Investments in hydrogen projects are scaling rapidly, presenting significant opportunities for clean energy development. However, despite this acceleration, the sector faces numerous challenges that threaten to hinder its potential. According to the Global Hydrogen Review 2024 by a leading international energy agency, the number of Final Investment Decisions (FID) for hydrogen projects has doubled in the past year, driven by ambitious commitments from key global regions. East Asia has emerged as a leader, accounting for over 40% of these investments, with a current electrolyzer capacity of 20 gigawatts (GW). If fully realized, this capacity could quintuple global low-emission hydrogen production by 2030.
Global hydrogen production reached approximately 97 million tonnes (Mt) in 2023, but less than 1% of this output qualifies as low-emission. This share is projected to rise dramatically to 49 Mt annually by 2030 if all announced initiatives come to fruition. However, the transition from concept to execution remains fraught with barriers, as many projects remain in early planning stages due to uncertain demand signals and slow regulatory progress. Electrolyzer installations, a cornerstone of hydrogen projects, reached 1.4 GW by the end of 2023 and are expected to exceed 5 GW by the end of 2024, marking significant progress but still falling short of what is required to meet global climate goals.
Investments and Financial Barriers
In 2023, global investments in hydrogen-related infrastructure amounted to approximately USD 3.5 billion. Of this, 80% was allocated to electrolyzer capacity expansion, while the remaining funds supported projects incorporating Carbon Capture, Utilization, and Storage (CCUS). These investments predominantly flowed into East Asia and Europe, with East Asia absorbing half of the global total and Europe accounting for a third. Despite these advancements, investments in critical infrastructure such as pipelines, storage facilities, and refueling stations remain minimal. This underinvestment threatens to undermine the scalability of hydrogen projects, particularly as they transition from pilot stages to large-scale implementation.
Notably, if East Asia’s active pipeline of projects advances to the construction phase, total expenditures in the hydrogen sector could increase by 140% in 2024. Such an expansion would significantly bolster global hydrogen capacity and underscore the region’s pivotal role in advancing the hydrogen economy.
The Demand-Production Disparity
A critical challenge facing hydrogen projects is the misalignment between production and demand targets. Governments worldwide have set ambitious production goals of 43 Mt annually of low-emission hydrogen by 2030. However, current demand targets amount to only 11 Mt, representing just 25% of the projected production. This stark disparity poses a significant risk to project viability, as insufficient demand could leave many initiatives in limbo. Moreover, without strong and coordinated demand signals, the global hydrogen market risks fragmentation, which could hinder collaborative efforts and slow progress.
The Role of Policy and Regulation
Policy support is essential for fostering the growth of hydrogen projects. While some regions have introduced measures such as Carbon Contracts for Difference (CCfD) and mandates for hydrogen use in aviation and maritime sectors, these initiatives are not yet sufficient to drive widespread adoption. Regulatory uncertainties further compound the issue, particularly regarding greenhouse gas (GHG) emissions standards for hydrogen production. Without harmonized regulations, investors may be hesitant to commit to large-scale projects, slowing the sector’s momentum.
Progress has been made through the mutual recognition of certification schemes by 37 governments during a recent international climate summit. This development is a step toward reducing market fragmentation and ensuring that hydrogen produced in one region can be seamlessly traded and utilized in another. However, more work is needed to establish robust, universally accepted standards that can accelerate global adoption.
Production Costs and Market Dynamics
The cost of producing low-carbon hydrogen remains a significant barrier to its widespread use. Currently, production costs range from USD 4-12/kg, compared to the much lower costs of hydrogen derived from fossil fuels. Supply chain pressures have further exacerbated these costs, particularly for electrolyzer components. However, advancements in technology and economies of scale are expected to reduce production costs to USD 2-9/kg by 2030. In a scenario where existing policies remain unchanged, these cost reductions would likely be limited to 30%, maintaining a substantial price gap between low-carbon and fossil-based hydrogen.
Despite these challenges, the sector holds promise for long-term cost competitiveness. Innovations in electrolyzer technology and the integration of CCUS have the potential to significantly lower costs while enhancing efficiency. This progress could enable hydrogen projects to compete more effectively with traditional energy sources, paving the way for broader adoption.
Regional Opportunities and Emerging Markets
Different regions are positioning themselves as leaders in the global hydrogen economy. For example, Latin America has launched initiatives such as a regional certification framework designed to attract international investors and structure its hydrogen market. The region’s abundant renewable energy resources make it well-suited for producing low-carbon hydrogen at scale.
East Asia, meanwhile, continues to dominate the hydrogen landscape with the most advanced pipeline of electrolysis projects globally. With an annual production capacity exceeding 25 GW, the region accounts for nearly 60% of the world’s electrolyzer manufacturing capacity. This strong manufacturing base provides a critical foundation for scaling up hydrogen projects and meeting global demand.
Infrastructure Needs and Strategic Alignment
The development of a robust hydrogen economy requires substantial investment in infrastructure. Pipelines, storage facilities, and refueling stations are essential for transporting and utilizing hydrogen efficiently. However, current investments in these areas lag far behind what is needed to support the anticipated growth in production. Without adequate infrastructure, even the most advanced hydrogen projects may struggle to reach their full potential.
Moreover, strategic alignment among regions is crucial to avoid market fragmentation. Harmonizing regulations, standardizing certification schemes, and fostering international collaboration are key steps toward creating a cohesive global hydrogen market. Such efforts would enable the seamless trade and utilization of hydrogen, ensuring that supply and demand are balanced across regions.
Expanding Hydrogen Applications
Hydrogen’s versatility makes it a promising solution for decarbonizing hard-to-abate sectors. Heavy industries such as steel and cement manufacturing, as well as the chemical and refining sectors, are among the primary targets for hydrogen adoption. In addition, the transportation sector, particularly aviation and maritime, offers significant opportunities for hydrogen use, given its potential to replace fossil fuels in these energy-intensive industries.
To unlock these opportunities, governments and industry leaders must work together to establish clear demand signals and robust incentives. Policies that encourage hydrogen adoption in these sectors could provide the critical momentum needed to drive the growth of hydrogen projects.
Long-Term Outlook
The long-term success of hydrogen projects depends on addressing the challenges of demand uncertainty, regulatory misalignment, and cost competitiveness. Policymakers must prioritize creating a supportive environment that fosters innovation and investment in the hydrogen sector. This includes establishing consistent and harmonized regulations, providing financial incentives, and investing in the infrastructure needed to support a global hydrogen economy.
In addition, advancements in technology will play a vital role in reducing costs and improving the efficiency of hydrogen production. As electrolyzer technology continues to evolve, economies of scale and increased manufacturing capacity are expected to drive down production costs, making low-carbon hydrogen more accessible and competitive.
Conclusion
The global hydrogen sector is poised for transformative growth, with investments in hydrogen projects accelerating at an unprecedented pace. However, realizing the full potential of hydrogen as a cornerstone of the clean energy transition will require coordinated efforts to overcome significant challenges. By fostering innovation, strengthening policy support, and aligning strategies across regions, the hydrogen economy can achieve sustainable growth and make a substantial contribution to global decarbonization efforts.