Earlier today, Marco Alverà, CEO of Snam, Europe’s largest gas pipeline company, published an opinion piece in the Financial Times (FT), titled “Energy is on the cusp of a new era.” In it, Alverà extols the virtues of hydrogen as an energy source, as well as promotes his new book on the topic.
I was moved to write a response to the op-ed, which was posted in the comments section as “Here Comes The Cold Water,” which I repeat here with some edits:
The fossil fuel industry is fighting for survival in a decarbonizing world
Readers of Mr. Alverà’s opinion-cum-propaganda piece should be aware of the existential dependence that gas TSOs, such as Snam, have on the future proliferation of hydrogen infrastructure…the fossil fuel industry is fighting for survival in a decarbonizing world, and hydrogen is its big move.
For those who doubt this, kindly glance over this report released last week on the extent of hydrogen lobbying in the EU: Hijacking the Recovery Through Hydrogen | Corporate Europe Observatory.
According to the IEA’s Net Zero report, we should be ending new gas investments if we are to achieve net-zero emissions by 2050. This creates a big problem for many gas transmission system operators (TSOs), whose business model is largely based around earning regulated revenues from making new investments, to deliver stable and growing dividends to their shareholders.
Simply put, no new investments = no revenue = no dividends = goodbye shareholder value (eventually).
To counter this trend, gas TSOs are looking to build new “hydrogen-ready” infrastructure instead, pushing extensively to have this and other “renewable gases” categorized as “green” by politicians and investors and calculated in their regulatory mandates. This way they can continue making investments, emitting carbon, paying dividends, and generally stay in business beyond 2050.
To be clear, it is energy consumers, taxpayers, and the poorest in society that will pay for all this new investment through rates and tariffs, taxes, and have to suffer the worst of climate change resulting from the extended use of fossil fuels.
Energy consumers, taxpayers, and the poorest in society will pay
The way to solve this problem is to change the way these gas TSOs are incentivized and rewarded. But this would involve changing the status quo, requiring uncomfortable conversations between familiar faces. So instead, governments appear to be giving way, delaying and distorting our decarbonization pathway and using public funds to keep the gas companies profitable – which all comes down to politics.
The hydrogen hype has already sucked up billions of euros that could otherwise be funding renewables and real green jobs. In his post, Mr. Alverà implies favorable economics when he talks about ‘cheap green electricity’ and using ‘existing infrastructure,’ yet he does not mention the inherent difficulties with producing, compressing or transporting hydrogen gas vs. methane, the inefficiencies (= costs) involved, corrosion, leakages, explosiveness, etc. Indeed, the gas lobby group Gas for Climate (of which Snam is a member) is itself seeking €43-81bn in investment to create a European hydrogen backbone by 2040, and that’s with 69% existing pipelines: European Hydrogen Backbone – Gas for Climate 2050.
Meanwhile, Snam itself is investing less than 10% of its capex on ‘energy transition,’ as an IEEFA report pointed out in March.
Yes, hydrogen does have important potential as a fuel in certain hard-to-abate sectors. Contrary to the image shown in the FT article, light vehicles is not one of them! In fact the CEO of Enel, the Italian energy company, recently remarked that using hydrogen for domestic heating and transport is “nonsensical.” For an example of possible uses for hydrogen, see this ‘ladder’ chart from Michael Liebreich, which will be familiar to those who attended IEEFA’s Energy Finance Conference last month: Hydrogen Swiss Army Knife and Ladder.
But the potential of hydrogen should not distract from the most urgent task of this decade, which is to build out renewables, storage, energy efficiency and interconnections; i.e. electrify what we can and phase out fossil fuels. The IEA says we need to quadruple last year’s rate of solar and wind deployment to be on track with net zero by 2050. Far from growing ‘hand-in-hand,’ as Mr. Alverà puts it, cheap renewables need to grow rapidly, while a limited number of strategic hydrogen demonstration projects do their job, safely developing the technology until costs and concerns reach competitive levels. Perhaps then, in 10 years’ time, we may really find ourselves on ‘the cusp of a new era.’
Arjun Flora is IEEFA’s director of energy finance studies in Europe.
This commentary first appeared in response to a July 13, 2021 Financial Times op-ed by Marco Alverà, CEO of Italian energy infrastructure giant Snam: Energy is on the cusp of a new era
IEEFA Europe: Snam woos investors with net-zero claims, while growing its spending on fossil gas infrastructure
IEEFA: European gas pipeline companies mislead investors by underreporting CO2
IEEFA: Gas power plants assuming a constant capacity factor are being financially overvalued