1、 March 2024 OIES Paper:ET31 MENA region as a potential hydrogen supplier for the European market:analysing a prospective route between Kingdom of Saudi Arabia and Germany Ali Abdelshafy,OIES-KAPSARC Research Fellow&RWTH Aachen University(Operations Management)Martin Lambert,Senior Research Fellow,OI

2、ES Grit Walther,Professor,RWTH Aachen University(Operations Management)i The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.The contents of this paper are the authors sole respons

3、ibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its members.Copyright 2024 Oxford Institute for Energy Studies(Registered Charity,No.286084)This publication may be reproduced in part for educational or non-profit purposes without special permi

4、ssion from the copyright holder,provided acknowledgement of the source is made.No use of this publication may be made for resale or for any other commercial purpose whatsoever without prior permission in writing from the Oxford Institute for Energy Studies.ISBN 978-1-78467-234-8 ii The contents of t

5、his paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Contents Contents.ii Figures.ii Tables.iii Nomenclature.iv 1.Introduction.1 2.Green hydrogen production costs:a comprehensive analysis of the Sau

6、di Arabian context.3 2.1 Renewable energies and electrolysis plant.3 2.2 Production costs of renewable energies and green hydrogen in KSA.3 2.3 Comparative advantage(KSA vs.Germany).8 2.4 Land use.8 3.Beyond production costs:impact of the other factors on the supply chain.9 3.1 Externalities.9 3.2 U

7、ncertainties and technology improvements.10 3.3 Transportation.11 4.Exporter vs.importer:contrasting the perspectives of Saudi Arabia and Germany.12 4.1 Where to produce?Location strategies and trade-offs.13 4.2 Which products?Demand and uncertainties.14 4.3 How competitive is this value chain compa

8、red to other routes?.14 4.4 What are the geopolitical factors and policy implications?.16 5.Conclusions.18 References.19 Appendix I:Supportive Figures.27 Appendix II:Supportive Tables.35 Appendix III:Key Equations.36 Figures Figure 1:Matrix of production vs.consumption of green hydrogen.2 Figure 2:I

9、nfrastructure and land-use in KSA.5 Figure 3:Suitability scores of slope.5 Figure 4:Capacity factor of wind energy in KSA(class:IEC I).6 Figure 5:Levelized costs of wind energy in KSA(class:IEC I)(EUR/kWh).6 Figure 6:Suitability scores of wind energy in KSA(class:IEC I).7 Figure 7:The PVOUT of solar

10、 energy in Germany vs.KSA.8 Figure 8:Capacity factors of wind resources in NEOM.9 Figure 9:The impact of electrolysers improvements on the levelized costs of hydrogen.11 Figure 10:Examples of the trade-off between production and transportation costs.14 Figure 11:Potential hydrogen pipeline connectio

11、ns between Europe and Africa.16 Figure A1:Wind turbines cumulative capacity vs.levelized costs.27 Figure A2:Solar photovoltaic cumulative capacity vs.module price.27 Figure A3:Capital costs of AEL and PEM electrolysis plants in 2020 and 2030.28 Figure A4:PVOUT in KSA.28 Figure A5:Capacity factor of

12、wind energy in KSA(class:IEC II).29 iii The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure A6:Capacity factor of wind energy in KSA(class:IEC III).29 Figure A7:Capital and

13、operational costs of different wind turbine classes.30 Figure A8:Levelized costs of solar energy in KSA(EUR/kWh).30 Figure A9:Suitability scores of solar energy in KSA.31 Figure A10:The capacity factor of wind energy(class:IEC I)in Germany vs.KSA.31 Figure A11:Population density and distribution in

14、Germany and KSA,.32 Figure A12:Hydrogen transportation costs via pipeline(solid lines)vs.power lines(dotted lines).32 Figure A13:Transportation costs of different hydrogen carriers and transportation modes.33 Figure A14:Potential hydrogen trading routes.33 Figure A15:EU hydrogen demand per sector.34

15、 Figure A16:Locations and quantities of hydrogen and ammonia demand(TWh/y)of the German industrial sector by 2050.34 Tables Table 1:AHP criteria,scores and weights.35 Table 2:CAPEX and OPEX of different process(efficiency,losses and boil-off have been omitted).35 iv The contents of this paper are th

16、e authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Nomenclature RE Renewable Energy GCC Gulf Cooperation Council KSA Kingdom of Saudi Arabia PV Solar Photovoltaic CF Capacity Factor AHP Analytic Hierarchy Process

17、 GIS Geographic Information System PVOUT The amount of electricity that can be generated from the installed PV capacity in one location in one year(kWh/kWp)IEC International Electrotechnical Commission LCOE Levelized Cost of Energy LCOH Levelized Cost of Hydrogen AEP Annual Energy Production CAPEX C

18、apital Expenditures CRF Capital Recovery Factor OPEX Operational Expenditures NIMBY Not in My Back Yard MENA Middle East and North Africa EU The European Union 1 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Ene

19、rgy Studies or any of its Members.1.Introduction Several sectors are expected to decarbonize their activities via using renewable energies in the form of electricity or green hydrogen.The advantage of green hydrogen is that it can be stored and transported like any industrial gas or physical commodi

20、ty.Hence,hydrogen as an energy carrier can overcome the obstacles associated with the intermittent renewable energy resources.However,envisaging a sustainable hydrogen supply chain is linked with other types of challenges.First,the process of transforming renewable energy(RE)into green hydrogen is c

21、ostly and there are various techno-economic options and wide uncertainties.Second,transportation and storage of hydrogen incur considerable costs and encounter various challenges.Third,the renewable resources are abundant in certain regions(Betak et al.2012)and regional supply does not always match

22、demand(DFD and DFR 2022).Therefore,sophisticated logistical systems are required to store and transport the generated hydrogen.Besides the high costs,such systems can be also designed in different ways and can be influenced by several techno-economic,geopolitical and legal factors.Based on the avail

23、ability of renewable energy and domestic consumption,a matrix can be derived to show the position of different countries(see Figure 1).Herein,countries can be classified into four categories:exporter,importer,self-sufficient and limited potentials(IRENA 2022;DFF and DFR 2022).For example,despite the

24、 national and European plans to extensively expand renewable energy capacities in the coming three decades,the projected demand is not expected to be covered solely from regional supplies.As can be seen in Figure 1,the major European economies lie in the importer area.Some studies expect the Europea

25、n hydrogen demand to exceed 100 million tons(Seck et al.2022).The analyses of(Weichenhain et al.2021)however estimate lower demand of 45 million tons of which 40%will be satisfied via imports.The size of this gap is not the same across Europe due to regional variances in terms of industrial activiti

26、es and population densities.For example,Western Europe(specifically Germany)is expected to have the highest demand(Andreola et al.2021).According to the German national hydrogen strategy(BMWi 2020),Germany will not be able to satisfy its green hydrogen demand by depending on its renewable resources.

