Rising interest rates and supply chain challenges can’t keep the global hydrogen economy from growing, according to a new analysis that revealed hydrogen projects are on the rise.
Hydrogen Insights 2023 December Update, co-authored by McKinsey & Company and the Hydrogen Council, found the hydrogen project pipeline has grown to $570 billion, up 35% from six months ago. The pipeline includes clean hydrogen production, end-use, and infrastructure. The report is the latest update on global hydrogen development and analyzed more than 1,400 large hydrogen projects.
Europe is the hydrogen leader, with more than $190 billion of announced investments. Hydrogen projects globally account for 45 metric tons per annum of announced clean hydrogen production capacity through 2030.
Of all hydrogen projects, only 7% have passed final investment decision (FID), the report noted. Just $8 billion, or 4%, have passed FID in Europe, compared to 15%, or $10 billion, in North America and 35%, or $12 billion, in China. As of October, more than 3 metric tons per annum have passed FID.
“The latest data shows clean hydrogen is progressing steadily, but to achieve our goals we must work together,” Yoshinori Kanehana, chairman of the board, Kawasaki Heavy Industries and co-chair of the Hydrogen Council, said in a statement. “Making the globally announced 1,400-plus clean hydrogen projects a reality with its associated 45 metric tons annual supply through 2030 will require ambitious concerted action by both private and public stakeholders."
Despite the advancement of new hydrogen projects around the world, more is needed to meet climate change goals. Specifically, another $430 billion in projects are needed to put the globe on track to a “timely decarbonization,” the report stated.
“It’s promising to see clean hydrogen projects developing across geographies, with 12 GW of electrolyzer capacity reaching FID,” Sanjiv Lamba, CEO of Linde and co-chair of the Hydrogen Council, said in a statement. “However, we need to further build on this momentum if hydrogen is to fulfill its role in supporting the energy transition. This is achievable with the right regulatory frameworks in place and through collaboration across the entire hydrogen value chain.”
The report noted that the rise in hydrogen investments is coming during a time of significant economic headwinds, namely high interest rates. With higher rates comes a higher cost of capital. Plus, higher EPC costs and higher costs of renewable power have increased the overall cost of making hydrogen power. In fact, estimates put the increased cost between 30% and 65%.
Fortunately, the Hydrogen Council predicts production costs to fall to $2.5 to $4 per kilogram of renewable hydrogen. One of the reasons costs are expected to fall is reductions in electrolyzer costs of 70% through 2050.
Those reductions will bring down renewable hydrogen CapEx and overall costs, though other measures will be needed to fully optimize hydrogen production CapEx. Project optimization could reduce costs another 25%, the report suggested.
See the full report here.
