Optimised power procurement strategies and well-designed project set-ups are needed to unlock cost competitiveness for selected e-fuels and provide a value proposition for European electrolysers
BERLIN (AURORA ENERGY RESEARCH)—A new analysis by global power analytics provider, Aurora Energy Research, highlights the potential for competitive e-fuel production across Europe, driven by the cost of hydrogen and supportive policy frameworks. The study focuses on ammonia, methanol, e-kerosene, and e-methane, identifying key opportunities particularly in Sweden, Spain, and Germany.
With the implementation of the European Renewable Directive (RED) III—requiring a 42.5% renewable energy target by 2030—and the upcoming European Hydrogen Bank auctions (Round 2) in February 2025, the regulatory landscape is poised to accelerate e-fuel uptake and production in Europe.
The EU’s ambitious targets for the aviation and maritime sectors further make e-kerosene and e-methanol especially attractive for investors. A comparison of the production costs and market dynamics of these fuels in Sweden, Spain, Germany, and Italy against global competitors provide a roadmap for enhancing Europe’s competitive edge. Sweden in particular offers promising conditions showcasing cost parity with imports from the Middle East and Latin America.
With over 85% of the costs of e-fuels made up of hydrogen, the focus on improving the economics of e-fuels in Europe is on optimised electrolyser operations. Against the backdrop of a generally challenging hydrogen market, Aurora’s analysis underscores the importance of efficient power procurement strategies and integrated e-fuel production setups to unlock cost competitiveness.
For e-methanol and e-kerosene, whose main offtakers are expected to be the maritime and aviation industry respectively, penalties for non-compliance of the targets will drive uptake. For other e-fuels and offtakers, penalties alone are not feasible without compromising the cost competitiveness of European industry. A mixture of demand-side measures will be needed, pushing the willingness to pay of offtakers up- and supply side measures and pulling the cost of production down. These include CCFDs for offtakers, grid fee exemptions for power procured by electrolyser, and adequate regulatory frameworks for carbon capture.
Frederik Beelitz, Advisory Principal at Aurora Energy Research, commented:
“In the current challenging climate for hydrogen producers in Europe, selected e-fuel production can offer promising value pockets for electrolysers. Optimised power procurement strategies, integrated project set ups, and supportive policies that go beyond penalties of non-compliance will act as key enablers.”
David Olley, Advisory Senior Associate at Aurora Energy Research, added:
“Our analysis shows that Sweden and Spain, in particular, can act as frontrunners for e-fuel production in Europe. In Germany, the current conditions are more challenging. However, with optimised power procurement strategies and continued supply- and demand-side support programmes, the gap between the cost of e-fuel production and the willingness to pay for e-fuel offtakers can be closed.”
Note to Editors
The authors of the study will present detailed findings during the upcoming public webinar “Enablers of e-fuel production in Europe”, scheduled for 26 February. For press registrations, please contact our press team using the details below.
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Established in 2013, Aurora Energy Research is a leading global provider of power market forecasting and analytics for critical investment and financing decisions. Headquartered in Oxford, we operate out of 16 offices worldwide covering Europe, North & South America, Asia, and Australia. Our comprehensive services include market outlook packages for energy industry participants, advisory support, and innovative software solutions. We foster diversity with a team of close to 1000 experts with backgrounds in energy, finance, and consulting, offering unparalleled expertise across power, renewables, storage, hydrogen, carbon, and fossil commodities. Our mission is to facilitate the global energy transition through widely trusted quantitative analysis and high-quality decision support.
