Green hydrogen (H2) offers enormous potential to Kazakhstan’s businesses, economy and global political standing as energy producing country. In order to unleash this potential, the German Energy Agency (dena) on behalf of the German Federal Ministry for Economic Affairs and Climate Action (BMWK) promotes the development of a hydrogen strategy in Kazakhstan within the Bilateral Energy Dialogue Kazakhstan - Germany. The idea behind this is straightforward and even more compelling: hydrogen made from renewable energies can help the Central Asian country achieve its decarbonisation commitments it has signed on to in the Paris Agreement. At the same time, the green gas can fuel economic growth and stimulate a future ¬proof trade relationship with Germany and the European Union. While not the only element in an effective energy transition, "green" hydrogen is and will be an integral part of it. The production is based on electrolysis - a process that uses renewable electricity such as wind and solar energy to split water into its components oxygen and hydrogen. In this case, the final hydrogen product will be "green".

HYDROGEN OFFERS A VARIETY OF APPUCATION AREAS

As for its use, at least three preferential fields of application come into mind:

First, hydrogen is an industrial feedstock suitable for being used in the metallurgy and the chemical sector such as fertilizer production. The steel industry, for example, is currently geared towards supplying the neighbouring CIS region, while the fertiliser industry mainly produces for local needs. Low- carbon hydrogen can leverage previously untapped potential in these industries by expanding their offtake markets to the EU and Germany. Given the awaited finalisation of the EU regulation for taxing emissions originating in imported products via a union ¬wide, legally binding carbon border adjustment mechanism (CBAM) as part of the European Green Deal, German importers will have to switch their demand to low-carbon metallurgy products to stay cost-competitive. This presents Kazakhstan with a unique opportunity. As hydrogen possesses a high calorific value, good thermal conductivity and a high reaction rate, the use in steel refining and finishing applications seems plausible. Leading energy scenario studies likewise agree that the production and finishing of nonferrous metals such as aluminium and copper are also feasible. Currently, Germany’s and Kazakhstan’s focus should be on steelmaking, where several technology routes could enable hydrogen use, including hydrogen in blast furnaces, direct reduction of iron (DRI) and smelting reduction. First international projects towards commercialising hydrogen DRI take place in Japan, Russia, China and in the United States as well as in Germany, amongst others carried out by Salzgitter AG (SALCOS) and Thyssenkrupp. Kazakh stakeholders, such as ArcelorMittal, have expressed a keen interest in the topic. In 2020, Kazakhstan exported steel worth around $7.6 million accounting for 16% of total exports . Using this asset to launch a hydrogen economy would help Kazakhstan seize its own decarbonisation commitments for 2060 as an opportunity for modernising the country’s strong export industry. A further impetus to the German-Kazakh Raw Materials Partnership from 2012 would be another plus.

The second area of H2 application refers to its quality as an energy carrier, permitting the use as a durable storage medium for renewable electricity in gaseous form in high-pressure tanks or in underground cavern storage facilities repurposed from natural gas. On top of that, storing H2 in liquefied condition at -253 °C in insulated cryogenic tanks or specific Liquid Organic Hydrogen Carrier (LOHC) such as oil is also possible. Another though less tested way of depositing H₂are solid carrier media such as carbon, zeolites or certain metals (metal hydride storageJ. Against the backdrop of Kazakhstan’s large potential for generating wind and solar power, the comparative advantage of H₂’s energy-related use for Kazakhstan will likely be the capture of excess renewable volumes. These can later be fed back into the electricity grid by way of re-electrification and bridge electricity shortages. One promising way to achieve this are reversible high temperature fuel cells (rSOCs) that allow a dual, two-way use by being able to reach efficiency levels of more than 60 per cent for re-electrifying hydrogen and well-above 70% in the electrolysis mode for hydrogen production (Forschungszentrum Julich). If the Kazakh government considers the country’s electricity grid capacity not to be sufficient for taking upsufficient loads that would enable hydrogen production, the separate attachment of additional wind power and solar parks to individual hydrogen production units such as electrolysers would be a sensible alternative. Making hydrogen would thus become more independent from grid bottlenecks in the power sector.

This would certainly require a flexible, incentivizing regulatory approach from the Kazakh government and administration.

