Investment and projects in low-emissions hydrogen are growing, but policies to stimulate demand in key sectors such as heavy industry, refining and long-distance transport are needed to speed up deployment.
This was one of the stand-out findings from the International Energy Agency’s latest report, Global Hydrogen Review 2024.
According to the report, a wave of new projects shows the continued momentum for low-emissions hydrogen despite challenges due to regulatory uncertainties, persistent cost pressures and a lack of incentives to accelerate demand from potential consumers.
The number of projects that have reached final investment decision has doubled in the past 12 months, which would increase today’s global production of low-emissions hydrogen fivefold by 2030. The total electrolyzer capacity that has reached final investment decision now stands at 20 gigawatts (GW) globally.
If all announced projects are realized worldwide, total production could reach almost 50 million tonnes [metric tons] a year by the end of this decade. However, this would require the hydrogen sector to grow at an unprecedented compound annual growth rate of over 90% between now and 2030, well above the growth experienced by solar PV during its fastest expansion phases.
Despite new project announcements, installed capacity for electrolyzers and low-emissions hydrogen volumes remain low as developers wait for clarity on government support before making investments. Uncertainty around demand and regulatory frameworks means most potential production is still in planning or early-stage development, with some larger projects facing delays or cancellations due to these barriers along with permitting challenges or operational issues.
“The growth in new projects suggests strong investor interest in developing low-emissions hydrogen production, which could play a critical role in reducing emissions from industrial sectors such as steel, refining and chemicals,” said IEA executive director Fatih Birol. “But for these projects to be a success, low-emissions hydrogen producers need buyers. Policymakers and developers must look carefully at the tools for supporting demand creation while also reducing costs and ensuring clear regulations are in place that will support further investment in the sector.”
The report highlights a gap between government goals for production and demand. Production targets set by governments worldwide add up to as much as 43 million tonnes [metric tons] per year by 2030, but demand targets only total just over a quarter of this, at 11 million tonnes [metric tons] by 2030.
Some government policies are already in place to stimulate demand for low-emissions hydrogen and hydrogen-based fuels. Examples, such as carbon contracts for difference and sustainable fuel quotas for aviation and shipping, are triggering action on the industry side, leading to an increase in signed agreements between producers and commercial consumers. However, the progress made in the hydrogen sector so far is not sufficient to meet climate goals, the report finds.
As a nascent sector, low-emissions hydrogen still faces technology and production cost pressures, with electrolyzers in particular slipping back on some of their past progress due to higher prices and tight supply chains. A continuation of cost reductions relies on technology development, but also optimizing deployment processes and moving to mass manufacturing to achieve economies of scale.
Cost reductions will benefit all projects, but the impact on the competitiveness of individual projects will vary. For example, hydrogen production via electrolysis in China could become cheaper than hydrogen produced from unabated coal by 2030, assuming the entire global electrolyzer project pipeline of around 520GW is realized.
Industrial hubs – where low-emissions hydrogen could replace the existing large demand for hydrogen that is currently met by production from unabated fossil fuels – remain an important untapped opportunity by governments to stimulate demand.
Originally published by Power Engineering International.
