Circa 2005, I was part of a fuels strategy team at an oil company when hydrogen was riding the second wave of hype (the first was during the oil crises of 1970s) following President George Bush’s proclamation of building a hydrogen economy.
That along with high oil and gas prices led us through a deep dive into the business prospects with hydrogen. Following our work, we summarized our findings in a one-page memo for the company’s leadership, and chose to begin with a sentence saying that hydrogen then and even as far as through 2025 would be far too expensive to produce, move, and use for transportation.
Given that background, I was skeptical when hydrogen became cool again a few years ago. But after working for the past 2-3 years on numerous projects across the hydrogen value chain for a broad range of clients, it feels like this time is different.
My colleagues and I at ADI see tailwinds sufficient for hydrogen to gain a material share of the energy mix by 2030 led by industrial applications. It will likely take 2040 for hydrogen to have a material share of the transportation market. All forecasts are uncertain but those on hydrogen are particularly fraught with wide-ranging uncertainty. While momentum has built up rapidly, the next couple years will be crucial for hydrogen to live up to its hype and so 2023 is when we will look for signs of rubber meeting the road.
Hydrogen demand growth through 2030 will be led by current uses with limited penetration in new applications
Hydrogen demand growth through 2030 could range from 1.7% to 4.1% depending on the range of GDP growth across key markets. This suggests that current uses of hydrogen in refining, ammonia, methanol, and iron and steel production will account for most of the growth. ADI’s research is showing that, at the higher range of demand growth, hydrogen could see some limited penetration in new applications such as glass, semiconductors, and food and beverage markets. Material demand is unlikely in mobility and transportation segments for hydrogen through 2030 excluding commercial applications such as forklifts where hydrogen has already built a strong footprint.
Policy and regulatory support for hydrogen will translate into financial incentives sufficiently attractive to accelerate hydrogen investments
More than 40 countries have announced hydrogen strategies led by China, Japan, the European Union, and U.K., and, most recently, India. While the U.S. through its Department of Energy published a draft clean hydrogen strategy in September last year, it made a far more significant contribution to accelerating hydrogen adoption with the Infrastructure, Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA). Globally, $100 to $150 billion in grants and incentives are now available for low-carbon hydrogen projects across the value chain from production through utilization.
North American investments in low-carbon hydrogen will accelerate and potentially catch up with the momentum in Europe
The hydrogen hubs funded through the IIJA and the production and investment tax credits for green hydrogen in the IRA have brought new momentum to hydrogen investments in North America. We expect these investments to accelerate and enable North America to catch up with the activity levels that we have seen in Europe. Interestingly, a lot of projects in Europe have supported exclusively by public funding while activity in North America is now attracting substantive private dollars as well.
In 2023, the hydrogen investment pipeline will surpass $350 billion with nearly 20% taking FID
Investments in hydrogen will gain further momentum with more than 350 projects in the pipeline for commissioning through 2030 totaling ~$350 billion in capital investment. Of these, we anticipate projects worth 20% in value likely taking FID in 2023 led by increasingly attractive tax credits and fiscal incentives.
Green hydrogen production costs will continue to fall rapidly while blue hydrogen cost reductions will likely depend on the scale of carbon capture
Capital costs are falling for both alkaline and proton exchange membrane (PEM) electrolyzers with a steeper learning curve for the latter over the former. As new electrolyzer manufacturing and assembly capacity is expected for both PEM and alkaline in 2023, we will see continued reductions in capital costs. In comparison, blue hydrogen costs will depend on the scale of carbon capture and the project pipeline will be scrutinized for the degree of cost reduction that can be achieved in the near future.
Electrolyzer manufacturing OEMs and the broader supply chain for green hydrogen will make significant progress
In 2023, we expect a number of OEMs to make progress on their commitments to establish manufacturing facilities. A number of these companies have already broken ground, and as these plants come on stream, we expect the additional scale to drive costs down. Some of these OEMs have scaled back on their commitments reflecting teething problems as this market gets off the ground but we expect significant progress in the addition of electrolyzer manufacturing capacity.
Demand for small-volume applications will grow as part of decarbonization strategies
Hydrogen applications are increasingly growing for small-volume applications such as the steel industry, transportation, glass manufacturing, semiconductors, chemicals, and space heating for buildings. Demand for hydrogen in steel and mobility will grow rapidly according to ADI Analytics research through 2030 whereas hydrogen demand in glass, food, and space industry will grow quickly as well. Hydrogen will increasingly be used to create renewable synthetic fuels to decarbonize commercial aviation and freight shipping, which are harder to decarbonize using pure hydrogen and fuel cells. Developing these small-volume applications quickly will continue to be a focus in 2023 to drive demand in the near term.
Hydrogen use in transportation makes the most sense for heavy-duty trucking and other commercial vehicles but adoption will be limited
Hydrogen can find mass-market acceptability in the medium-term for trucks, minibuses, trams, and passenger ships as these segments are unlikely to be served by batteries or energy storage systems. Even so, there are significant technical challenges to serve these markets and material commercial traction is unlikely in the near term. Forklifts, where hydrogen has made substantial inroads, will, however, continue to grow as a market for hydrogen rapidly.
Building the hydrogen infrastructure is a major challenge but innovation is advancing dramatically
ADI’s work with early-stage companies across the oil & gas, energy, and chemical industries shows dramatic innovation in a wide range of markets and hydrogen is no exception. We see companies with innovative ideas around producing, storing, shipping, and using hydrogen. We have also seen significant progress in careful technical work on repurposing existing infrastructure such as pipeline for a hydrogen economy. All of these are promising developments in support of hydrogen growth in the broader global energy mix.
ADI brings deep expertise in the hydrogen market that we serve through consulting and research projects. Please contact us to learn more.
Uday Turaga
