Is Europe’s sustainable finance taxonomy a challenge or an opportunity?

The EU’s proposed sustainability legislation poses hydrogen manufacturers a problem – if grid electricity is used in production, will it be considered green? So, what’s the solution? Is there an off-grid alternative?

Climate consciousness is growing as the EU’s plan to introduce a sustainable finance taxonomy is the latest in a long line of strides towards a cleaner future.

The goal is to make the EU’s climate targets more practical and attainable. It will help steer private capital towards activities that provide long term environmental benefit.

But in a recent letter sent to EU climate chief Frans Timmermans, a coalition of electricity firms and industrialists expressed their concerns about the specific level at which the emission threshold may be set.

As it stands the draft threshold would deem hydrogen produced from grid electricity not green, even in countries which have a low carbon-intensive electricity. Yet, the goal of taxonomy is to channel private capital investment towards environmentally sustainable activities.

The global growth of sustainable investing and of funds with an environmental, social and governance (ESG) mandate means there is an ever-increasing pool of finances available for investment targets that meet sustainability criteria. In early 2020, the International Institute for Sustainable Development (IISD) predicted that by 2025 there would be over $80 trillion of global assets with an ESG mandate, up from $30 trillion in 2018.

Technologies and projects which can clearly show they meet its criteria will be more easily able to attract financing. Some projects which are currently labelled as sustainable will be shown to not meet the criteria, and funds may shift across to other projects which do fit under the threshold.

Is the solution to go off-grid?

The draft legislation sets out a lifecycle GHG emissions savings reduction of 80% relative to a fossil fuel comparator of 338 g CO2e/kWh. With plant efficiency of 75% (Lower Heating Value of hydrogen), the carbon intensity of the electricity produced and used for hydrogen manufacturing needs to be under 50.8 g CO2e/kWh – a level not normally achievable if grid electricity is used.

There is an alternative energy source that has vast and permanent potential. Wave energy is a market with immense opportunity and compelling credentials. The UK government estimates that ocean energy has the potential to cater to 20 percent of the country’s entire electricity requirements, equating to an installed capacity of between 30 and 50 gigawatts.

A recent study assessed the life cycle of a wave energy converter at 33.8 gCO2eq/kWh. Even when combined with other forms of intermittent renewable generation to supply green hydrogen, the lifecycle GHG emissions fall within the requirement of 2.256 tCO2e/tH2 as set out in the draft legislation.

The International Renewable Energy Agency’s latest Renewable Power Generation Costs study indicates its global weighted average levelized cost of electricity is at USD 0.047/kWh – comfortably below the cheapest fossil fuel-fired source of new electricity generation.

While wave energy systems such as WaveRoller convert ocean wave energy to electricity, when integrated with a solar-powered green hydrogen plant, it can lead to an electrolyser capacity factor of 60%, a halving of total product costs, and just a third of the land area for the same production.

WaveRoller also maintains production at night, avoiding process shutdowns, and supplements seasonal changes and smooths sudden swings in power. In arid regions, the renewable power not harnessed by the electrolysers can be used for freshwater production, supporting climate resilience and sustainability goals of local communities.

Wave energy remains a novel power generation method. Yet, it is an ideal candidate and enabling technology which ensures hydrogen manufacturers meet the criteria outlined by the EU’s sustainable finance taxonomy.