27、Consequently,the necessity for imports becomes imperative.Notably,Germany allocated recently approximately 3.5 billion EUR for green hydrogen imports between 2027 and 2035(Alkousaa 2024).On the contrary,countries with enormous renewable energy(RE)resources are anticipated to have surplus energy supp

28、lies that can be used for hydrogen exports.For example,the MENA region is expected to be an important supplier of green hydrogen due to the abundance of its renewable resources(IRENA 2021a).In the recent years,several memorandums of understanding(MOUs)and declarations of intents have been signed bet

29、ween different stakeholders from Europe and MENA region(Piotrowski and Salame 2023).Also,several potential projects have been announced and initiated.Recognizing the need to secure hydrogen supply chains,Germany has been fostering a proactive hydrogen diplomacy to strengthen its relationships with t

30、he potential hydrogen exporters.For example,two recent studies between Germany and Kingdom of Saudi Arabia(KSA)and the United Arab Emirates(UAE)have emphasized the potentials and importance of such trading routes due to the considerable differences in green hydrogen production costs in Germany versu

31、s the Gulf region(Schimmel et al.2022;Schrder et al.2021).Nonetheless,this notion cant be generalised to assess the whole supply chain.First,the focus should not be only on the production cost at the supply point,as conversion and transportation are associated with inefficiencies and additional cost

32、s.Also,the production costs are not the same everywhere and at all scales.Thus,it is important to verify the available information,consider externalities,define the suitable production locations,and take additional costs of conversion and transportation into account.Therefore,the question should rat

33、her be:what is the cost of hydrogen(or its derivatives)at the consumption point?Against this background,the aim of this paper is to study the potential hydrogen route from the Gulf region(KSA)to Europe(Germany)from a techno-economic perspective.This route is interesting for various reasons.Firstly,t

34、he Gulf Corporation Council(GCC)boasts the highest production potentials 2 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.within the exporter area(Figure 1),while Germany lead

35、s in domestic consumption and holds significant production capabilities within the importer category.Hence,this assessment can establish a foundation for an examination of production and trading value chain dynamics.Secondly,as pioneering actors,Germany and KSA play pivotal roles in shaping strategi

36、es and ambitions that will influence the global supply chains trajectory.Thirdly,Germanys unwavering commitment to achieve carbon neutrality matches KSAs endeavour to diversify its economy and energy sources.Additionally,the GCCs robust financing mechanisms and existing infrastructure,coupled with G

37、ermanys determination to decarbonize,underscore the potential for establishing hydrogen supply chains.Figure 1:Matrix of production vs.consumption of green hydrogen Source:Revisualized based on DFF and DFR,2020 The analyses aim at incorporating the relevant upstream and downstream operations that ca

38、n impact this supply chain and its costs.From the supply side,the associated costs of production and transportation should be analysed.For the demand side,the quantities and consumers should be analysed.Moreover,the competitiveness of the prospective trading route should be also contrasted with othe

39、r potential options and suppliers.The policies and geopolitical aspects relevant for the establishment of this value chain should be also examined.Hence,this paper addresses several questions:What is the competitive advantage of KSA to be a reliable hydrogen supplier to Germany?What is the cost stru

40、cture and the impact of configuration on the supply chain?What is the trade-off between production costs,conversion,and transportation?What is the role of location and production scale?Would the total costs be competitive enough,compared with other potential suppliers?3 The contents of this paper ar

41、e the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.2.Green hydrogen production costs:a comprehensive analysis of the Saudi Arabian context 2.1 Renewable energies and electrolysis plant Renewables energies cur

42、rently contribute approximately 30%to the global electricity production(Ritchie and Rosado 2020).This share should reach to 90%by 2050,of which solar and wind energies will provide more than two thirds(IEA 2021).The high deployment rates of renewable energies resulted in increasing the maturity of t

43、he relevant technologies and decreasing costs.For example,the capacity,efficiency,and rotor size of wind turbines have increased over time contributing to lower levelized cost of energy(LCOE).The cumulative capacity of wind energy has increased more than 10 times in the last 15 years(See Figure A1,A

44、ppendix I).Within the same period,the LCOE of onshore wind has also decreased by two thirds.Similarly,the cumulative installed capacity of solar energy has increased approximately 1000 times in the last two decades(Figure A2,Appendix I).Within the same time frame,the cost of PV module decreased from

45、 more than 5 USD/W to less than 0.5 USD/W.Nonetheless,renewable energies are intermittent,and their availability varies based on the time throughout the day and year.The location also has an impact as the intensity of solar and wind energies are not the same everywhere.Hydrogen presents itself as an

46、 attractive solution to decouple the usage of renewable energies from the location and time of energy production.Hydrogen is currently produced mainly from fossil resources via steam reforming(grey hydrogen).The current global production is approximately 120 Mt(Collis and Schomcker 2022),which is ma

47、inly used as a feedstock for industrial operations.The green hydrogen is produced differently.The carbon-free power is firstly produced from renewable resources such as solar and wind energies.The generated renewable electricity is then used to decompose the water molecules into hydrogen and oxygen(

48、electrolysis),which is why the produced hydrogen is also carbon-free.Electrolysis is the second major step along the supply chain of green hydrogen.Electrolyzers can be designed based on different physiochemical and electrochemical concepts(IRENA 2020).The current focus is on four major types:Alkali

49、ne electrolyser(AEL),Polymer Electrolyte Membrane or Proton Exchange Membrane(PEM)electrolyser,Anion Exchange Membrane(AEM)electrolyser,and Solid Oxide electrolyser(SOEC).AEL and PEM have higher technological maturity than AEM and SOEC.Each technology has its own advantages and disadvantages.For exa

50、mple,some can operate at high pressures but need some critical materials and expensive components.Estimating the accurate costs is also challenging due to the paucity of existing industrial-scale projects which gives rise to inconsistencies in the literature,and thus it is unusual to encounter analo

51、gues figures in the different studies.Thats why carrying out a techno-economic comparison is challenging.The lack of industrial-scale projects is also a manifestation of the low technological maturity.Therefore,the costs are expected to decrease as the Technology Readiness Level(TRL)increases.For ex

52、ample,the study of(Reksten et al.2022)expects that the PEM electrolyser with a capacity of 10 MW would decrease by more than 50%in the coming few years(Figure A3,Appendix I).Such crucial change is not expected in the production costs of solar and wind energies as they have developed a learning curve

53、 over the last decades(Satymov et al.2022).This time dimension has a considerable impact on the prospective supply chain as discussed later.2.2 Production costs of renewable energies and green hydrogen in KSA The cost of renewable energy represents a decisive factor in the production cost of green h

54、ydrogen.Although there is no consensus regarding the cost break down of the hydrogen production due to the different assumptions and parameters,various studies attribute more than 50%of the cost to the electricity(Nigbur et al.2023).Hence,using affordable renewables is mandatory to drive costs down.

55、In this regard,certain countries and regions,which are endowed with good renewable resources,have a competitive advantage in the prospective supply chain of green hydrogen.There are various factors that can impact the generation of wind and solar energies.For example,they can be directly related to

56、the energy content(e.g.wind speed,air density,irradiation,etc.)or indirectly impact the performance and efficiency of the relevant technologies(e.g.weather conditions,dust,etc.).Overall,the capacity factor can be used as a proxy for the potential of solar and wind energies in a certain area.Capacity

57、 factor(CF)denotes the ratio between the actual electrical energy produced by 4 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.the plant divided by the rated capacity(i.e.the

58、maximum amount of energy that can be produced at full capacity)(Bolson et al.2022).While the CF is important in determining the economics of energy production,the location suitability depends on additional factors.For example,the proximity to the power network and roads and lower slopes are favourab

59、le conditions for the prospective RE parks.Hence,the quantitative analyses have considered the relevant factors that can impact the suitability of certain area for RE production(i.e.capacity factor,railway,roads,power grid,slope,and population).Because the factors are of different nature and have di

60、ssimilar units,mathematical operations(e.g.summation and multiplication)cannot be carried out directly.Hence,a multi-criteria decision analysis approach(Analytic Hierarchy Process AHP)has been used to rate the suitability of different locations for installing wind and solar plants.A Geographic Infor

61、mation System(GIS)model has been developed to provide data for the quantitative analyses.For example,the availability of solar and wind energies has been analysed via integrating the GIS of solar and wind capacity factors as raster layers.In terms of solar energy,the average annual full hour capacit

62、y has been used.For wind energy,the average hourly capacity factor was added.Due to the large area of KSA,the raster maps have been transformed into vector(grid)maps with a cell size of 5km*5km.Each cell takes the average value of the raster data it contains.The relevant datasets that have been coll

63、ected and integrated into the GIS are listed in Table 1 in Appendix II.Based on the average value in each cell,a score from 0 5 is given to represent the suitability of this location regarding the respective parameter.For example,cells with the highest wind capacity factor got the highest suitabilit

64、y score(i.e.5),and vice versa.Each parameter is also given a certain importance(weight)value,which is then used to determine the total suitability score of each pixel(Eq.1 in Appendix III).For each cell,denotes the total suitability score,refers to the score of criterion,and represents the weight gi

65、ven for each criterion.The bands of suitability scores as well as the significance of each parameter have been estimated based on literature and personal estimation.A similar approach has been also adopted by(Gharaibeh et al.2021).Cells with score 0 have been excluded,such as natural reserves,areas

66、with a very high proximity to the infrastructure system or very high slopes(15).The wind capacity factors of different classes(IEC I,II and III)have been acquired from the Global Wind Atlas(GlobalWindAtlas 2023).For solar energy,the raster maps of PVOUT were obtained from Global Solar Atlas(GlobalSo

67、larAtlas 2023).PVOUT denotes the amount of electricity that can be generated from the installed PV capacity in one location in one year(kWh/kWp).Both(Global Wind Atlas and Global Solar Atlas)projects provide high-resolution data that can be used to assess wind and solar resources all over the world.

