HYDROGEN SECTOR REPORT

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The global hydrogen generation market was valued at US$155.4bn in 2022 and is expected to reach US$316.4bn by 2030, growing at a compound annual growth rate (CAGR) of +9.3%.

REPORT ABSTRACT

Projects

Wood Mackenzie revealed total announced capacity reached 71.4 Mpta in 2022, adding the year was marked by the energy crisis and a slew of policy announcements, leading to a plunge in the number of project announcements. The slowdown in project announcements was counterbalanced by record electrolyser manufacturing announcements. A year ago, electrolyser manufacturing looked like a bottleneck. That no longer seems to be the case, with a record 45 GWe announced in 2022. Interestingly, while 95% of operational manufacturing capacity is in Europe, China, and the US, 41% of announcements are heading to Africa. But, the IEA says the positive trends observed in areas such as electrolyser deployment are still taking place at a very small scale.

McKinsey said more than 680 large-scale hydrogen projects were announced globally as of May 2022, amounting to US$240bn in direct investments (c. 80% have announced full or partial commissioning before 2030, with the remainder coming online after 2030 or not having announced a commissioning date as of yet). McKinsey goes on to add that despite hydrogen’s momentum, a significant investment gap remains for it to fully contribute to decarbonisation. Achieving a pathway to net zero will require additional direct investments of US$460bn by 2030 (as of May 2022) – closing the gap between the US$240bn of announced projects and US$700bn in required investments.

The IEA says targets to deploy hydrogen technologies are increasing in ambition, particularly to produce low-emission hydrogen. National targets for electrolysis capacities by 2030 were 74 GW globally in the IEA’s ‘Global Hydrogen Review 2021’, whereas national targets for electrolysis capacities targets have more than doubled to reach 145-190 GW in IEA’s 2022 Review. More ambitious targets, in part, were triggered by Russia’s invasion of Ukraine.

Commercial viability

The World Bank said falling renewable energy prices – coupled with the falling cost of electrolysers and increased efficiency due to technology improvements – have increased the commercial viability of green hydrogen production.  Citing Bloomberg, the World Bank says if costs continue to fall, green hydrogen could be produced for US$0.70-US$1.60 per kg in most parts of the world by 2050, a price competitive with natural gas.

However, the IEA says hydrogen as a clean energy vector still has significant progress to make to get on track with the Net Zero Emissions by 2050 Scenario. Getting on track with the Net Zero Scenario requires the production of low-emission hydrogen to be scaled up to reach total production of 95 Mt by 2030, as well as calling for the enabling infrastructure, including hydrogen-dedicated infrastructure, renewable generation capacity, and CO2 transport and storage infrastructure.

The technologies for the production of low-emission hydrogen are at different stages of development. For electrolysis technologies, alkaline and proton exchange membrane (PEM) electrolysers are commercially available, although they are still not competitive with conventional unabated fossil-based technologies. Solid oxide electrolyser cells (SOEC) are still under demonstration and anion exchange membrane (AEM) electrolysers are at prototype level. However, these technologies are observing rapid development.

Hydrogen infrastructure technologies are more developed than other areas of the hydrogen value chain. There are several fully commercial technologies, such as pipes for hydrogen transport, and pressurised tanks and salt caverns for bulk hydrogen storage. However, efforts are still required to bring certain critical technologies to commercialisation or to scale up commercial technologies, such as liquefaction.

Project financing

Societe Generale says that for the hydrogen economy to scale up, equity will not be enough. In a similar way to how the liquefied natural gas (LNG) or renewable energy sectors developed, equity must be paired with bank debt or project finance debt – only a mix of these two sources of capital can mobilise the quantity of funding that large-scale hydrogen projects require and the returns that investors expect. However, challenges still need to be addressed, including the long-term access of green electricity at competitive pricing, the level of government incentives, and the offtake agreements.

BCG surveyed over 100 experts (commercial banks, development banks, private equity firms, asset managers, and energy companies) about why banks have not provided the debt financing necessary for hydrogen and carbon capture and storage (CCUS) to scale up. While commercial banks are keen to finance hydrogen and CCUS projects – both to support their clients and meet their own sustainability targets – they are holding back because of the perceived risks involved. And because most banks are not prepared to be more flexible with their project-finance risk criteria, many projects are simply not going ahead.

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