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Hydrogen enables clean transition – and requires large investments

Ministry of Economic Affairs and Employment
Publication date 15.12.2023 14.33
Riku Huttunen in a semi-close-up photo

Hydrogen is the fuel of the stars and makes our life possible. Humanity, however, is still in its infancy in harnessing fusion nuclear power as an energy source, so the role of hydrogen on Earth is different - at least for the moment. Traditionally, it already works as a raw material for many industrial processes, for example oil refining. A new, climate-based need is to utilize clean hydrogen in industrial processes that replace fossil-based production.

Hydrogen is needed for many purposes

In many energy-intensive industries, for example the steel industry, the use of hydrogen is a decisive step on the way to carbon neutrality. A growing amount of emission-free hydrogen will also be needed for clean transport and the production of synthetic fuels (e-fuels). Hydrogen is therefore not only a raw material and fuel, but also an energy carrier, enabling, for example, integration of energy systems and various flexibilities in energy use.

So why isn't hydrogen used more commonly? The main reason is the price - until now, solutions based on fossil energy have been cheaper. However, the situation has changed and is changing rapidly, especially with emissions trading, affordable renewable energy and other technological developments. It is no longer sustainable to invest in emission-intensive solutions.

The necessary investments are typically large and expensive. The production of hydrogen by electrolysis is not a new invention, but future needs require a completely new scale and production capacity. Constructing large facilities requires extensive financial arrangements and, for the time being, typically also state subsidies. Investing in new technology and production methods always involves a risk.

Hydrogen currently has a limited market and is transferred only to a limited extent. So, in order to reduce the risks, it is of the utmost importance to create a gradually functioning market for hydrogen and the infrastructure to transfer it. The EU is actually just taking the first steps to enable hydrogen markets with the so-called gas package, i.e. a set of regulations regarding new gases.

Finland is a great place to invest

Taking advantage of hydrogen, many kinds of investments are necessary that must be synchronized with each other: hydrogen production, industrial use and transmission investments. Finland has excellent conditions for all of these.

First of all, Finland still has significant opportunities to increase the production of clean energy. On-shore wind power is the cheapest form of electricity production. Many wind parks have already been commissioned, but many are also in the construction or planning phase. The amount of solar power will soon increase considerably. The next step will be to turn to utilizing off-shore wind power. Nuclear energy should not be forgotten either - in the longer term, modular reactors can be built to serve also the electricity and heat needs of industry.

An important step for industry is the decarbonisation of existing production. There are promising plans for using pure hydrogen in refining both steel and fuels. Many new foreign investors are also interested in Finland.

Finland's clear strength are the energy networks, which are a prerequisite for clean transition. Our electricity networks are world-class, and Fingrid is constantly increasing investments in Finnish grids. However, hydrogen-based solutions will also require more efficient energy transmission, in which case initially local but gradually expanding hydrogen pipeline networks can come to the rescue. Gasgrid Finland has been given the task of developing these networks in Finland, which enables wider coordination of the projects.

We operate actively on the European market

It is reasonable to expect that a growing number of clean economy investments will be directed to Finland. The entire national economy benefits from the strengthening of the industrial base. This has already become concrete in terms of electricity production. Lately, the record-breaking increase in wind and nuclear power capacity has made our country self-sufficient on an annual net basis for the first time since the 1960s, and electricity is now clearly more affordable in the Nordics than in the rest of Europe.

In terms of growth and employment, it is justified to invest in strengthening the industries and technlogies refining hydrogen to other products here in Finland. Clean electricity is used, for example, for the production of hydrogen, hydrogen is processed into various products, such as steel, etc. - there are many production chains. The foundation of the economy should not be built on the export of raw materials alone, as, for example, Russia has done. Abundant clean energy is above all an enabler of the energy transition and industrial investments.

Of course, this does not mean that companies operating in Finland would not be able to export plenty of hydrogen in the future for the needs of German industry, for example. For that, we need a functioning hydrogen internal market and strong transmission grids in the European Union. The hydrogen market must therefore be developed like the European electricity and gas markets and infrastructure. It is excellent that the hydrogen network projects concerning Finland have been included in the list of important European projects (PCIs). It helps to get support for the planning phase and, in time, potentially even EU investment grants.

In any case, realistically, the construction of comprehensive transmission networks will take years, if not decades. In Europe, there are only small beginnings of hydrogen networks. Therefore, we should start planning large infrastructure projects now. In the first stage, we will advance more rapidly in the development of Europe's clean economy by producing and selling shippable products processed from hydrogen, for example ammonia and methanol.

The markets and companies decide the start of projects

Ultimately, companies make decisions about industrial investments. The state's role is to facilitate them, especially with the enabling regulation and the necessary infrastructure. Currently, the uncertainties related to the economic factors and geopolitics are slowing down the start of many investments in the whole of Europe. Securing critical infrastructure is one very topical issue, at the same time it provides us with new opportunities for technology exports. It is also important to take care of the predictability of regulation both in the EU and in Finland. Permitting and spatial planning must be smooth and focused on the essentials.

Despite the challenges, it is clear that sooner or later hydrogen investments will take off with strength, playing a crucial role in building the energy system of the future. In Finland, we are ready for this and welcome clean investments.

Riku Huttunen is the Director General of the Energy Department of the Ministry of Economic Affairs and Employment