Image: Announced investments by maturity, direct hydrogen investments until 2030, USD billion – Hydrogen Council
While the global pipeline of hydrogen projects is continuing to grow – 680 large-scale project proposals have been unveiled thus far in 2022 – actual deployment is lagging, with the urgency to invest in mature hydrogen projects now “greater than ever”.
That is the assessment within the latest Hydrogen Insights report, published by the Hydrogen Council and McKinsey & Company on 20 September. It set out how despite the number of proposals rising by 50% since November 2021, just 10% have actually reached a final investment decision. Considering the combination of carbon emissions rebounding to pre-Covid levels and Russia’s invasion of Ukraine, which is sparking concerns for energy security, the need for clean hydrogen has been accelerated. This means action is necessary to convert these many proposals into actual deployment.
Europe is the centre for much of the proposed hydrogen investment (30%) but is actually lagging behind others when it comes to implementation on the ground. North America hosts 80% of operational low carbon hydrogen production capacity, while strong government support in China has helped it to leapfrog Europe when it comes to operational electrolysis capacity – 200MW versus 170MW.
Proposals reaching a final investment decision (FID), entering construction or becoming operational have only grown by $2bn over the last half year – significantly slower than the pace of project announcements. The reason for this, according to the Hydrogen Council, is down to a lack of demand visibility facing project developers. It means many are left to await decisions on the enabling regulatory frameworks and funding to incentivise offtakers to enter into long-term hydrogen supply contracts. This is something set to be crucial to unlocking project finance and support from financial investors.
As it stands, there is an investment gap between project proposals and what is actually needed to capture the maximum climate value of hydrogen on a path to net zero. Proposals equate to around $240bn investment, though this must near triple to around $700bn by 2030, with the additional $460bn required representing just 15% of what has been committed to upstream oil and gas over the past decade.
It therefore went on to map out a series of priority actions for the public and private sectors to take, noting them to be mutually reinforcing. For policymakers, legally binding measures that enable demand visibility and regulatory certainty are needed. This could include targets or quotas for hydrogen consumption across end-use sectors, alongside public procurement measures or competitive bidding for contracts for difference. Further priorities should be fast-tracking access to public funding for hydrogen projects and to ensure international coordination and support credible common standards and robust tradeable certification schemes.
Industry, meanwhile, should work to advance project proposals to final investment decisions through committing to funding and resource deployment; scale up hydrogen supply chain capability and capacity as governments aim to translate targets into regulatory action and confidence through a sustained demand outlook; and to build infrastructure for cross-border trade.
Global trade, it explained, will unlock the full benefits of hydrogen as transportable, clean energy. Project proposals to develop hydrogen infrastructure, however, are lacking. This means there is a need for industry to concentrate efforts on establishing infrastructure that can enable cross-border trade, including building out terminals, large-scale storage and hydrogen conversion technologies. As international cooperation between governments advances, industry needs to actively help by prioritising actions that enable international trade flows to match supply and demand in an efficient manner.