68、The population density data is based on the dataset of Kontur(400-m resolution)(Kontur 2023).The raster maps of slope data are based on NASA Shuttle Radar Topography Mission(SRTM)and have been acquired from(OpenTopography 2013).The power grid network was added based on(Mahdy et al.2016).The data of

69、roads,railway,airports,land use and nature reserve were sourced from Open Street Maps(OSM)(OSM 2023).Herein,only major roads have been considered in the model1.Figures 2 4 depict the data after processing in GIS(also Figures A4 A6 in Appendix I).1 OSM tags:highway=motorway,highway=trunk,and highway=

70、primary.5 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 2:Infrastructure and land-use in KSA Source:Visualised based on(Mohammed Hamidaddin et al.2017;GPF 2016;Mahdy e

71、t al.2016;Ali 2023;WPS 2023;IC-SA 2023)Figure 3:Suitability scores of slope Source:Own analysis and visualization based on(OpenTopography 2013)6 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or an

72、y of its Members.Figure 4:Capacity factor of wind energy in KSA(class:IEC I)Source:Own analysis and visualization based on(GlobalWindAtlas 2023)The cost calculations have been carried out based on(Rhodes et al.2017).Eq.2 eq.4 in Appendix II show the calculation procedures of the capital recovery fac

73、tor(CRF),levelized cost of energy(LCOE)and annual energy production(AEP),respectively.For solar photovoltaic,a capital cost of 665 EUR/kW and a lifetime of 30 years have been considered based on(Kost et al.2021)(Class:utility-scale 1 MW).For OPEX,1.5%CAPEX has been assumed based on(Erichsen et al.20

74、19).Based on the height and mean wind speed,the wind turbines are classified into three classes(IEC I,II and III)(Roach et al.2020).The CAPEX and OPEX of the different wind turbines classes are based on(Satymov et al.2022)(See Figure 7,Appendix 1).The lifetime(25 years)and interest rate(7%)have been

75、 used based on the same study.For the electrolyser,there are various assumptions regarding the electrolysers lifetime(Yates et al.2020).This study considered a 25-year lifetime.The levelized cost of wind and solar energies are visualized in Figures 5 and A8 in(Appendix I).Comparing the LCOEs of sola

76、r with the LCOEs of wind shows that variance of solar is low(all values range between 0.03 0.04 EUR/kWh),which is not the case in wind.Hence,solar parks can be built anywhere,while the locations of onshore wind parks have to be selected carefully.For verification,the calculated costs have been compa

77、red with the numbers in the literature,such as the study of(Kost et al.2021).The maps of suitability scores are depicted in Figures 6 and A9(Appendix I).The levelized cost of hydrogen(LCOH)is calculated based on eq.5 eq.10 in Appendix III.The direct capital costs are calculated based on Figure A3(Re

78、ksten et al.2022).Besides the direct CAPEX,there are other indirect CAPEX that include import,construction,engineering,licensing,and contingency.Herein,these costs are assumed to be 50%,based on(Ali Khan et al.2021).Also,the fixed OPEX is assumed 6.25%of the direct CAPEX.The variable OPEX consists o

79、f water,electricity,and stack replacement.We assume that the stack cost equals 20%of the direct CAPEX with a lifetime of 40,000 operating hours.One kilogram of hydrogen requires approximately 10 litre water.We assume the water is sourced via desalination with a cost of 3 EUR/m3(Swisher et al.2019).H

80、ence,the cost of specific water consumption=0.03 EUR/kg H2.We consider an energy content of 33.3 kWh/kg H2(Andersson and Grnkvist 2019).As the current electrolysers efficiency is 65%,51.32 KWh will be required for each kg of hydrogen.If we consider the highest wind CF(0.726)and lowest LCOE(0.02 EUR/

81、kWh),we end up with the LCOH of 4.28 EUR/kg H2.If we consider a lower CF(0.4),the LCOE will increase to 0.033 and LCOH will reach 4.91 EUR/kg H2.7 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or

82、any of its Members.Figure 5:Levelized costs of wind energy in KSA(class:IEC I)(EUR/kWh)Source:Own analysis and visualization based on(GlobalWindAtlas 2023;Rhodes et al.2017;Kost et al.2021;Erichsen et al.2019;Satymov et al.2022)Figure 6:Suitability scores of wind energy in KSA(class:IEC I)Source:Own

83、 analysis and visualization based on(GlobalWindAtlas 2023;Kontur 2023;OSM 2023;OpenTopography 2013;Mahdy et al.2016)8 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.2.3 Compar

84、ative advantage(KSA vs.Germany)As shown in the previous section,the higher the capacity factor,the lower the LCOE as the produced energy increases while the employed equipment is still the same.Also,considering that the electricity cost is the decisive factor in the production cost of hydrogen,the d

85、irect production costs of hydrogen are dependent on the capacity factor.This is because the costs of the other production components(e.g.wind turbines,solar photovoltaic,electrolyser)are roughly constant everywhere.Considering this notion,we can compare between the potentials in both KSA and Germany

86、.In terms of wind energy,we cannot recognize a clear comparative advantage.Only a few places(e.g.NEOM)have exceptionally very high CFs(up to 0.73)(Figure A10,Appendix 1).Contrariwise,KSA has a clear comparative advantage in terms of solar energy.The highest PVOUT in Germany is lower than the lowest

87、one in KSA(Figure 7).In order to avoid the misinterpretation of the figures,we have to highlight that the area of Germany is one sixth the KSAs area.Figure 7:The PVOUT of solar energy in Germany vs.KSA Source:Own visualization based on(GlobalSolarAtlas 2023)2.4 Land use Land use is one of the main c

88、onsiderations while designing RE plants and supply chains.Not only photovoltaics need enough space to receive the solar energy(Layton 2008),wind parks is also associated with extensive land use due to the wake effect.After the wind stream passes through a wind turbine,it losses some energy and becom

89、es more turbulent,which is called the wind turbine wake(Gonzlez-Longatt et al.2012).This wake effect prevails within a certain distance beyond the wind turbine,which is why there is usually an enough space between wind turbines to minimize the wake effect and maximize energy production in the wind f

90、arm(Asnaz et al.2020).Hence,the alignment and configuration of wind turbines are critical for maximizing energy production and profits.There are already various models to define the suitable distances(Sawant et al.2021;Stevens et al.2016;Gupta 2016).This indicator is called“capacity density”and can

91、be defined as the ratio between the nominal capacity and the area it occupies(MW/km2).This implies that the land footprint of the project determines its capacity density.For example,the capacity density of a wind farm is the ratio between the total installed capacity and the RE farm area.It is impor

92、tant to differentiate between two different indicators:capacity factor and capacity density.The first is concerned with the ratio between the amount of energy that can be generated at certain location and the rated capacity(CSS 2023).Therefore,the capacity factor directly impacts the economic perfor

