(Berlin) - The German Institute for Economic Research (DIW) and the Brussels think tank Bruegel have examined which energy sources the European energy system can use to primarily cover energy needs in a climate-friendly manner without coal and natural gas. 
In their analysis, the scientists compare three options for shaping the future energy mix: electricity from renewable energies, green hydrogen and green synthetic gases. “Our study shows that the direct use of electricity from renewable sources is more cost-effective and efficient for end consumers such as companies and households than indirect electrification, for example via synthetic gases or hydrogen,” says co-author Franziska Holz. It is also clear, although not new: "In order to achieve climate neutrality, electricity generation from renewable energies must be massively expanded" - and, according to DIW, by 2050 it must be four to six times higher than in 2019.
The hydrogen and synthetic gas scenarios in particular require a “very strong expansion of electricity generation, as these energy sources are also produced with the help of electricity”. Part of the electricity production will be relocated to countries outside the European Union and imported in the form of hydrogen and synthetic gas. “In the future, energy imports will be based on electricity generation abroad instead of on fossil fuels mined there.”
Hydrogen as an expensive detour
As long as there is not enough electricity from renewable sources available, hydrogen and synthetic gases cannot play a dominant role in a sustainable energy mix. “If sustainably produced electricity is first converted into green hydrogen or green synthetic gases instead of being used directly, the whole thing is ultimately significantly more expensive,” says co-author Claudia Kemfert, DIW department head in the Energy, Transport, Environment department .
The production of hydrogen or synthetic gas is “associated with higher supply-side investment and energy import costs” compared to a predominantly electrical system. Both energy sources would only play a relatively large role in Europe's energy supply if they were directly preferred by future energy policy.
Due to their current lack of competitiveness, these technologies require government funding in order to be introduced and disseminated in the European energy system. Even if manufacturing costs continue to fall, “only comparatively small amounts of hydrogen and synthetic gas will likely be used,” the study says. Their use would be mainly limited to sectors “where electrification is impossible or difficult to achieve, such as aviation or certain areas of the chemical industry”.
Massive expansion of the power grids required
The expansion costs for electricity generation would amount to more than half of the investment costs in all scenarios. The electrification scenario requires an extensive expansion of the power grid, “which is greater than in the other scenarios due to the comprehensive connection of all energy consumers in question.” In contrast, an energy system based on hydrogen would incur costs for converting the natural gas pipelines to transport hydrogen.
However, the need for investment in domestic electricity generation in the hydrogen and synthetic gas scenarios “would be even higher if a large part of the electricity generation were not outsourced to non-European countries and imported in the form of hydrogen and synthetic gas”. However, this leads to high import costs.
According to the study, the direct use of electricity is also more efficient than the use of hydrogen, synthetic gas or fossil fuels. “With the same useful energy, primary energy consumption is lower and the scenario that focuses on extensive electrification is associated with the lowest costs.”
Hydrogen as a fluctuation reserve
From a cost perspective, the use of hydrogen is more likely than the use of synthetic gas. Hydrogen could be a complement to widespread electrification, as it helps to balance out fluctuations in renewable energies and to supply demand areas that are difficult to electrify in a climate-friendly manner. An energy system focused on synthetic gas “is the most expensive choice.” Because “the benefits of reusing existing fossil natural gas infrastructure do not fully offset the high investment and operating costs of production facilities for the production of synthetic gas.”
The focus of politics should be on “setting framework conditions that make the investments necessary for extensive electrification attractive.”
The study “Future of the European energy system: The signs point to electricity” was published in the DIW weekly report 6/2022.
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DIW study: “The ratio of useful energy to energy used is highest with direct electrification.” © DIW Berlin