A third yet less mature way of using H₂ as an energy carrier is to make gas combustion turbines fit for purpose. A first real-life pilot project is underway in Austria. Here, Wien Energie, is planning to blend a 15% share of "green" hydrogen into a gas turbine integrated in a combined heat and power station. This option however represents a medium to long­-term solution due to the currently low technological readiness level. considerable natural gas reservoirs and production capacity, generating methane-based "blue" hydrogen would at first glance also present a workable option requiring less adaptation for Kazakhstan in the short­-term. Following through on hydrogen made from fossil gas however creates new problems that a "green" hydrogen economy can actually prevent.

PRIORITISING THE POWER FUEL WILL BE KEY

To ensure that "green" hydrogen is used most effectively, Germany and Kazakhstan should prioritise industry, as primarily steel and chemicals production will be hard if not impossible to decarbonise in an economically viable way with the help of battery-powered electrification. At the same time, the mobility sector such as shipping, aviation and hydrogen-fuelled long-haul trucks should not be neglected. As straightforward as this assessment may be, it is far from being self-evident in the case of Kazakhstan. Due to its considerable natural gas reservoirs and production capacity, generating methane-based "blue" hydrogen would at first glance also present a workable option requiring less adaptation for Kazakhstan in the short-­term. Following through on hydrogen economy can actually prevent.

RENDERING KAZAKH HYDROGEN READY FOR EXPORT BY REDUCING EMISSIONS

The most pressing one is emissions. Abating them would require domestic and from Kazakhstan to make massive investments in minimizing methane leakage in natural gas production, storage and transport as well as highly-effective carbon capture and storage technology (CCS) both for natural gas exploration and for the actual hydrogen production steps of steam or auto-thermal reforming (SMR/ATR). Cutting-edge research suggests that CO₂ capture technology is already sufficiently mature to allow high long-term removal rates at the hydrogen production plant of above 90%. Capture rates close to 100% are technically feasible too, slightly decreasing energy efficiency and increasing costs, but still have to be demonstrated at scale. For this, hydrogen production and CO₂ capture needs to be organised in an integrated manner to minimise additional energy demand for CO₂ capture.

It has to be highlighted that "blue" hydrogen can only have a sufficiently low greenhouse gas footprint in line with EU law if methane leakage is kept to a minimum. Such a level of GHG abatement is already possible today in the technologically most sophisticated natural gas sectors such as Norway’s, the UM’s and the Netherlands, where methane leakage rates are mostlybelow0.5%. According to the Kopernikus Project Ariadne Special Dossier of 2021, a higher methane leakage rate would definitely make methane based H₂ more polluting than its renewable equivalent.

As for carbon capture, rates below 90% efficiency clash with binding EU sustainability criteria and disqualify hydrogen imports from third countries to the EU from being labelled low- carbon in line with European Union law. To receive certification in the EU internal market, Kazakh hydrogen would have to do better. "Blue" hydrogen would only qualify as low-carbon, if it meets a greenhouse gas emission reduction target of 70%vs. the legally defined fossil fuel comparator, as the EU sustainable finance taxonomy and the prospective EU gas market directive [Art. 2 (10), COM (2021) 803 final] set out. According to dena calculations, the 70% reduction requirement translates into a maximum of 3.75 kg CO₂-eq. per kilogram of produced methane-based H taking 12.5 kg CO₂- eq. per kilogram produced H₂ as the legally binding reference value for the average life­cycle emissions of natural gas-based steam methane reforming in line with EU directive 2015/652.

Only such a GHG footprint - a low methane leakage and a high CO₂ capture rate for hydrogen production - would narrowly meet the conditions set by current EU law and make fossil gas-based hydrogen from Kazakhstan eligible for export tothe EU.

