mostly variable wind and solar, creating huge demand for flexibility options to keep the grid balanced.

Coupling the two sectors through power-to-gas technology, known as P2G, would allow excess electricity in the system to be used to turn water into hydrogen or, in a second step using CO2, into synthetic methane, for example.

If the electricity used is renewable or zero-carbon, then the gases produced are also renewable or decarbonized. These gases can be used directly, for example in industrial processes or for transport. Or they can be injected into the EU’s extensive natural gas grid (within limits for hydrogen), and stored or transported as needed.

Small scale, high cost

Europe’s power and gas transmission system operators argue that this coupling would provide both the extra short-term flexibility and seasonal energy storage that will be needed to balance the power grid as more variable renewable power comes online.

EU policy is driving this change, with a new binding target to source 32% of the EU’s final energy demand from renewables by 2030. This is likely to push renewables’ share of electricity demand to around 50%, with even higher shares expected by 2050.

P2G plants can help by taking excess renewable and low-carbon power on the grid and using it to produce renewable, decarbonized gases. The problem is that such gases are currently much more expensive to produce than their fossil equivalents. This is in part because it is a high capital cost activity being done on very small scale in plants under 10 MW.

The EU’s formal gas TSO body ENTSOG wants to see a tenfold or greater increase in P2G capacity to around 1 GW by the early 2030s. This is to have enough capacity to test how this technology could support power grids with high renewable shares.

It wants to work with all stakeholders “to build a business case for P2G to attract investors.” That includes policy-makers, who have been rewriting the EU’s power market rules to help integrate renewables more efficiently.

“If the market does not deliver the investments in P2G facilities to scale them up to the EU industrial scale, some support schemes need to be designed,” ENTSOG said.

European gas suppliers’ group Eurogas has also called for an EU framework for supporting renewable and decarbonized gases, including harmonized national support schemes as well as a specific EU investment fund. It also wants the EU to set itself a binding target for using renewable and decarbonized gases, with the aim of enabling them “to reach technology maturity and scale.”

Crowded market for flexibility

The debate about whether to give renewable gas the same kind of preferential treatment that renewable electricity enjoyed during its early development is likely to continue into next year and beyond.

The European Commission is already exploring the options as part of planned updates to the EU’s gas market legislation. The formal proposals are expected toward the end of next year, after the new set of politically-appointed EU commissioners take office in November 2019 for five years.

A recent external study sponsored by the EC found that national tariff and grid access rules for renewable gas should be adapted as needed to encourage using it to gradually replace natural gas, while avoiding market distortions. The study cited support schemes and priority dispatch as options, both of which the EU has already used successfully to promote renewable power generation.

A key technical challenge for P2G will be developing large capacity electrolysers flexible enough to ramp up and down as needed in response to the amount of renewable power available. The economic challenge will be to make this flexible operation profitable.

P2G will also have to compete with other sources of power grid flexibility, including demand-side management, electric vehicle batteries, and other power storage technologies.

It will also have to compete with biomethane, a renewable gas made from purified biogas produced from organic matter.

The EU’s push to cut carbon is not just about the climate. It is also keen to reduce its fossil fuel imports, and developing all these new technologies could transform its political relations with its current energy suppliers, including Russia.

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