93、mance of the project as locating the project in a good location implies higher energy production,and consequently higher revenues.For example,if we set the same wind turbine in two locations A and B,the energy generated by the wind turbine at location A will be double that produced at location B.On

94、the other hand,the capacity density is usually an important theme if the project contains more than one wind turbine.In such case,the interaction of the wind turbine with other systems or wind turbine will determine its land use.We already mentioned the wake effect,which is mainly considered for tec

95、hno-9 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.economic purposes.But that can also be relevant for social or environmental reasons.For example,if some regulations requir

96、e minimum distance from buildings,landscapes,or forests,etc.From the established wind farms that already exist all over the world,some empirical studies have defined the typical spacing and capacity densities in the different countries.The study of(Harrison-Atlas et al.2021;Giani et al.2020)has poin

97、ted out that the capacity density in KSA ranges between 4.9 and 7.9 MW/km2,which are lower than the figure in Europe(higher than 11 MW/km2)(Enevoldsen and Valentine 2016;Enevoldsen et al.2019;Harrison-Atlas et al.2021).As there is,so far,no competition over land in the investigated region(KSA),the c

98、apacity density is probably not that high.Nonetheless,competition over the areas with high RE potential could lead to higher capacity densities in the future.In order to demonstrate the land use of wind energy in KSA,we provide a quantitative example from NEOM(Figure 8 and eq.11 in Appendix III).The

99、 dark red blocks have the highest capacity factors(range between 0.637 and 0.726).Such exceptionally high CFs result in a very low LCOE(between 0.018 and 0.02 EUR/KWh).This area is also well located as it has access to the sea.Nonetheless,the geographical availability of these blocks is limited,appr

100、oximately 340 km2(half of Singapores area).If we consider an average capacity density of 6.4 MW/km2 in KSA,this area can then accommodate a capacity of roughly 2.2 GW,which can produce approximately 13 TWh/year.Using the generated electricity to produce hydrogen with the current electrolysis technol

101、ogies can produce more than 250 kt H2 per year.This number corresponds to half of the German steel sectors demand by 2050.Hence,despite the significance of the number,more production capacities will still be needed.Therefore,once the area is occupied by wind farms,the investments will have to go to

102、the following favorable regions(light red orange yellow).Figure 8:Capacity factors of wind resources in NEOM Source:Own analysis and visualization based on(GlobalWindAtlas 2023)3.Beyond production costs:impact of the other factors on the supply chain 3.1 Externalities So far,the numbers have been fo

103、cusing on the direct costs.Nonetheless,there are also other externalities that need to be taken into consideration.Wind and solar farms occupy large areas(Harrison-Atlas et al.2022).Also,as the available capacities of unpopulated windy areas are getting exploited,the wind farms get more and more clo

104、ser to the residential areas.Therefore,the challenge is not only related to land availability,but also the NIMBYism(NIMBY:Not in My Back Yard)(Bell et al.2005).The existence of wind turbine can negatively impact the scenery and cause noise for the residence(Saunders 2020).In turn,this can reduce the

105、 value of the assets and real estate in the 10 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.neighborhood(Hoffmann and Mier 2022).The study of(Jensen et al.2014)estimates tha

106、t the visual and noise pollutions can reduce the property value by 3%and(3%-7%),respectively.Thats why we can witness an increasing trend of social resistance regarding the development of RE projects in the residential areas.Either it results in noise,scenery distortion,loss of real estates value or

107、 the need to compensate the locals,the total costs of RE production in the relevant area will increase.Herein,the spatial pattern of the population distribution has a major impact.Countries where the population spread over the territories will face higher levels of NIMBYism.The analyses of(Hoffmann

108、and Mier 2022)estimates the damages could be between 293 and 1400 billion EUR in Germany by 2045.The exact impact seems controversial as the literature contains other higher and lower figures.However,there is no doubt that this impact is more prominent in the countries with limited land and higher p

109、opulation densities,such as Germany.The population density and distribution in Germany and KSA are different(See Figure A11,Appendix I).The KSA territories are roughly half of the EU area and have less than half of the population in Germany(EU 2023).The population is concentrated in certain regions

110、and cities and the rest of the country has very low population densities or even no inhabitants.For example,Al Rub Al Khali(The empty quarter),located in the south and south east,has a massive area with roughly no population(650,000 km2)(Albraheem and AlAwlaqi 2023).This area corresponds to the area

111、 of France,Belgium,and the Netherlands,combinedly,or roughly double the area of Germany.According to(Salam and Khan 2018),half of the solar radiation on this region can satisfy the global power demand.Hence,we can state that the importer does not only receive cheap energy,but also cheap land use(or

112、cheaper externalities).Nonetheless,having no population,infrastructure,road and power networks poses a major challenge(Qamar Energy 2018).For example,as discussed earlier while determining the suitability scores,wind and solar farms cannot be built too much close from the roads(500 m).Nonetheless,be

113、yond this threshold,the nearness to the road is advantageous and gets higher suitability scores.The infrastructure systems(e.g.road networks)are usually built to provide the relevant services to a high number and wide range of beneficiaries,which make them sensible from an economic perspective.In th

114、e case of unpopulated areas,dedicated infrastructure systems would be needed in these regions,which maybe only used to service the wind and energy parks.Such circumstance implies that the ratio between the required investments and utilization can be too high.It seems that there is a lack of studies

115、on this region(e.g.the challenges that may be associated with the establishing the required infrastructure and networks).If the externalities are high,these areas can be a promising solution.Herein,the decision-and policymakers will have a trade-off between externalities and additional costs of the

116、required infrastructure in these regions(which currently have low suitability scores,as shown in Figure 6).3.2 Uncertainties and technology improvements The numbers presented in section 2 are based on the techno-economic performance of the current technologies.As discussed earlier,wind and solar ene

117、rgies have witnessed costs reductions in the last decades due to the high installed cumulative capacity(S&P Global 2023).Contrariwise,the industrial deployment of electrolysers is still limited,which is why their TRL is moderate,and their costs are still high.Therefore,by comparing the expected cost

118、 reductions in the future,the costs of electrolysers will decrease more than wind turbines and solar photovoltaics.Such cost reduction has a crucial impact on the hydrogen production costs.As shown in Figure 9,the expected CAPEX reduction from 521 EUR/kWh to 294 EUR/kWh by 2050 will reduce the LCOH

119、from 4.3 to 2.9 EUR/kg H2.11 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 9:The impact of electrolysers improvements on the levelized costs of hydrogen Source:Own ana

120、lysis and visualization based on(GlobalWindAtlas 2023;Rhodes et al.2017;Kost et al.2021;Erichsen et al.2019;Satymov et al.2022;IRENA 2021b;Corbeau and Merz 2023)The technology performance will also improve as the learning curve is developing.The electrolysers efficiency is also expected to reach hig

121、her values(IRENA 2021b).Considering an efficiency of 75%and 85%will decrease the LCOH to be 3.7 and 3.3 EUR/kg H2.There is also a lot of uncertainty regarding the costs and lifetime of the stacks now and in the future(Corbeau and Merz 2023).Some studies report lifetimes of up to 90,000 hrs(now)and 1

122、50,000 hours(in the future).Such performance improvement has a substantial impact on the costs.For example,considering lifetimes of 90,000 and 150,000 hours result in LCOH of 2.5 and 1.9 EUR/kg H2,respectively.If all these techno-economic improvements are applied simultaneously(stack lifetime=150,00

123、0 hr,electrolysers efficiency=85%and CAPEX=294 EUR/kW),the LCOH decreases significantly to 1.18 EUR/kg H2.In our analysis,we also assume that the required electrolysers capacity is equal to the installed wind and solar capacity.This implies that the electrolysers capacity factor is very high at peak

124、 times and low the rest of the day.Similar to renewable energies technologies,the capacity factor of the electrolyser is the ratio between the actual production to the maximum possible production or the ratio between the operating hours to the total number of hours in one year.Hence,lower capacity f