So ultimately, a natural gas-oriented production path might prove harmful to Kazakhstan’s ambitions as an exporting country. Instead, Kazakhstan should double down on "green" hydrogen and bank on its gigantic renewable energy sources (RES) potential. Estimations by most experts on the average levelised costs of "green" hydrogen range between 2 and 7 euro. There is ample to reason to believe that Kazakhstan will end up being at lower end of the cost spectrum - given the country’s abundant availability of land area, excellent average onshore wind speed conditions of around 8 m/s similar to the North Sea Coast and exceptional solar radiation levels comparable to the Mediterranean. Therefore, wind and solar-powered H₂ production will be easiest to secure export readiness and accelerate Kazakh decarbonisation commitments, possibly supplemented by nuclear energy if desired. offer cheap "green" power production, for example using hydropower in Scandinavia or large amounts of wind and sun in Namibia or Northern Africa, power-to-x products such as "green" ammonia are already cheaper than the fossil alternative. According to a recent report by Bloomberg New Energy Finance (BNEF), "green" hydrogen is already cheaper than fossil hydrogen from natural gas in parts of Europe, the Middle East and Africa. BNEF suggests a delivered hydrogen price of $6.59 per kg is now sufficient to make "green" ammonia cheaper than "grey" ammonia, made from unabated natural gas on a short ­run, marginal cost basis. Bloomberg pointed out that prices in countries like Spain, India and China would be competitive, while even that price level is even enough for a "green" ammonia facility in Germany to be competitive. (PV Magazine) Michael Sterner from the Technical University of Regensburg lays out that a year ago one ton of "grey" ammonia would cost about 350 euro, whereas "green" ammonia had a price between 600 a nd 700 euro (Handelsblatt). Due to the price of natural gas having climbed since the end of 2021, the competitiveness assessment has turned upside down.

How durable this trend reversal will be, isstill farfrom certain. What is certain though is that the race for closing large scale purchase agreements has begun. Fortescue Metals and German energy group E.ON for example signed a deal to replace about a third of Germany’s gas imports from Russia with Australian "green" hydrogen. The Memorandum of Understanding agrees to deliver 5 million tons of the low-carbon fuel to Germany and the Netherlands. The fuel would initially be shipped as liquid ammonia. E.ON is not the only German company to sign a hydrogen deal with the Australian billionaire Andrew Fortescue. Bayer affiliate Covestro announced in January 2022 its intention to procure 100,000 tons of "green" hydrogen equivalent per year from Fortescue "green" energy subsidiary Fortescue Future Industries (FFI), starting in 2024. (Financial Times) Against the backdrop of global competition on the supply side, Kazakhstan will have to rapidly find its role and adopt pertinent measures if it wants to become a major hydrogen supplier. The EU’s newly grown ambitions for2030 (20 million tons in total) to purchase an additional 10 million tons of H₂via imports plus a production leap of another 5 million tons should provide fresh impetus to Kazakhstan’s push fora "green" hydrogen economy.

GERMAN SUPPORT CAN MAKE A DIFFERENCE

Once the price for natural gas declines again, the widely expected "green" premium for renewable hydrogen is still likely to be paid. Here, support schemes such as the German H₂Global programme can step in to bridge the price difference. Equipped with 900 million euro, H₂Global is an auction ­based mechanism for providing fixed volumes of hydrogen and its derivatives from third countries, pursuing a Contract for Difference (CfD) approach. This implies the German government compensates the difference between supply prices and demand prices by grants. Priority will initially be given to Power to X products such as ammonia, methanol, and sustainable aviation fuel as logistics for transport (ship, rail, and road haulage) are more mature, whereas long-distance hydrogen pipelines still need to be built. A Hydrogen Intermediary Company GmbH (HINT. CO) will conclude long-term purchase contracts (HPA often years) on the supply side for which bidding consortia of PtX production projects will compete. The demand side such as industry, transport companies and the energy sector will strive to close short-term sales contracts of about one year in the form of Hydrogen Service Agreements (HSA). A first round of auction is scheduled to take place in 2022.

To make H₂ Global work, emerging countries should also be included in the international market ramp-up and specifically promoted. In this context, the development of hydrogen production and the demand for "green" hydrogen require targeted support in order to identify opportunities for hydrogen projects, to translate these into concrete project approaches and to support their realisation, as well as to provide political support where necessary. To contribute in a targeted way, the German Federal Ministry for Economic Affairs and Climate Action has launched the public-private partnership (PPP) measure "International Hydrogen Ramp-up Programme" (H₂Uppp). It supports small and medium-sized enterprises (SMEs) in identifying, preparing and implementing pilot projects for the production and use of "green" hydrogen - especially in developing and emerging countries. The aim is to draw on innovative German and European technology know-how and make it usable. The Energy Export Initiative has a supporting role via its existing structures (energy business travel programme, consortium formation and project development programme) to identify suitable projects for the H₂Uppp ideas competition.

