Interest in new hydrogen projects remains strong, but a challenging economic backdrop means timely rollout of policy support is needed to deliver investments, sources IEA.
Low Emissions Hydrogen
Momentum behind low-emissions hydrogen continues to grow despite the slow roll-out of financial incentives and stubborn cost pressures that threaten to delay projects, a new IEA report says today. But production levels can still increase substantially by 2030 if all announced projects are realized and greater efforts are made on encouraging uptake. The number of announced projects for low emissions hydrogen continues to expand rapidly while more than 40 countries worldwide have set out national hydrogen strategies to date. Yet, installed capacity and volumes remain low as developers wait for government support before making investments. As such, low-emissions hydrogen still accounts for less than 1% of overall hydrogen production and use, according to the latest edition of the IEA’s annual Global Hydrogen Review 2023.
Against the backdrop of a global energy crisis, high inflation and supply chain disruptions, new projects face rising costs, at least temporarily, that threaten long-term profitability. 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. This confluence of factors is particularly detrimental for an industry that faces high upfront costs related to equipment manufacturing, construction and installation. Despite economic headwinds, deployment of electrolysers is beginning to accelerate. By the end of 2022, electrolyser capacity for hydrogen production reached almost 700 MW.
Resolve OF Developers
“We have seen incredible momentum behind low-emissions hydrogen projects in recent years, which could have an important role to play in energy-intensive sectors such as chemicals, refining and steel,” said IEA Executive Director Fatih Birol. “But a challenging economic environment will now test the resolve of hydrogen developers and policymakers to follow through on planned projects. Greater progress is needed on technology, regulation and demand creation to ensure low-emissions hydrogen can realize its full potential.” Beyond the challenges facing manufacturers and developers, the report also finds that efforts to stimulate demand for low emissions hydrogen are lagging behind what is needed to meet climate ambitions. Hydrogen use globally reached 95 million tonnes in 2022, an increase of nearly 3% compared with the previous year.
The report outlines how low-emissions hydrogen can be an opportunity for countries to boost their economies for the future by creating new industrial supply chains. Government funding programmes are already available through schemes such as the US Clean Hydrogen Production Tax Credit, the European Union’s Important Projects of Common European Interest, and the UK Low Carbon Hydrogen Business Model. Annual production of low-emissions hydrogen could reach 38 million tonnes per year in 2030, if all announced projects are realized, with almost three quarters of it coming from electrolysers running on renewable energy and the remainder using fossil fuels with carbon capture, utilization and storage. The best prospects for low-emissions hydrogen use are in hard-to-abate industrial sectors, by replacing hydrogen produced from unabated fossil fuels, but progress has been slow. The report suggests several steps for governments to reduce risk and improve the economic feasibility of low-emissions hydrogen such as effective delivery of support schemes, bolder action to stimulate demand, and addressing market barriers such as licensing and permitting.
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Source: IEA