125、actors imply lower utilization of the capital,and consequently higher levelized costs(IRENA 2018).This can be tackled through system balancing,for example by integrating power storage(e.g.batteries)and oversizing the capacity of solar and wind farms(Krohn et al.2009;Ali Khan et al.2021).While this m

126、ay entail additional costs,it also leads to higher output.Although these changes can improve the economic performance,the capacity factors of wind and solar energy are still very impactful on the levelized costs.Nonetheless,efficient operations are needed to minimize the costs as much as possible.In

127、 order to carry out further optimization,other input data will need to be integrated(e.g.the daily profiles of wind and solar energies),which can be an extension of this study.Herein,we can deduce some trade-offs along the system:(1)the electrolysers capacity factor and electricity costs,(2)electrol

128、ysers capacity factor,PV/wind farm capacity factor and oversizing factor(Ali Khan et al.2021).3.3 Transportation The proximity to the consumption point can be a critical factor as hydrogen transportation can impact the prospective supply chain significantly.For example,the transportation costs of hy

129、drogen can be as expensive as the production costs(Heinemann et al.2022b;Heinemann et al.2022a).Herein,there are multitude of options as there are different hydrogen carriers(e.g.liquid hydrogen,ammonia&LCOH)as well as various transportation modes(Preuster et al.2017).The exporter would be open to a

130、ny configuration as long as it will reach the consumer as hydrogen or hydrogen derivative at the lowest cost.As such supply chain does not exist yet,there is no real data to carry out empirical analyses.12 The contents of this paper are the authors sole responsibility.They do not necessarily represe

131、nt the views of the Oxford Institute for Energy Studies or any of its Members.Herein,the assumptions play a major role and can impact the outcomes significantly.Also,each case has to be investigated individually.According to(IEA 2019),shipping is more favorable for distances above 1500 km and pipeli

132、ne is more cost-efficient below this value.As Europe is the targeted market in our case,the distance is higher than this threshold,making shipping the most efficient mode of transportation.Since the solar and wind farms may not be always located close to the export harbor,the produced energy has to

133、be firstly transported domestically.In this regard,there have been ongoing discussions regarding the transportation mode after power production from the wind or solar farms,i.e.is it better to transport electricity and then produce hydrogen or should we produce hydrogen directly and then transport i

134、t by pipeline.It is widely agreed upon that electrification(i.e.direct electricity consumption)is the most preferable and efficient pathway due to the energy losses associated with transformation and transportation.In certain cases,it may make sense to compare batteries and hydrogen regarding their

135、ability to store energy,which is not the case while using hydrogen as a feedstock.As a rule of thumb,pipelines are generally cheaper than power cable to transport the same amount of energy bounded in hydrogen(APGA 2022;GPA 2022).The economies of scale make the specific transportation costs of both p

136、ipeline and powerline cheaper(see Figure A12,Appendix I).However,at the same(equivalent)flow rate,pipelines are much cheaper than power cable,especially at small flow rates.This can be mainly attributed to the construction and maintenance costs,land use and energy losses.Overseas transportation Over

137、seas transportation also has an impact on the total costs.Once the hydrogen reaches the sea,we need to determine the suitable hydrogen carriers for shipping.There are different options(e.g.liquid hydrogen,ammonia and Liquid Organic Hydrogen Carrier(LOHC),each of which has its own advantages and disa

138、dvantages(Weichenhain et al.2021).Ammonia and LOHC shipping(around 0.2 EUR/kg H2)are cheaper than hydrogen shipping(around 1 EUR/kg H2)(Figure A13,Appendix I).Nonetheless,we also have to consider the conversion and reconversion costs.Although these processes are expensive,it could be cheaper if we c

139、onsider hydrogen shipping within the same system boundaries(Collis and Schomcker 2022).Table A2 in Appendix II shows the CAPEX and OPEX of the relevant processes and operations,based on(Vos et al.2020).If we assume a capacity factor of 1 and electricity costs of 0.03 EUR/kWh,the levelized costs of c

140、onversion to ammonia and ammonia cracking will be 0.5 and 0.25 EUR/kg H2,respectively.As the hydrogen shipping also needs liquefaction and regasification,we can confidently conclude that ammonia shipping is more economic.Considering that ammonia shipping is already an established industrial practice

141、 with a high TRL can also reinforce this conclusion.Due to the low shipping costs of ammonia,the consumers location should not be a significant barrier.For example,while the transportation distance from KSA to Tokyo is roughly double the distance to Hamburg(Figure A14),the transportation cost is rou

142、ghly 0.41 instead of 0.28 EUR/kg H2.In order to reduce the transportation costs,both domestically and overseas,it may make sense to have the production facilities and exporting harbors in the west of KSA.As depicted previously in Figure 2,there are already various ports on the western coast,which ca

143、n be developed further to be green hydrogen hubs.Although the Eastern ports may be more developed due to the existing oil and gas infrastructure,saving the transportation costs may still have higher impacts on the economic performance.Additionally,the higher availability of RE resources in the weste

144、rn part will also lead to higher cost efficiencies.4.Exporter vs.importer:contrasting the perspectives of Saudi Arabia and Germany As the RE availability varies widely,it is important to quantify these resources and pinpoint the most suitable locations.This will help in showcasing the array of optio

145、ns available to the prospective exporters and understand the inherent trade-offs involved.Also,as hydrogen is going to reshape the global energy market and its dynamics,the relevant policies and geopolitical aspects should be considered(de Blasio and Pflugmann 2021).This section provides additional

146、reflections on what do 13 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.these quantitative analyses imply for the prospective supply chain and trading route.In this section,w

147、e discuss these facets through four pivotal questions:Where to produce?Which products to produce?How competitive is this value chain compared to other routes?What are the geopolitical factors and policy implications?4.1 Where to produce?Location strategies and trade-offs RE availability and land sui

148、tability vary significantly,necessitating optimization of infrastructure and cost reduction across dimensions like location,time,and scale.The decision makers encounter several trade-offs that will shape the prospective supply chain.Solar energy exhibits widespread availability throughout KSA with m

149、inor variances,whereas wind energy is concentrated in specific regions,requiring careful site selection to cut production costs.Also,if there is competition over a location,the priority should be given to wind farms due to the limited availability compared with solar energy.NEOM is obviously the mos

150、t suitable location for wind parks and green hydrogen production.Nonetheless,once the available space is exploited,other locations must be investigated.In terms of competitiveness,the nominal costs and availability of wind energy in KSA are close to Germany,except in certain locations(e.g.NEOM).Howe

151、ver,if externalities,area,and land-use are taken into consideration,the cost-efficiency and availability of onshore wind energy in KSA are higher.In terms of solar energy,all locations in KSA are superior as the lowest capacity factor of solar energy there is higher than the highest in Germany.Given

152、 the high potentials of onshore wind and solar energies in KSA,we may ask if utilizing offshore wind energy makes sense in KSA.Offshore wind farms are often established to overcome limitations such as resource scarcity or land availability(Esteban et al.2011),notably observed in Europe where approxi

153、mately half of the global offshore wind capacity is concentrated(WFO 2023).However,offshore wind systems are inherently more complex and expensive compared to onshore wind and photovoltaics,with specific costs ranging between 2 to 5 million EUR/MW(Kaldellis et al.2016;Voormolen et al.2016).Moreover,

154、offshore wind energy is associated with techno-economic risks and uncertain learning curves,as recent years have seen cost increases due to factors like longer distances from shore,greater depths,harsher environments,and environmental impacts(Voormolen et al.2016;Lloret et al.2022).Consequently,rece

155、nt studies approach offshore wind energy with a recognition of its considerable uncertainty,challenging prior optimistic cost estimations(Sykes et al.2023;Beiter et al.2023;Schwanitz and Wierling 2016).While some studies showcased the potential of offshore wind energy in KSA(Mahdy et al.2016;Sundara