INFRASTRUCTURE CHALLENGES FOR KAZAKHSTAN

As offtake agreements and underlying support schemes are not doing the trick alone. Infrastructure is the missing link. For Kazakhstan, it will be critical to reconcile the easier goal of developing the internal market with the more challenging task of ensuring export readiness. Here, the most cost effective mode of transport would be to retrofit existing natural gas pipelines or build new hydrogen-only corridors in order to benefit from economies of scale. A rule of thumb is that comparatively high transport capacities and high TRL levels result in low transport costs. A general understanding from meta studies (HYPAT Working Paper 01/2021. Fraunhofer ISI) is that "green" hydrogen transport via pipeline up to 1,500 km represents the cheapest transport option. Except for very transport capacities, new H₂ pipelines upto3,500 km and converted pipelines up to about5,000 km offer the cheapest choice at costs below 1 euro/kg (30 euro/ MWh) of transported hydrogen. Both options would merit political support and can be realised in the short to medium-term.

However, alternative short-term transport strategies via rail, road and these away are needed, as pipelines are either time- consuming to build as the case of the planned Trans-Caspian Pipeline shows, or politically out of reach as for a possible pipeline transit via Russia and Ukraine. As for non-pipeline exports, hydrogen derivatives such as ammonia and methanol represent the most promising means for export. Especially ammonia can rely on established value chains. For transport distances over 5,000 km ships come into play. A cost-based ranking between the different transport options liquid ammonia (LNH₃), liquid hydrogen (LH₂) and liquid organic hydrogen carriers (LOHC) - however is more difficult to determine, as the cost calculations of the transport technologies need to factor in different TRL levels and transport volumes depending on the source. NH₃ has a special status with regard to the transport pathway, as ammonia is used both as a raw material for the chemical industry and as a hydrogen carrier. In the latter case, hydrogen is separated after import to the demand centre, i.e. the bonded hydrogen is split off again.

KEY REGULATORY PRINCIPLES^H FOR FUTURE HYDROGEN INFRASTRUCTURES IN KAZAKHSTAN

Finally yet importantly, Kazakhstan would benefit from placing a strong emphasis on creating a conducive, non- discriminatory regulatory environment. Creating an independent national regulatory authority will be key to this. The alignment of Kazakh regulation with EU and German regulatory standards implies to promote the independence of the Committee on Regulation of Natural Monopolies - the national competition watchdog currently operating directly under the authority of the National Ministry of Economy. For this to happen, it will be essential to incorporate a viable concept of national regulatory authorities (NRA) as separate legal entities into Kazakh law. Furthermore, key EU legal concepts for network industries stand ready to be adopted:

• Essential facility. In the electricity and future hydrogen sector, the physical network that connects electricity or hydrogen producers to consumers can be regarded as an essential facility. Access to the network is fundamental for anyone willing to sellor buy energy at reasonable costs as the duplication of any existing network infrastructure is either impossible or extremely expensive. However, the owner of the transmission or the distribution grid should be able to charge a regulated toll to create to keep up the incentive for infrastructure investment.

Ownership Unbundling of energy production and supply from network operators (e.g.Transmission System Operators) to stimulate competition and encourage foreign direct investment in infrastructure. This means a firm owning and operating a network cannot be active in any other competitive segment of the supply chain nor have an interest

in any company involved in those activities. On the other hand, a hydrogen supplier must not have any stake in the fully unbundled network company. This reasonable form of separation solves the issue of discriminatory access to the network.

•       The Third Party Access-principle ensures that owners of natural monopoly infrastructures grant access to parties other than their own customers in a regulated manner in order to bring about fair competition.

OUTLOOK

National legislation (including the RES law) does not yet define rules nor standards for creating a hydrogen value chain. The Energy Dialogue between Kazakhstan and Germany has reached out to local stakeholders from government, business and academia to guide the discussion. Given the pending Kazakh policy strategy for hydrogen, the Bilateral Energy Dialogue Kazakhstan - Germany seeks to instil further dynamism into completing such a strategy. Recent discussions in the context of the first hydrogen workshop have displayed awareness among Kazakh stakeholders for the chances and challenges the country is facing. To use and resolve these, opening mutual learning channels and making them permanent will be key.