According to the latest report of the International Energy Agency (IEA), despite the slow introduction of financial incentives and the delay of projects caused by persistent cost pressures, the momentum of low-emission hydrogen continues to grow. But if all the announced projects can be realized and more efforts are made to encourage absorption, production capacity can still increase substantially by 2030. The number of
announced low-emission hydrogen projects continues to increase rapidly, with more than 40 countries worldwide having developed national hydrogen strategies to date. However, installed capacity and sales remain low as developers need to wait for government support before investing. As a result, low-emission hydrogen still accounts for less than 1% of total hydrogen production and use, according to the International Energy Agency's latest Global Hydrogen Review 2023 (Global hydrogen Review 2023).
In the context of the global energy crisis, high inflation and supply chain disruptions, new hydrogen projects face the threat of rising costs, at least in the short term, affecting long-term profitability. Inflation and higher borrowing costs are affecting the entire hydrogen value chain, driving up financing costs for developers and reducing the impact of government support. The combination of these factors is particularly detrimental to an industry facing high upfront costs for equipment manufacturing, construction, and installation.
Despite the adverse economic situation, the deployment of electrolytic cells is beginning to accelerate. By the end of 2022, the production capacity of electrolytic hydrogen will reach nearly 700 MW. Depending on projects that have reached a final investment decision or are under construction, total capacity could more than triple to 2G W by the end of 2023, with China accounting for half. If all the announced projects are realized, it will reach 420GW by 2030, an increase of 75% over the IEA's 2022 assessment.
"In recent years, we have seen incredible momentum in low-emission hydrogen projects, which could play an important role in energy-intensive industries such as chemicals, oil refining and steel," said IEA Executive Director Fatih Birol. "But the challenging economic environment will test the determination of hydrogen energy developers and policy makers to follow through on planned projects.". Greater progress in technology, regulation, and demand creation is needed to ensure that low-emission hydrogen can reach its full potential.
In addition to the challenges facing manufacturers and developers, the report found that efforts to stimulate demand for low-emission hydrogen are lagging behind efforts needed to meet climate targets. In 2022, global hydrogen use reached 95 million tons, an increase of nearly 3% compared with the previous year. With the exception of Europe, demand grew strongly in all major consumer regions. Industrial activity in Europe has been hit by a sharp rise in gas prices. However, the uptake of low-emission hydrogen is still very limited, accounting for only 0.6% of the total hydrogen demand. As a result, the production and use of hydrogen in 2022 released about 900 million tons of carbon dioxide into the atmosphere.
The report outlines how low-emission hydrogen is an opportunity for countries to contribute to future economic development by creating new industrial supply chains. Government funding schemes have been secured through schemes such as the US Clean Hydrogen Production Tax Credit, the EU European Common Interest Important Project, and the UK Low Hydrocarbon Business Model. However, the long time lag between policy announcement and implementation has led developers to delay projects.
If all the announced projects materialize, annual production of low-emission hydrogen could reach 38 million tons per year by 2030, with nearly three-quarters of that coming from electrolyzers using renewable energy and the rest using fossil fuels for carbon capture, utilization and storage. The best prospects for low-emission hydrogen use are in hard-to-reduce industrial sectors, by replacing hydrogen produced in fossil fuels that have never been reduced, but progress has been slow. There is a lack of focus on creating demand for hydrogen in existing national commitments. At present, the sum of all government targets for low-emission hydrogen production is as high as 35 million tons, but the target for demand creation is only 14 million tons, of which only half is focused on existing hydrogen utilization. Direct procurement agreements with private sector consumers are beginning to emerge, but remain small.
The report recommends that governments take several steps to reduce risk and increase the economic viability of low-emission hydrogen, such as effectively providing support programs, taking bolder action to stimulate demand, and addressing market barriers such as permits and permits. In addition, the establishment of an international hydrogen market requires cooperation in the development of common standards, regulations and certification. Interest
in new hydrogen projects remains strong, but the challenging economic backdrop means that timely policy support is needed to enable investment.
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