Missing policy support, cost pressures put global hydrogen plans at risk: IEA

Lagging clean hydrogen policy support and rising cost pressures for project developers are putting investment plans at risk globally, the International Energy Agency warned Sept. 22.

The IEA noted in its latest Global Hydrogen Review that momentum in the sector, however, continued to build despite the headwinds, with a significant increase in the number of project announcements since 2022.

IEA Chief Energy Technology Officer Timur Gul said electrolyzer deployment for green hydrogen production could follow a similar trajectory to that of solar photovoltaic over the last 10-15 years, keeping low-carbon hydrogen’s role in reaching net-zero emissions by 2050 within reach, subject to regulatory and policy support.

"We would need to achieve something similar to what achieved with solar PV in order to achieve net-zero goals by 2050," Gul said at a media briefing. "But when you look at the project pipeline […] then it is possible to achieve such scale, but of course it hinges on all the regulatory aspects."

The IEA said low-carbon hydrogen production could increase substantially by 2030, reaching as much as 38 million mt/year, if all announced projects are realized, and greater policy efforts are implemented to stimulate demand.

Three quarters of this would come from electrolysis powered by renewables, with 25% from carbon capture-enabled reforming of natural gas.

The Platts Hydrogen Price Wall shows that the cheapest clean hydrogen production globally was in the US Northeast in August, averaging $2.30/kg for alkaline electrolysis, compared with below $1/kg for unabated gas-based production in some regions.

Platts is part of S&P Global Commodity Insights.

Global hydrogen demand rose 3% on the year in 2022 to 95 million mt, the IEA said, though just 0.6% of that was from low-carbon sources.

"As a result, hydrogen production and use in 2022 released some 900 million mt of CO2 to the atmosphere," the IEA said.

Solar trend

Asked if the hydrogen energy transition could be delivered at the pace required to meet mid-century net-zero targets, Gul said electrolyzer development was around 10-15 years behind that of solar PV.

"The recent uptake of solar PV is certainly among the fastest we have seen," he said. "It is certainly among the fastest in the energy sector, and electrolyzers are at a very early stage in comparison, so we’re probably with electrolyzers somewhere where we were with solar PV 10-15 years ago."

Gul noted it took around 30 years for solar PV to go from the research and development phase in the 1950s to first market in the 1980s, and only reached around 1% of global power generation capacity in 2015, before becoming the leading low-cost power generation source in many parts of the world as it is today.

Progress despite headwinds

The IEA noted significant progress in electrolyzer deployment, despite headwinds from rising costs and policy hesitancy, with almost 700 MW of electrolyzer capacity for hydrogen production installed by the end of 2022.

China has leapfrogged other regions in electrolyzer deployment, with over 200 MW installed by the end of 2022 -- over 30% of global capacity -- and was expected to reach 1.2 GW by the end of 2023.

"Based on projects that have reached final investment decision or are under construction, total capacity could more than triple to 2 GW by the end of 2023, with China accounting for half of this," the IEA said. "If all announced projects are realized, a total of 420 GW could be achieved by 2030, an increase of 75% compared to the IEA’s 2022 review."

Global installed low-carbon and renewable hydrogen production capacity stands at over 400,000 mt/year, according to S&P Global data.

New hydrogen projects are facing sharp costs rises from the global energy crisis, high inflation and supply chain disruptions, which, "at least temporarily, threaten long-term profitability," it said, noting a 50% increase in costs since 2021, mostly from the cost of capital.

"Inflation and more expensive borrowing costs are affecting the entire hydrogen value chain, driving up financing costs for developers and reducing the impact of government support," which has been slow to be deployed, the agency added. "This confluence of factors is particularly detrimental for an industry that faces high upfront costs related to equipment manufacturing, construction and installation."

Missing support

To counter these obstacles, governments should "urgently implement" clean hydrogen support schemes, "take bolder action to stimulate demand," work to align hydrogen certification and rapidly address regulatory barriers, particularly around licensing and permitting, the IEA said.

State funding was widely available through schemes such as the US Clean Hydrogen Production Tax Credit, the EU’s Important Projects of Common European Interest program and the UK Low Carbon Hydrogen Business Model, it noted.

"However, the lengthy time lags between the announcement of the schemes and the moment at which funds are made available to project developers is delaying project execution, and even putting projects at risk," it said.

The IEA also said efforts to stimulate clean hydrogen demand lagged what was needed to meet climate goals.

Most government support was focused on the production side, with global government targets totaling 27 million to 35 million mt, while demand-side targets and support totaled just 14 million mt, with under half focused on existing hydrogen uses.

And such targets represent just one-fifth of low-carbon hydrogen use in the IEA’s Net Zero Emissions by 2050 Scenario by 2030.

Some offtake agreements have been signed, accounting for up to 2 million mt, though over half of these were preliminary, non-binding agreements. An additional 3 million mt of production was being developed for companies’ own use.