Power Gas Market Analysis

Power-to-Gas Market (Global, 2023)

Introduction

The P2G market is growing at a fast pace. It is driven by the need for energy storage and decarbonization of various sectors. This new technology allows the conversion of surplus electricity from renewable sources into hydrogen or synthetic natural gas, thus addressing the intermittency of these energy sources. As governments and industries around the world continue to focus on reducing CO2 emissions and improving energy security, the P2G sector is gaining momentum as a flexible and efficient means of integrating renewable energy into the existing energy system. Moreover, the increasing awareness of hydrogen as a clean fuel and feedstock is making the P2G market even more important as it not only supports the energy transition but also promotes technological developments in various applications, such as transportation, heating and industry. The P2G market is characterized by a diverse range of stakeholders, such as energy suppliers, technology developers and policymakers.

PESTLE Analysis

Political

In 2023 the market for power-to-gas is strongly influenced by government policies aimed at reducing carbon emissions. In Europe, for example, the European Union has set a target of reducing greenhouse gas emissions by at least 55 % in relation to the level in 1990 by 2030. This has resulted in a substantial increase in subsidies for green energy, including power-to-gas. In 2024 the European Union allocates a budget of approximately 1.8 billion to research and development of clean energy technology, which directly supports the development of power-to-gas.

Economic

The economic conditions for the Power-to-Gas market are characterized by the rising cost of fossil fuels and the growing competition of renewable energy sources. In 2023, the average price of natural gas in Europe was about €30 per megawatt-hour, which led industry to seek alternative energy solutions. Moreover, the investment in PtG projects increased. In 2024, an estimated €500 million was spent on the construction of new plants and equipment, which shows the strong economic interest in the technology.

Social

Public acceptance of the technology is crucial to the development of the Power-to-Gas market. In 2023, public opinion polls indicated that approximately 72% of Europeans supported the shift to renewable energy sources, with particular interest in the production of hydrogen through Power-to-Gas. Among other indicators, this was reflected in an increasing number of educational courses and community initiatives. By 2024, over 200 European universities offered courses in hydrogen and renewable energy.

Technological

The progress of technology is the key to the success of Power-to-Gas systems. In 2023, the efficiency of the electrolysis that was necessary to convert electricity into hydrogen had risen to about eighty percent, a significant improvement over previous years. In 2024, it was expected that R&D spending would exceed three hundred million kroner, directed towards the scalability and cost-effectiveness of Power-to-Gas systems, which would in turn spur further innovation.

Legal

The legal framework for the hydrogen market is being developed, and new regulations are being introduced to facilitate the integration of hydrogen into energy systems. In 2023, the European Commission proposed a new directive requiring all member states to draw up national hydrogen strategies by 2025, which would include national production and consumption targets. This new legal requirement is expected to create a more stable framework for investment and development in the power-to-gas sector.

Environmental

The repercussions of power-to-gas technologies on the environment are a major consideration in their development. In 2023, research showed that by using hydrogen from renewable energy sources, CO2 emissions could be reduced by up to 90%. Moreover, the European Environment Agency had estimated that, by 2030, the implementation of power-to-gas could reduce CO2 emissions by 200 million tons. It was a significant factor in the fight against climate change.

Porter's Five Forces

Threat of New Entrants

The Power-to-Gas market has medium barriers to entry, owing to the significant capital investment required in the technology and in the plant. In time, technological developments will lower these barriers. However, the established players with their existing contracts and customer base will be a challenge for new entrants. The regulatory framework and the need for specialist knowledge are other contributors to the medium threat level.

Bargaining Power of Suppliers

Suppliers in the power-to-gas market have relatively little bargaining power. Basically, this is due to the ready availability of the necessary raw materials, such as the sun, wind, water, and so on. Also, as the market grows, the number of suppliers is likely to increase, reducing even further the suppliers’ bargaining power.

Bargaining Power of Buyers

POWER TO GAS MARKET BUYERS HAVE GREAT MARKET POWER - A DRIVING PRESENTATION OF ALTERNATIVE ENERGY SOLUTIONS. As consumers become more environmentally aware and look for energy-saving solutions, they can easily change to alternatives, which gives them a stronger negotiating position. The trend is likely to continue as the market develops and new solutions become available.

Threat of Substitutes

High - The threat of substitutes in the Power-to-Gas market is high, as there are numerous alternative energy sources, such as hydrogen fuel cells, batteries and other sources of renewable energy. These alternatives not only compete for market share, but also benefit from the technological development and the decreasing cost, which makes them an attractive alternative for consumers and companies.

Competitive Rivalry

The market competition in the Power-to-Gas field is medium, as several established players and new entrants are competing for market share. Competition is limited by the specialized technology required and by the long-term nature of the contracts. Competition is expected to intensify as more companies enter the market and innovation increases.

SWOT Analysis

Strengths

• Ability to store excess renewable energy in the form of hydrogen.
• Supports decarbonization efforts and aligns with global climate goals.
• Flexible technology that can integrate with existing gas infrastructure.

Weaknesses

• High capital costs associated with technology and infrastructure development.
• Energy conversion efficiency can be low compared to direct electrification.
• Limited public awareness and understanding of the technology.

Opportunities

• Growing demand for green hydrogen in various industries.
• Government incentives and policies promoting renewable energy solutions.
• Potential for partnerships with energy companies and research institutions.

Threats

• Competition from other energy storage and conversion technologies.
• Regulatory challenges and changing government policies.
• Market volatility in energy prices affecting investment decisions.

Summary

Power-to-gas is a very strong and favourable market in 2023, especially with regard to its ability to store renewable energy and support decarbonization efforts. However, there are some challenges, such as high costs and competition from other technologies. Strategic alliances and government support are important to overcoming these challenges and to ensuring future growth.