156、m et al.2020;Waheeb et al.2023;Elzemeity et al.2021),it may not be strategically prudent to prioritize its consideration in the short to medium term.The context is different than Europe where the land availability and externalities impact the technological choices significantly.Given the huge area t

157、hat KSA is endowed,it makes more sense to depend more on onshore wind.Offshore wind does not incur any advantages,at least in the time being,due to the availability of land and low externalities in KSA.When it comes to the placement of solar and onshore wind farms,it is undoubtedly more advantageous

158、 to locate them near the coast to minimize the costs.Nonetheless,once the advantageous areas there are exploited,a trade-off emerges between transportation and production costs,aiming to minimize the combined expenses.For example,some advantageous regions are far away from the sea,which implies addi

159、tional transportation costs.Contrariwise,transportation is not required for less-advantageous areas close to the sea.Here,the decisive factor is the difference in capacity factor(CF).If the CF difference is high enough,transportation makes sense and vice versa.For example,lets consider whether its p

160、referable to produce wind power and hydrogen in the orange blocks(average CF=0.51)versus green blocks close to the sea(average CF=0.325)(Figure 10).The first option results in a lower LCOE of 0.026 EUR/kWh compared to 0.04 EUR/kWh.For hydrogen 14 The contents of this paper are the authors sole respo

161、nsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.production,it implies a LCOH of 4.57 EUR/kg,instead of 5.26 EUR/kg.Factoring in pipeline transportation over this distance(approximately 200 km)would add approximately 0.1 EUR/kg H2

162、.Therefore,prioritizing the orange blocks(1,2 and 3)makes economic sense.As these calculations follow the same approach presented earlier,this relative difference can be even higher in the future.The same concept can also be applied on solar energy(locations A and B).Nonetheless,as mentioned,the var

163、iance of solar energy is not significant in the western part of KSA.This may imply that producing close to the coast may have lower total costs.Figure 10:Examples of the trade-off between production and transportation costs Source:Own analysis and visualization based on(GlobalWindAtlas 2023;GlobalSo

164、larAtlas 2023)4.2 Which products?Demand and uncertainties Based on the preceding discussion,producing and exporting ammonia is more favorable than hydrogen.In such case,ammonia cracking is not needed and the conversion process is a key part of the production process and not only a transportation pha

165、se.Additionally,this scenario implies that green ammonia can be used directly with the same downstream processes(i.e.no need to change or retrofit the relevant technologies of subsequent phases,which is mandatory in several cases such as using hydrogen in steel production).It can also be a ramp-up r

166、oute in the short-term until other segments are technologically and economically ready to consume green hydrogen.Therefore,from a hydrogen producers perspective,the industrial feedstock(especially green ammonia)can be considered as the most-efficient pathway and the safest market segment(Weichenhain

167、 et al.2021).There is already a demand for industrial feedstock in Europe this decade(starting from 8 Mt H2)while the hydrogen demand of mobility and heat&power sectors starts to be more obvious from 2030 on(Figure A15,Appendix I).Eventually,the demand of industrial feedstock will be approximately 1

168、6 Mt H2.However,it should be noted that the analyses of(IRENA 2021a)envision a different H2 demand growth.Also,the study of(Andreola et al.2021)reports approximately half of this figure and classifies them into different industries.They envisage that the demand will be dominated by refineries and am

169、monia until 2030.From 2040 on,the demand will be mainly from steel,ammonia,and chemical recycling.In terms of the ammonia demand,there are two locations with 12.2 TWh(approximately 2.4 million tons ammonia).The demand of iron and steel sector is concentrated at the locations of the primary steel pro

170、ducers,such as ThyssenKrupp in Ruhrgebiet and Salzgitter in Lower Saxony.Combinedly,this sector will need approximately 18.8 TWh,which correspond to more than half million tons hydrogen(see also Figure A16 in Appendix I which shows the demand of main industrial consumers in Germany by 2050).4.3 How

171、competitive is this value chain compared to other routes?This question is closely intertwined with the preceding one.Although green ammonia production and shipping can be economically justifiable,it will not be able to provide cheap hydrogen for other market segments(e.g.steel,heating,and mobility).

172、Transformation to ammonia,shipping and ammonia 15 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.cracking can be considered additional burdens to the total hydrogen costs.As i

173、ndicated in the preceding section,these additional operations will cost more than 1 EUR/kg H2.Therefore,with conversion and transportation factored in and utilizing current technologies,the total costs reach 5.31 EUR/kg H2(CF in NEOM=0.726).The total costs can also increase if locations with lower c

174、apacity factors are selected.By including the potential techno-economic developments outlined in 3.2,the total costs are anticipated to decrease to 2.23 EUR/kg H2.Although these values are higher than the average price of grey hydrogen in Germany before the war in Ukraine(12 EUR/kg H2)(Frontier Econ

175、omics 2021;Edison 2021),grey hydrogen will not be able to compete sooner or later as the carbon prices are increasing over time.The real competition will emerge from other exporters of green hydrogen.The commodity price at the consumption site should be the main criterion to assess the potentials of

176、 prospective hydrogen routes or supply chains.Hence,if other suppliers succeeded to eliminate the cost of conversion and ammonia cracking from their operations,they will be able to deliver the hydrogen in more affordable prices.Screening the potential competitors,the North African countries have hig

177、h potentials to provide hydrogen to Europe at competitive prices(Barnard 2022).Countries such as Morocco,Algeria,Tunisia,and Egypt have immense amounts of land as well as abundant RE resources.Therefore,the production costs would be roughly the same in both regions.Nonetheless,the comparative advant

178、age of North Africa would be the cheap transportation costs via pipelines as the conversion and shipping costs will are eliminated.On the other hand,the hydrogen exports from North and South Americas to Europe may not present additional advantages compared to KSA due to the long distances.As shown i

179、n Figure 11,there are potential linkages of hydrogen pipelines between the EU and Africa.Parts of this network will be established via retrofitting the existing natural gas network that links Alegria,Morocco and Tunisia with Spain and Italy.That may imply higher competitive advantages for the potent

180、ial exporters from North Africa.Since those countries also have abundant renewable resources,the cheap transportation costs may play a decisive role.As this network is unlikely to be realized within this decade,shipping may be a convenient transportation mode in this transition period.Nonetheless,pi

181、pelines are anticipated to emerge as a convenient and efficient mode of transportation for the European market.Shipping may also continue to be suitable for other importers such as Japan.Producing and exporting ammonia(to be used as ammonia)maybe risky,but still feasible(especially with high oil pri

182、ces).However,converting the hydrogen to ammonia and then cracking ammonia to generate hydrogen may not make a lot of sense.Some studies(e.g.(Barlen and Bombardi 2023)provide conceptual designs for a potential pipeline connection between KSA and Europe(blue polyline,Figure 11).These studies usually f

183、ocus on the construction costs of the pipeline.However,there are several implicit challenges such as the legal and regulatory complexities if the pipeline is going to pass through several countries.Additionally,even with the optimistic perspective of(Barlen and Bombardi 2023),the transportation cost

184、 is expected to be 1.2 EUR/kg H2,which may represent a crucial share of the total costs in the future.Hence,the North African countries would have more advantageous situation due to their lower transportation costs by pipeline.Therefore,pursuing a pipeline connection alone can entail numerous uncert

185、ainties.Thus,joining the endeavors of the African countries can reduce both expenses and risks.If the connection to the pipeline is not feasible,a direct attention towards ammonia may present a more secure strategy.Furthermore,there are other hydrogen-based value chains that can be promoted,which ca

186、n eliminate the comparative advantage regarding location and enhance the value added in KSA.For example,besides ammonia,producing direct reduced iron can be a good business model due to its low transportation costs compared to hydrogen.16 The contents of this paper are the authors sole responsibilit

187、y.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure 11:Potential hydrogen pipeline connections between Europe and Africa Source:Sketched based on(van Wijk and Wouters 2021;Barlen and Bombardi 2023)4.4 What are the geopolitical factors

