There is indeed a leap that has been taken when it comes to new projects, and that does reflect on the continued momentum as far as low-emissions hydrogen is concerned. This is despite the barriers that often crop up due to regulatory apprehensions, consistent cost pressures, and a dearth of incentives to speed up the demand of new prospects, according to an IEA report.
As per the Global Hydrogen Review 2024, rolled out by the IEA, the number of projects that have gone on to reach their respective final funding decision has, as a matter of fact, doubled for some time now, which again is going to elevate global production when it comes to low-emissions hydrogen and that too by fivefold by 2030. The overall electrolyser capacity, which has gone on to reach its final funding decision, happens to be standing at 20 GW worldwide.
It is well to be noted that if all the projects get announced across the world, the overall production can very well reach around 50 million tonnes every year by 2030. But this is going to need the hydrogen industry to grow at quite an accelerated CAGR of more than 90% between the present time and 2030. This is very well above the progress that the solar PV has gone through, and that too in its fastest expansion phase.
Of more than 6 GW of the electrolyser capacity which has gone ahead and reached its final funding decision stage in 2023, China comprises of over 40%. Its expertise in mass production of clean energy tech, such as electrolysers, goes on to mean that it happens to be home to 60% of worldwide electrolyser manufacturing capability, which at present is 25 GW every year, way over the average rollout rate across the globe.
In spite of the new project announcements, the installed capacity when it comes to electrolysers as well as low-emissions hydrogen volumes is quite less as developers seek clarity in terms of government support before making that call on investments. Uncertainty surrounding the demand as well as regulatory frameworks goes on to mean that most of the potential production happens to be in the planning stage, or one may term it to be in the early development stage. There are certain large projects that are facing delays or even cancellations because of such barriers that also include operational and permitting challenges.
Fatih Birol, ED of the IEA, says the growth when it comes to new projects goes on to suggest a robust investor interest when it comes to developing low-emissions hydrogen production, which, by the way, could go ahead and play a pivotal role in terms of reducing emissions from the industrial sectors like steel, chemicals, and also refining. However, for these projects to be lauded and successful, low-emissions hydrogen producers need to have buyers. The developers, as well as the policymakers, have to look carefully at the tools when it comes to supporting the creation of demand while at the same time reducing the costs and also making sure that clear regulations happen to be in place that will go on to support more investment within the sector.
The IEA report goes on to highlight the gap between the goals set by the government in terms of production and its demand. It is worth noting that the production targets that happen to be set by the governments across the world are as much as 43 million tonnes per year till the end of 2030. However, when it comes to the demand targets, the total comes to just more than a quarter of this figure, which is 11 million tonnes, by the same period. There are some of the government policies that are already put in place so as to bring up the demand when it comes to terms of hydrogen-based fuels and also low-emissions hydrogen. There are examples like carbon contracts for difference as well as sustainable fuel quotas when it comes to aviation as well as shipping, which are indeed triggering some traction on the industry front, thereby leading to a surge in the agreements that have been inked between the commercial consumers and the producers. But the fact remains that the progress that is made in the hydrogen industry is still far from being exceptional that could lead to achieving the climate goals, find the report.
As a sector that is at a very nascent stage, low-emissions hydrogen goes on to face pressures pertaining to technology as well as production cost, with especially the electrolysers dipping on some of their past progress because of the higher prices as well as supply chains that can very well be termed as pretty tight. The fact is that the continuation when it comes to cost reduction depends completely on tech development and, at the same time, making sure to optimize the rollout processes so as to move with an intent of mass manufacturing in order to attain the economies of scale.
It is worth noting that cost reductions are anyways going to benefit all the projects; however, the impact when it comes to competitiveness when it comes to individual projects is going to remain varied. For instance, hydrogen production by way of electrolysis in China can become much cheaper as compared to the hydrogen coming out of the unabated coal by the end of the decade. This is assuming that the overall global electrolyser project pipeline of almost 520 GW gets realized. Industrial hubs, where the low-emissions hydrogen could go on to replace the present high hydrogen demand, which is at present met by the unabated fossil fuel production, remain quite a significant and untapped opportunity for the governments to bloat up the demand. There is indeed a spotlight on Latin America being highlighted as a potential hub for the production of low-emissions hydrogen and its usage. There are many Latin American nations that have hydrogen strategies with a major stress given on export opportunities; however, the near-term opportunities lie almost in terms of refining as well as ammonia production for domestic use that goes on to give out large-scale applications that are immediate.
The point is that a phase-wise approach to supply within the region, right from starting with small-scale projects, will help to lessen the risks, lessen the capital, and also offer experience that’s valuable when it comes to scaling up in the times to come.