Q&A - RWE: exploring the hydrogen storage landscape

As Europe grapples with the challenges of energy security and the climate crisis, diversifying renewable energy sources and preventing energy loss has become critical, making effective storage solutions essential.

In our conversation with Michael Kohl, Commercial Managing Director at RWE Gas Storage West, we explored the emerging role of hydrogen storage. Despite being in its early stages, hydrogen storage has a significant part to play in our energy future. Kohl discussed the complexities around financing and infrastructure needed to balance the volatility of renewable electricity with hydrogen generation.

Could you talk about RWE Gas Storage West's involvement in the hydrogen storage space?

RWE Gas Storage West is a wholly-owned subsidiary of RWE. The company was established 15 years ago. RWE Gas Storage West manages 7% of the country's natural gas storage capacity. Our facilities are located in Westphalia and eastern Germany, where we oversee several storage sites. These include caverns dedicated to the injection, withdrawal and storage of natural gas, which we manage on behalf of our customers; we do not own the working gas itself. In addition to our natural gas operations, we are pioneering the development of hydrogen storage facilities. Currently, we are preparing to launch our first hydrogen storage project, positioning ourselves as early adopters in this crucial area of energy transition. This move underscores our commitment to sustainability and readiness to embrace future energy demands.

How does hydrogen storage work in a technical sense? 

Storing hydrogen involves specialised technologies tailored to its unique properties as a gas. Hydrogen can be sourced from various methods, including electrolysis using renewable electricity or from industrial processes. Technically, hydrogen storage shares similarities with natural gas storage due to both being gases. However, hydrogen molecules are smaller, necessitating specific materials to ensure containment integrity. One notable difference is hydrogen's lower compressibility compared to natural gas, around 30% less. This limitation means that for the same volume, a hydrogen cavern holds only a fraction of the energy stored in a natural gas cavern due to hydrogen's lower calorific value, which is roughly one-third that of natural gas. In terms of technology, while natural gas storage typically employs turbo and piston compressors, hydrogen storage requires piston compressors since turbo compressors are not suitable for hydrogen yet. Moreover, hydrogen withdrawal processes require stricter purity standards compared to natural gas, necessitating additional cleaning processes. Hydrogen requires more purification, at least 98% purity, to meet grid specifications. Despite these differences, both gases are stored in caverns or storage facilities, and the fundamental principles of gas storage and retrieval remain comparable.

What are the current hydrogen storage market trends you are seeing? 

The demand for hydrogen storage is influenced significantly by several key sectors. Primarily, industries facing stringent carbon reduction targets are increasingly turning to hydrogen as a clean energy alternative. This sector's demand is pivotal for hydrogen storage solutions. Another critical sector is electricity generation, particularly during periods of low renewable energy availability, such as windless or cloudy winter days. Hydrogen-fired power plants play a crucial role during these periods, requiring efficient storage solutions to ensure grid stability and continuous power supply. There is ongoing debate, particularly in Germany, about potentially integrating hydrogen into the heating sector.

According to long-term projections by the Ministry of Economics and studies from the Fraunhofer Institute, Germany anticipates needing between 65 and 105 terawatt hours specifically for these sectors. To put this into perspective, converting Germany's existing 270 natural gas caverns to hydrogen, with its lower calorific value, would yield roughly 35 to 50 terawatt hours of storage capacity. This indicates a potential shortfall, necessitating additional storage capacity beyond existing caverns. While pore storages could supplement caverns, they incur higher hydrogen storage losses, approximately 20%, compared to caverns. Looking forward, despite uncertainties in the heating sector, the forecasted demand suggests sufficient need to transform existing capacity and potentially expand. However, careful consideration must be given to maintain natural gas supply security while transitioning caverns to hydrogen storage.

RWE's first large-scale hydrogen project in North Rhine-Westphalia depends national funding approved by the EU. How critical are subsidies for such projects and what are the financial complexities involved?