188、 and policy implications?The exporters and importers possess different motives and objectives,as well as facing distinct risks and uncertainties.Hence,it is essential to consider the perspectives of both KSA and Germany.The momentum behind hydrogen economy coincides with both(1)the availability of s

189、olar and wind resources in the MENA region and(2)the ambitions of the MENA countries to diversify and develop their economies or maintain their geopolitical influence(Koch 2022).During this early stage of market and technology development,the hydrogen producer may encounter a strategic question:what

190、 if hydrogen is a hype?Hydrogen is,and will be competing,with other technologies.The outcomes of some battles are quite expected or can be expected,while the others are unknown because it depends on several factors(e.g.market development,the improvements of technology performance,etc.).For example,t

191、he recent study of(Schreyer et al.2024)anticipates that the hydrogen share in the EU energy share may range between 10%and 25%by 2050,highlighting significant associated uncertainties.While the costs of electrolysis are expected to decrease,it is probably controversial how much this decrease will be

192、.Comparing the technology with the production and installation conditions of the other relevant technologies that emerged in the last decades,we can expect that the electrolyser is going to behave similar to onshore wind turbines and solar PVs.Conversely,the retreats of offshore wind energy are less

193、 expected.Therefore,the stakeholders strongly believe that the technology will develop a learning curve and costs will decrease gradually.For example,according to(IRENA 2021b),the production costs of green hydrogen are going to decrease by 60%by 2030 as a result of higher TRLs and economies of scale

194、.Some studies expect that the prices will continue to decrease until 2050,reaching one-fourth of their current value(Anouti et al.2020).Hence,the critical question is:whom or which stakeholder is going to pay for the cost of learning?Here,the producers encounter a dilemma.Although the first movers b

195、enefit from the acquired know-how,the knowledge and experiences gathered may not justify the high investments,especially if preventing all spillovers is roughly impossible.Additionally,the risks and uncertainties are very high at such first stages of technology development.Therefore,without governme

196、ntal investments or support,building such industrial-scale plants can be seen very risky and an irrational decision from the private sectors perspective.Even from the states perspective,the first-mover strategy can still be risky as the public money can be dissipated if other regions succeeded to re

197、ap the benefits of the spillovers and 17 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.lower costs.Hence,the decisive criterion is how quick the first mover can develop a clu

198、ster and reap the vantages of the early know-how and economies of scale.Also,presenting the respective country as a committed hydrogen provider is also an important factor in developing a hydrogen cluster.Again,we have another trade-off;the burden of expensive technology costs and learning expenses

199、versus positioning the country as a reliable and ambitious supplier.Although the uncertainties and risks decrease with time,they will continue to exist in the short and medium terms.Also,the required momentum and scale cannot be realized with the conventional business models.Hence,the role of state

200、is indispensable,and governmental investments may be mandatory.There are clear signs that KSA is a first mover,but with cautious steps.With the green ammonia project in NEOM,there is a clear sign of commitment.NEOM Green Hydrogen Company(NGHC),which is a joint venture of NEOM,ACWA Power and Air Prod

201、ucts,has recently announced a final investment decision of more than 8 Billion USD(NEOM 2023).With a production of 1.2 million ton ammonia,we can estimate a levelized cost of more than 1000 EUR/ton ammonia.NGHC has also concluded an offtake agreement for 30 years with Air Products(Martin 2023).We ca

202、n also notice a continuous call for more agreements with potential importers.In terms of the German perspective,it can be understood within the EU sphere.The EU as well as Germany aim at a competitive,sustainable and secure energy system(Birchfield and Duffield 2011).Although the theme of sustainabi

203、lity had the highest priority in the EU agenda during the last decade,the need for energy security has been augmented after the war in Ukraine.Hence,the EU and German policies aim at preventing comparable market shocks and ensuring stable energy supplies via diversification.Germany is actively engag

204、ing in shaping the hydrogen supply chain,not merely as a technology provider but also as a proactive participant.Recognizing that early adopters will shape the future rules,Germany is eager to position itself accordingly.While the endowment of fossil resources has shaped their global supply chains i

205、n certain configuration,the distribution of RE resources will allow several countries to be net exporters.Thus,diversification can be more conceivable in hydrogen supply chains,which align with the German and European endeavors.Germany is projected to be a net hydrogen importer(Wietschel et al.2020)

206、.While between 90 and 110 TWh hydrogen demand will be needed by 2030,only 14 TWh are expected to be produced domestically(McWilliams and Zachmann 2023).Although some EU countries(e.g.Portugal,Spain,and Norway)are going to be net exporters(green and blue hydrogen),the EU is expected to be a net impor

207、ter.According the REPowerEU plans,EU shall import as much as its production by 2030(10 Mt each)(Ansari et al.2022).In terms of hydrogen production capacities,118 GW should be installed by 2030,of which more than 60%shall be in Spain.Thus,Germany will not be able to satisfy its demand completely with

208、in the EU domain.Herein,as discussed earlier,there are countries outside the EU that may emerge as potential exporters.In this regard,the importing country(e.g.Germany)may encounter comparable risks as the exporter.Various geopolitical,economic and social factors can serve as indicators of the feasi

209、bility and reliability of potential trading routes(Sprenger et al.2023).At present,the economic aspects can be considered the most influential in terms of the impact on the potential supply chain.Despite KSA having lower production costs,getting involved in a long-term purchase agreement too early c

210、an result in paying higher prices for hydrogen than what might be available in the future.Consequently,there are evident signs of reluctance from Europe to engage in such agreements prematurely,indicating a wager on lower prices.This is indeed the major dilemma of the green hydrogen supply chain.Dev

211、eloping technology requires time and investment to attain higher maturity levels,but it is unclear who is going to pay.Herein,mitigating and distributing investment risks can prove to be an effective strategy to assist in this regard(Janzow et al.2022).H2Global,EU Hydrogen bank,Carbon Contracts for

212、Differences,EU innovation fund projects,Projects of Common Interest(PCI),etc.represent promising approaches,but within the EU sphere(EC 2022;Mezsi et al.2023;EIB 2023).Cross-border collaborations outside the EU have mainly taken a diplomatic approach so far.Hence,there is a pressing need for analogo

213、us concepts to address potential hydrogen suppliers beyond the EU borders.If Germany is to source a crucial part of its energy consumption from countries outside the EU,more commitment should be demonstrated.Hence,the talks with the relevant exporters should be materialized in a faster pace,as it ha

214、s equal importance for both parties,if not higher for Germany.18 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.5.Conclusions Green hydrogen emerges as a promising solution to

215、 the intermittency of renewable energy resources,offering storage and transport capabilities essential for a sustainable energy future.However,establishing a viable green hydrogen supply chain poses multifaceted challenges,including high conversion costs and logistical complexities.Given the substan

216、tial gap between regional supply and projected demand,international collaboration is essential to bridge this disparity.Germanys proactive hydrogen diplomacy exemplifies the strategic importance of securing reliable supply chains,with a potential trading route emerging between Germany and the Gulf r

217、egion.However,it is crucial to consider the cost dynamics of the entire supply chain,encompassing production,conversion,and transportation expenses,to derive effective strategies and policies.The analyses highlight Saudi Arabias comparative advantage in green hydrogen production,driven by its abunda

218、nt renewable energy resources and land availability.The quantitative assessments compare the levelized costs of wind and solar energies,indicating a lower variance in solar energy costs compared to wind.This suggests that solar parks can be constructed more flexibly,whereas onshore wind farm locatio

219、ns require careful selection.For instance,using the highest wind CF(0.726)results in LCOH of 4.28 EUR/kg H2,while a lower CF(0.4)increases the LCOH to 4.91 EUR/kg H2.In terms of location,the placement of solar and wind farms near the coast minimizes costs.But as the prime areas are utilized,a trade-

