This Week’s Study – Green Hydrogen Growth Documented

Hydrogen Insights 2022; An updated perspective on hydrogen market development and actions required to unlock hydrogen at scale

September 2022 (The Hydrogen Council)

Executive Summary

*The pipeline of hydrogen projects is continuing to grow, but actual deployment is lagging. 680 large-scale project proposals worth USD 240 billion have been put forward, but only about 10% (USD 22 billion) have reached final investment decision (FID). While Europe leads in proposed investments (~30%), China is slightly ahead on actual deployment of electrolyzers (200 MW), while Japan and South Korea are leading in fuel cells (more than half of the world’s 11 GW manufacturing capacity).

*The urgency to invest in mature hydrogen projects today is greater than ever. For the world to be on track for net zero emissions by 2050, investments of some USD 700 billion in hydrogen are needed through 2030 – only 3% of this capital is committed today. Ambition and proposals by themselves do not translate into positive impact on climate change; investments and implementation on the ground is needed.

*Joint action by the public and private sectors is urgently required to move from project proposals to FIDs. Both governments and industry need to act to implement immediate actions for 2022 to 2023 – policymakers need to enable demand visibility, roll out funding support, and ensure international coordination; industry needs to increase supply chain capability and capacity, advance projects towards final investment decision (FID), and develop infrastructure for cross-border trade.

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The pipeline of hydrogen projects is continuing to grow, but actual deployment is lagging. In 2022 some 680 large-scale hydrogen project proposals, equivalent to USD 240 billion in direct investment through 2030, have been put forward – an investment increase of 50% since November 2021. Yet, only about 10% (USD 22 billion) have reached final investment decision.

Europe is home to over 30% of proposed hydrogen investment globally. However, other regions are leading the implementation on the ground: 80% of operational global low-carbon hydrogen production capacity is in North America, while China has surpassed Europe in electrolysis with 200 megawatts (MW) operational, versus 170 MW in Europe, driven by strong government support. South Korea and Japan, in turn, are leading on fuel cells, driven by strong government and corporate ambitions: more than half of the 11 gigawatts (GW) of global fuel cell manufacturing capacity is located there, and Japan has ramped up deployment of hydrogen-ready combined heat and power (CHP) plants, with 425,000 such systems installed.

The urgency to invest in mature hydrogen projects today is greater than ever. The rebound of carbon emissions to above pre-COVID levels, the invasion of Ukraine, and the growing concerns around energy security resulting from the war in Europe make one thing clear: our economies need clean hydrogen, and action is needed to convert proposals into actual deployment. Out of the more than 680 projects announced, 45 projects worth USD 29 billion are in the front-end engineering design (FEED) phase and 120 projects worth USD 80 billion are undergoing feasibility studies.

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However, only USD 22 billion (about 10% of proposals) have reached final investment decision (FID) or are under construction or operational. This number has only grown by USD 2 billion in the last half year, significantly slower than growth in project announcements.

The key barrier that project developers face today is a lack of demand visibility – many are awaiting decisions on the enabling regulatory frameworks and funding to incentivize offtakers to enter longterm hydrogen supply contracts. Such long-term offtake is key to unlocking project finance and support from financial investors.

Capturing the maximum climate value of hydrogen to deliver the 2050 net zero target requires a tripling of investment in hydrogen by 2030 to USD 700 billion – in other words, additional investments of USD 460 billion into hydrogen projects through 2030. This sounds enormous but in fact is equivalent to less than 15% of the investment committed to upstream oil and gas in the past decade. Across the value chain, investment in infrastructure connecting supply and demand is particularly lagging as visibility on demand is lacking, with an investment gap of more than 80% between project proposals and what is needed to reach net zero.

Joint action by the public and private sectors is urgently required to move from project proposals to FIDs. For policy ambition and project proposals to materialize into actual investments and start delivering environmental and socio-economic benefits, enabling conditions are necessary today. Below, a set of mutually reinforcing priority actions for policymakers and industry for 2022 to 2023 to progress from proposals to investments, scale up hydrogen deployment in regions and enable global hydrogen trade (Exhibit 1). These are critical for moving from ambition to action, accelerating hydrogen deployment.

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Policy - Priority actions for 2022-2023:

1. Enable demand visibility and regulatory certainty by adopting legally binding measures. Create demand visibility through measures such as targets or quotas for hydrogen consumption across end-use sectors, alongside public procurement measures or competitive bidding for (carbon) contracts for difference. This will bridge the gap to cost competitiveness, boost investor confidence and have a ripple effect throughout the value chain, enabling investments in hydrogen supply, equipment manufacturing, and infrastructure.

2. Fast-track access to public funding for hydrogen projects. Introduce measures such as grants, loans, tax credits, as well as funding support schemes based on competitive bidding. Policymakers across geographies have put forward plans to roll out the relevant instruments designed to stimulate hydrogen uptake. Right now, it is crucial to move from vision to action, and proceed with the implementation of these instruments. Rapid rollout of support schemes for hydrogen will lift mature projects off the ground and accelerate hydrogen deployment to support global climate goals within this decade, while bringing the costs further down.

3. Ensure international coordination and support credible common standards and robust tradeable certification systems. A common standard methodology for assessing all hydrogen production pathways is essential to allow the hydrogen with the lowest carbon footprint to reveal its climate benefits. Robust certification systems are instrumental in building consumer trust and paving the way for global hydrogen trade, which in turn will support scale-up and minimize hydrogen cost.

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Industry - Priority actions for 2022-2023:

1. Advance project proposals to FID by committing to funding and resource deployment. As regulatory certainty is being strengthened and funding support starts rolling out, industry should commit to deploying resources to mature projects towards FID by conducting feasibility and FEED studies to realize the USD 240 billion project proposals. Furthermore, new projects must continue to be developed to bridge the USD 460 million investment gap to net zero toward the end of this decade. Project developers should focus on building long-term relationships between hydrogen suppliers and offtakers, and actively mitigate the perceived risk of investing in hydrogen projects by staging projects and by working with established partners with strong track records.

2. Scale up hydrogen supply chain capability and capacity. As government targets translate into regulatory action and confidence in a sustained demand outlook, commit to increasing supply chain capability and capacity. The industry should start ramping up capacity to enable deployment at scale. Alignment and synchronization between the policy, infrastructure, and end-use applications is essential. The industry needs to ensure the project proposals and equipment (e.g., electrolyzers) are available as the industry scales. Supply chains must be readied, and only industry can do it. Increasing renewable power capacity at scale remains vital to scale up renewable hydrogen deployment.

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3. Build infrastructure for cross-border trade. Global trade unlocks the full benefits of hydrogen as transportable, clean energy. But project proposals to develop hydrogen infrastructure are lacking, and industry should concentrate its efforts toward establishing infrastructure to enable cross-border trade (e.g., through building out terminals, large-scale storage, and hydrogen conversion technologies). As international cooperation between governments advances, the industry should actively help to prioritize actions to enable international trade flows match supply and demand in an efficient manner…

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