By Wojciech Wrochna and Katarzyna Ziółkowska from Kochański & Partners


Poland’s hydrogen market

Poland is the world’s third largest producer of hydrogen with 1.3 million tons produced yearly, mainly for chemical, refining and food industries. For now, Polish hydrogen is mostly ‘grey’, which means that it is generated out of conventional, fossil fuels, such as natural gas, methane or coal. Therefore, the hydrogen-making process in Poland is not environmentally friendly; during the gasification of coal or steam reforming of natural gas large quantities of greenhouse gases are released to the atmosphere.

In light of the new climate policy targets set by the EU requiring increased focus on low carbon and renewable hydrogen (‘green’ hydrogen), grey hydrogen production becomes more expensive and cumbersome. In order to support green transition and fight climate change, Poland has adopted some ambitious plans to develop low-carbon hydrogen production and infrastructure. Among the biggest challenges ahead are now: finding the right tools to increase production of green hydrogen and lower its price, creating a stable, industry-friendly legal framework for new investments, and seizing new financial opportunities set by the EU.

 The Polish Hydrogen Strategy 2030

In November 2021 the Polish government adopted the Polish Hydrogen Strategy until 2030 with an outlook until 2040. The strategy constitutes a main governmental policy outline to develop sustainable hydrogen economy in Poland understood as new technologies of production, storage, distribution and utilisation of hydrogen and its derivatives in various sectors of economy. The document organises planned actions to be taken around six main objectives:

  • Implementing hydrogen technologies in the power and heating sector
  • Use of hydrogen as an alternative fuel for transport
  • Supporting the decarbonisation of industry
  • Hydrogen production in new installations
  • Efficient and safe hydrogen transmission, distribution and storage
  • Creating a stable regulatory environment

The Polish government intends to support the development of the industry through R&D funding, legislative initiatives and facilitation of synergies with transport, oil & gas, chemical, agricultural, infrastructural and technological sectors. The national investment pipeline until 2030, expects at least 2 GW of installed capacity in new low-carbon hydrogen production facilities, five ‘hydrogen valleys’, 1,000 hydrogen buses in service and more than 32 hydrogen stations.

New legal framework

The sixth objective of the Hydrogen Strategy – creating a stable regulatory environment – is now especially salient for the industry. The lack of legal recognition, certainty and state-aid solutions can be a major deterrent for the development of hydrogen economy. Notwithstanding the big promises, Poland’s nascent hydrogen industry is still struggling with the lack of a legal framework concerning investments and regulatory aspects of hydrogen production and use. Recently, however, this trend seems to be reversing as the Polish government announced the proposal for the so-called Hydrogen Law.

This new draft amendment to the Energy Law and certain other acts intends to regulate storage, transmission, distribution, and trading of the hydrogen in dedicated infrastructure (different than the existing gas infrastructure). It introduces new definitions of hydrogen (as a resource, energy carrier, and energy storage solution) and hydrogen system operators, as well as concession obligations for certain types of activities and requirement to cooperate with gas and energy infrastructure.

The Hydrogen Law, if adopted, will be an important step on the path to ensure comprehensive legal framework for the development of the hydrogen economy. Another one – covering rather financial aspects of investments – is a draft amendment to the Act of Renewable Energy Resources from the beginning of 2022, which implements relevant provisions of the EU RED II directive and adds ‘renewable hydrogen’ to the list of RES energy carriers included in the support mechanisms, such as guarantees of origin.

Investing in hydrogen is critical

A key practical aspect of the hydrogen transformation is the development of new projects. Today’s market lacks the necessary resources to implement modern solutions, which could lower the carbon footprint of key sectors such as energy, heating or transportation. On the example of Poland:

  • green hydrogen production is mostly based on the transformation of electricity via electrolysis technology, which is still imperfect in terms of energy balance;
  • if the hydrogen produced this way is to be truly ‘green’ then all the electricity used to generate it must come from RES;
  • currently the generation capacity of RES is insufficient – the share of renewable energy in national energy mix does not allow to fully meet domestic economic needs, not to mention the need to use it specifically for hydrogen production;
  • additionally, because there is no significant demand for green hydrogen use, there is a lack of facilities for its production;
  • as a result, the generation capacity for green hydrogen production also remains insufficient;
  • without an appropriate green hydrogen supply, there is no need to develop infrastructure for the storage, transmission or use of hydrogen in everyday life.

As can be seen, the problems with the hydrogen market are interrelated and require a comprehensive approach. The main issue – the lack of demand for green hydrogen – is slowly fading as the new climate policy targets are increasing interest in this fuel because it is environmentally friendly. In effect, the underdevelopment of hydrogen infrastructure can be treated as a huge business opportunity. To put it simply – there is much to be done.

Business opportunities in hydrogen

The prospects for the development of new hydrogen projects are available in every part of the supply chain: from production technologies to hydrogen solutions for vehicles, households or factories. The market awaits new R&D initiatives, electrolysers, fuel cells, power-to-gas (P2G) technologies or devices allowing the co-firing of natural gas and hydrogen. There is also a need to develop the infrastructure to transfer, store and distribute H2, similar to what is being done today with other fuels and gases.

Importantly, hydrogen transformation is more of a mid-term objective. The success of green hydrogen depends largely on the development of RES – solar or wind power. Nevertheless, we are witnessing the emergence of the first hydrogen projects right now. In Poland, the largest petrochemical and energy companies have declared their interest in the development of hydrogen technologies. PKN Orlen (the owner of the largest chain of petrol stations in Poland) aims to build a network of more than 100 hydrogen refuelling stations for individual, public and cargo transport. ZE PAK SA (Polish electricity producer) is implementing a project which includes the construction of an installation that enables the production and storage of green hydrogen for use in the transport sector. Polish businesses are also investing in the hydrogen means of transport. As an example, new hydrogen buses produced in Poland were recently unveiled (Neso Bus and Urbino Hydrogen). A new hydrogen train has been presented by PESA.

Financing hydrogen projects

Hydrogen projects need funding, yet one of the biggest challenges for investments in this field is their general unprofitability. Many European governments have already started to address this issue. To stimulate the development of the hydrogen market, several public support schemes are offered. In Poland, institutions such as the national R&D centre, NCBR, or the national environmental protection fund, NFOŚiGW, offer different kinds of financial support, such as repayable and non-repayable subsidies. A new support system for hydrogen projects is currently under discussion. Based on a mechanism similar to the Contracts for Difference (CfD) approach – the difference between supply prices (production and transport) and demand prices – could be compensated by public subsidies. This type of support has been introduced in Germany or Netherlands, and aims to reduce the unprofitability of expensive hydrogen projects.

To sum it up, although the vision of hydrogen economy is still a rather distant goal, the first pioneers of the hydrogen market are beginning to emerge. It is probable that the development of hydrogen will follow the development of RES. Hydrogen as a fuel of the future may help to balance overloaded energy grids and to facilitate the transformation into the carbon-free society. Although there is still much to be done, Poland is on the right track to be a true pioneer in this emerging industry.