220、off arises between transportation and production costs.Uncertainties in future cost reductions and technological improvements in the electrolysis technology are also explored.Some studies predict substantial drops in electrolyser capital costs(e.g.(Reksten et al.2022),plummeting from 521 EUR/kWh to

221、294 EUR/kWh by 2050.Such decrease is set to lower the levelized cost of hydrogen from 4.3 to 2.9 EUR/kg H2.Technological advancements,including increased electrolyser efficiency and longer stack lifetimes,could further decrease the LCOH to as low as 1.18 EUR/kg H2,highlighting the potential for subs

222、tantial cost reductions in green hydrogen production.Hence,considering uncertainties,externalities,technological advancements,and transportation is of importance to assess the risks and economic viability of the potential value chain.Additionally,location strategies,product selection,competitiveness

223、,and geopolitical factors all play significant roles in shaping the green hydrogen market.For potential exporters like Saudi Arabia,addressing these strategic aspects is essential to capitalize on their renewable energy potentials and establish themselves as key players.For example,the paper demonst

224、rates that focusing on ammonia production and exploring other hydrogen-based value chains(e.g.direct reduced iron)can offer a more secure strategy via negating the location-based competitive edge of potential competitors(North African countries).The discussion also delves into the perspectives of bo

225、th exporter and importer,revealing key considerations for each party and suggesting appropriate strategies to mitigate risks and uncertainties.19 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or a

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309、WETF(2023):Chapter 4:Global wind energy markets-The status of the global wind energy markets.Available online at https:/www.wind-energy-the-facts.org/the-status-of-the-global-wind-energy-markets-6.html,checked on 12/12/2023.WFO(2023):Global Offshore Wind Report 2022.World Forum Offshore Wind.Availab

310、le online at https:/wfo-global.org/wp-content/uploads/2023/03/WFO_Global-Offshore-Wind-Report-2022.pdf,checked on 10/13/2023.Wietschel,Martin;Bekk,Anke;Breitschopf,Barbara;Boie,Inga;Edler,Jakob;Eichhammer,Wolfgang et al.(2020):Opportunities and challenges when importing green hydrogen and synthesis

311、products.Available online at https:/www.isi.fraunhofer.de/content/dam/isi/dokumente/cce/2020/policy_brief_hydrogen.pdf,checked on 1/15/2024.WPS(2023):World Port Source:Saudi Arabia-Satellite map of ports.Available online at http:/ on 8/8/2023.Yates,Jonathon;Daiyan,Rahman;Patterson,Robert;Egan,Renate

312、;Amal,Rose;Ho-Baille,Anita;Chang,Nathan L.(2020):Techno-economic Analysis of Hydrogen Electrolysis from Off-Grid Stand-Alone Photovoltaics Incorporating Uncertainty Analysis.In Cell Reports Physical Science 1(10),p.100209.DOI:10.1016/j.xcrp.2020.100209.27 The contents of this paper are the authors s

313、ole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Appendix I:Supportive Figures Figure A1:Wind turbines cumulative capacity vs.levelized costs Source:Visualized based on(OWID 2023a;WETF 2023;GWEC 2011,2023)Figure A2:Solar

314、photovoltaic cumulative capacity vs.module price Source:Visualized based on(OWID 2023c,2023b)28 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure A3:Capital costs of AEL a

315、nd PEM electrolysis plants in 2020 and 2030 Source:Visualized based on(Reksten et al.2022)Figure A4:PVOUT in KSA Source:Own analysis and visualization based on(GlobalSolarAtlas 2023)29 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the O

316、xford Institute for Energy Studies or any of its Members.Figure A5:Capacity factor of wind energy in KSA(class:IEC II)Source:Own analysis and visualization Figure A6:Capacity factor of wind energy in KSA(class:IEC III)Source:Own analysis and visualization 30 The contents of this paper are the author

317、s sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure A7:Capital and operational costs of different wind turbine classes Source:Visualized based on(Satymov et al.2022)Figure A8:Levelized costs of solar energy in KSA(

318、EUR/kWh)Source:Own analysis and visualization based on(GlobalSolarAtlas 2023;Rhodes et al.2017;Kost et al.2021;Erichsen et al.2019;Satymov et al.2022)31 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studi

319、es or any of its Members.Figure A9:Suitability scores of solar energy in KSA Source:Own analysis and visualization based on(GlobalSolarAtlas 2023;Kontur 2023;OSM 2023;Mahdy et al.2016;OpenTopography 2013)Note:Red areas represent score higher than 3.55 and LCOE lower than 0.0313 Figure A10:The capaci

320、ty factor of wind energy(class:IEC I)in Germany vs.KSA Source:Own analysis and visualization based on(GlobalWindAtlas 2023)32 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Fi

321、gure A11:Population density and distribution in Germany and KSA Source:Visualized based on(Kontur 2023)Figure A12:Hydrogen transportation costs via pipeline(solid lines)vs.power lines(dotted lines)Source:Visualized based on(APGA 2022;GPA 2022)33 The contents of this paper are the authors sole respon

322、sibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure A13:Transportation costs of different hydrogen carriers and transportation modes Source:Visualized based on(IEA 2019;Vos et al.2020)Figure A14:Potential hydrogen trading route

323、s Source:Own visualization,distances are based on(Shiptraffic 2023)34 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Figure A15:EU hydrogen demand per sector Source:visualized

324、 based on(Weichenhain et al.2021)Figure A16:Locations and quantities of hydrogen and ammonia demand(TWh/y)of the German industrial sector by 2050 Source:Visualized based on(Andreola et al.2021)35 The contents of this paper are the authors sole responsibility.They do not necessarily represent the vie

325、ws of the Oxford Institute for Energy Studies or any of its Members.Appendix II:Supportive Tables Table 1:AHP criteria,scores and weights Parameter 0 1 2 3 4 5 Importance/Weight Railway 250 m-Natural reserves inside-Airports 2.5 km-Roads 8001 m 6001:8000 m 4001:6000 m 2001:4000 m 500:2000 m 10%Power

326、 grid 8001 m 6001:8000 m 4001:6000 m 2001:4000 m 250:2000 m 10%Slope 15 10:15-5:10-0:5 10%Capacity factor(wind IEC I)-0.16 0.16 0.3 0.3 0.44 0.44 0.58 0.58 0.72 55%Capacity factor(wind IEC II)-0.16 0.16 0.3 0.3 0.46 0.46 0.60 0.60 0.75 Capacity factor(wind IEC III)-0.17 0.17 0.32 0.32 0.47 0.47 0.62

327、 0.62 0.77 Capacity factor(PV)-1700 1700 1800 1800 1900 1900 2000 2000 2050 Population-100 k:150 k 50 k:100 k 1 k:50 k 1:1 k 0:1 15%Table 2:CAPEX and OPEX of different process(efficiency,losses and boil-off have been omitted)Source:Vos et al.2020 Processes CAPEX Fixed OPEX Variable OPEX H2 to Ammoni

328、a 808 EUR/kW 2.5%CAPEX 0.14 kWh/kWh Ammonia cracking 235 EUR/kW 3%CAPEX 0.14 kWh/kWh LH2 shipping 4050 EUR/MWh 2.5%CAPEX 0.007776 EUR/MWh*km Ammonia shipping 279 EUR/MWh 4.0%CAPEX 0.000080 EUR/MWh*km H2 liquefaction 1350 EUR/kW 2.5%CAPEX 0.3 kWh/kWh LH2 regasification 273 EUR/kW 2.5%CAPEX 0.01 kWh/k

329、Wh 36 The contents of this paper are the authors sole responsibility.They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its Members.Appendix III:Key Equations =1 (1)()=(1+)(1+)1 (2)=+&8760 +&(3)()=8760 (4)=+&+&(5)=+&(8760)()1.12(2)+&(6)&=+(7)()=()(8)()=(40,00040,000)()(9)()=(25 24 365 )40,00040,000)(0.2 )(10)2 ()(2)1)8760 ()1 ()(2)(11)