Electrolyzer manufacturing could be a key bottleneck for the emerging hydrogen economy, according to the International Energy Agency.

While policy bodies such as the European Commission have put green hydrogen front and center in the decarbonization of industry, the world does not currently have sufficient production capacity for electrolyzers, the machines that make hydrogen.

Existing factories that can manufacture electrolyzers allow for green hydrogen production to increase by about 700,000 tons per year at full capacity, the IEA said in its World Energy Investment 2022 report June 22. While precise figures are still difficult to determine, the IEA assumes a global manufacturing capacity of just under 8 GW per year, an IEA analyst said.

This includes a plant in the U.K. by ITM Power PLC, which can manufacture 1 GW of new electrolyzer capacity each year, and a 500-MW plant in Bengaluru, India, run by Ohmium International Inc..

Since the beginning of 2021, new manufacturing facilities have been announced in Australia, China, India, France, Germany and Spain, by names including Plug Power Inc., John Cockerill Group, Siemens Energy AG and Cummins Inc.

Collectively, these factories represent about $500 million of announced investment, the IEA said. Planned expansions and additions could lead to about 43 GW per year of manufacturing capacity globally by the mid-2020s, the analyst said. This would be enough to add about 3.5 million tons of new hydrogen production around the world each year, insufficient even for the EU's REPowerEU goals.

The EU's plan for a pivot away from Russian gas imports calls for the use of 20 Mt of hydrogen each year by 2030.

"It's a massive amount of equipment, 200 GW," said Graham Cooley, CEO of U.K. equipment-maker ITM Power, on a June 9 investor call. "To size that for you, that's the amount of industrial hydrogen that's used in the entire production of methanol worldwide, which is the feedstock for all of chemistry," the CEO said.

Just under 270 MW of electrolyzer capacity came online in 2021, more than in any previous year, the IEA said.

Brussels lawmakers acknowledge the challenge of scaling the industry, and on June 16 they announced an initiative to increase manufacturing capacity tenfold by 2025.

Currently, the EU estimates it has 1.75 GW of production capacity. The commission noted the availability of affordable raw materials as one challenge to growing Europe's production of electrolyzers. In many cases, the green hydrogen sector has to compete for materials with other industries, and the price of commodities has skyrocketed in recent months. The commission said it would work to partner with countries outside the EU and its economic zones on raw material supplies for electrolyzers.

Alkaline electrolysis still dominates global capacity additions, especially in China, the IEA said. European plans are more varied, also including polymer electrolyte membrane, or PEM, technology.

Projections for large-scale hydrogen supply indicate synergies between the two, the IEA said. While PEM electrolyzers are more suitable for load following, the cheaper alkaline equipment needs to operate in stable power supply conditions. "Manufacturers offering a variety of technologies may be well-positioned, fueling further partnerships and M&A between developers," the IEA said.

"We need to scale up the PEM technology. It's not challenging technologically but it requires an engineering effort to get it right," said Alexey Ustinov, vice president of Cummins' electrolyzer division, in an interview on the sidelines of the FT Hydrogen Summit in London June 16. "We need to be ready for the massive demand, which will inevitably come in Europe, for the electrolyzers."

"Right now we still remain in some degree of uncertainty, not about the trend but about the timing of this trend," the executive said.

To support the delivery at scale, manufacturers are also on a hiring spree. ITM Power has upped its head count to 400 staff this year, from just over 100 in 2018. "We've transformed the organization from [a research and development] organization to one delivering on products for customers," said ITM's Cooley.

Ustinov also emphasized the importance of a solid talent pipeline, adding that Cummins is already working with universities to that aim.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.