Indeed, our initial hydrogen projects are modest in scale, but they are not R&D projects, we are developing commercial storage solutions. Our current project involves two caverns. While a pivotal advancement, starting with just two caverns lacks economies of scale compared to our natural gas infrastructure. Technical challenges abound as well. The components required for our first hydrogen storage—such as compressors—are not yet as optimised for hydrogen on the same scale as for natural gas. This results in higher costs per unit, exacerbating the financial equation. Moreover, regulatory uncertainties loom large. The Gas Directive, currently under European deliberation, promises a framework that will only come into effect in about six months. Despite starting our hydrogen journey three years ago, we continue to navigate an evolving market with incomplete regulatory clarity. The regulatory landscape introduces further uncertainties. For instance, the Gas Directive hints at price regulations specific to hydrogen storage—a feature absent in the natural gas domain in Germany. While this could provide revenue predictability, the exact implementation remains uncertain. We anticipate mirroring existing grid price regulations in Germany or exploring models from France and Italy, where such frameworks are already established. Furthermore, financial viability hinges on balancing risks and returns. Investor confidence wavers with each layer of uncertainty, posing significant challenges to securing project funding. This risk-averse climate necessitates a cautious approach, especially since hydrogen's compressibility limitations translate to lower storage capacities per unit volume compared to natural gas.

Looking forward, while securing PCI (Projects of Common Interest) status for our second stage. Ongoing funding reliance is not sustainable. Our goal is to evolve to a point where projects can stand economically without subsidy support. Achieving this hinges on market maturation and favorable regulatory developments that reduce uncertainty and enhance investor confidence.

How does the transition of existing salt caverns from natural gas to hydrogen storage look like?

Repurposing salt caverns for hydrogen storage isn't as straightforward as repurposing pipelines. While the caverns themselves can be used for hydrogen, which is advantageous, the real challenge lies in adapting the above-ground infrastructure, particularly the injection and withdrawal capacities. In natural gas storage, we typically operate with about 10 caverns per site. If we were to repurpose these sites for hydrogen without careful planning, switching off even one of these sites could create a significant security of supply issue for natural gas market.

To avoid this, we need to develop new injection and withdrawal capacities specifically tailored for hydrogen, which also involves different cleaning processes. Therefore, to ensure the security of natural gas supply and facilitate the transition to hydrogen, it's essential to develop hydrogen-specific facilities adjacent to or integrated with existing natural gas infrastructure. The development of hydrogen storage projects, particularly pioneering initiatives, heavily depends on securing funding commitments. Major commercial projects are currently awaiting final funding approvals, and additional financial support will be crucial for advancing these first-mover projects. It's noteworthy that none of the salt cavern projects are planning to repurpose entire natural gas storage facilities, highlighting the complexities involved in this transition.

Can you discuss RWE's plans to expand its hydrogen storage capabilities in Europe?

Our plans for expanding hydrogen storage capabilities hinge on two critical factors. Firstly, the presence of suitable salt layers where caverns can be constructed is paramount. Equally important is proximity to customer areas, which dictates the viability of these projects. Regions like North Rhine-Westphalia in Germany are particularly favorable due to their close proximity to significant customer bases. The chemical triangle in Saxony-Anhalt, near our current storage facilities, also presents opportunities with existing caverns and potential for expansion. Eastern Germany similarly offers potential with ample caverns for repurposing and a growing demand base. Ultimately, our strategy revolves around aligning storage locations with customer proximity to optimise supply economics and support industrial needs effectively.

What does your customer base look like?

Initially, our focus is on industrial customers, particularly refineries and the steel industry. These sectors are at the forefront of needing hydrogen to replace coal or natural gas in their production processes. The key challenge lies in matching production with demand fluctuations caused by variable renewable energy sources like wind and solar. Hydrogen storage facilities will play a crucial role in balancing these fluctuations, ensuring a steady supply of hydrogen when needed. As other sectors ramp up their adoption of hydrogen, the demand for hydrogen storage is expected to rise accordingly.