Hydrogen growing, but supply and demand gaps persist

The global hydrogen industry is on an upward trajectory, with demand hitting 97mn tonnes in 2023 – a 2.5% increase compared to 2022, according to the IEA’s report Global Hydrogen Review 2024. However, while demand is growing, primarily in refining and the chemical sector, the supply of low-emissions hydrogen remains marginal, accounting for less than 1mn tonnes in 2023. This disconnection between rising demand and lagging low-carbon hydrogen production presents a significant challenge for the industry, suggests the IEA.

The strong growth in demand has been mostly driven by a surge in announced electrolysis projects, which are set to considerably expand hydrogen production in the coming years. Electrolysis capacity announcements now total almost 520 GW globally, a significant leap from previous years, according to the IEA. Projects that have reached FID have doubled since last year, with a projected output of 3.4mn t/y by 2030 – five times today’s production levels. This potential increase is almost evenly split between hydrogen produced via electrolysis (green hydrogen; 1.9mn t/y) and fossil fuel-based hydrogen with carbon capture, utilisation and storage (blue hydrogen; 1.5mn t/y).

While the scaling of electrolysis projects is impressive, reaching these ambitious targets will require sustained momentum, says the IEA. It estimates that the industry needs to grow at an unprecedented compound annual growth rate (CAGR) of over 90% from 2024 until 2030 to achieve the full potential of the project pipeline. By comparison, solar photovoltaic (PV) technology, which has often been touted as a model for rapid energy transition, did not experience growth at this pace even during its fastest expansion phases.

Announced electrolyser capacity that has reached FID now stands at 20 GW globally. Of this, 6.5 GW reached FID over the last 12 months alone, with China accounting for more than 40%. As noted in last week’s news, China continues to dominate the clean energy supply chain. Currently holding some 60% of global electrolyser manufacturing capacity (25 GW/y), according to the IEA report, the country’s continued expansion of manufacturing capacity is expected to drive down electrolyser costs, as has occurred with solar PV and battery manufacturing in the past.  

However, other regions are also ramping up their efforts, notes the IEA. Europe, for example, has quadrupled its electrolysis FIDs in the past year, surpassing 2 GW, while India has emerged as a key player, driven by a single 1.3 GW project.

Despite this momentum, the report highlights major gaps between hydrogen supply and demand, which it says could hinder the industry’s ability to meet climate goals.  

Governments around the world are implementing policies to stimulate demand for low-emissions hydrogen and hydrogen-based fuels. Examples include Germany’s carbon contracts for difference and mandates in the European Union for aviation and shipping. These policies have prompted some action from the private sector. More offtake agreements have been signed and tenders for low-emissions hydrogen are increasing. However, these efforts are insufficient to close the widening gap, warns the report.  

Policies and targets set by governments currently aim for 11mn t/y of low-emissions hydrogen by 2030. That is a figure that has been revised down by nearly 3mn tonnes from last year due to reduced targets for hydrogen use in industries, transport and power generation. This is far short of the 43mn t/y supply target that governments hope to achieve, and even further from the 49mn t/y that could be met through announced projects, suggests the report. At present, only 4mn t/y of low-emissions hydrogen is expected by 2030. That leaves a substantial gap between demand targets and supply realities.

The IEA says that means governments and industry should accelerate the signing of offtake agreements that can facilitate the necessary investment on the supply side. The report stresses that stronger government action is needed to stimulate demand, particularly in industrial hubs where low-emissions hydrogen could replace unabated fossil fuel-based (grey, brown or black) hydrogen.

However, several hydrogen projects have faced delays or cancellations. That threatens the industry’s ability to scale production to the necessary levels. The IEA attributes these setbacks to a variety of factors, including unclear demand signals, financing challenges, delays in receiving incentives, regulatory uncertainty, and permitting hurdles. These obstacles create significant risk for hydrogen projects in the pipeline and could stymie the industry’s potential.

New hydrogen gigahub opens in Germany

Meanwhile, to reinforce Europe’s standing in the hydrogen sector, electrolysis specialist Quest One, a subsidiary of MAN Energy Solutions, has opened a new automated production line of proton exchange membrane (PEM) electrolysis stacks in Hamburg, Germany.  

The new plant will eventually have the capacity to produce over 5 GW of electrolysis stacks annually.

Automated production processes are said to reduce the time required to produce a stack by 75%. Stacks are now able to be produced in less than an hour. Previously, many of the production processes were undertaken by hand. According to Robin von Plettenberg, CEO of Quest One, the new plant is designed to help the hydrogen industry scale up to ‘volumes that are almost unimaginable today’. The company’s stated goal is for its products to be used to reduce global greenhouse gas emissions by 1% by 2050.

T&Cs published for EU’s second renewable hydrogen auction

In parallel with these industrial developments, the European Commission has published the final Terms and Conditions (T&Cs) for its second auction. Said to be a key pillar of the European Hydrogen Bank initiative, it will allocate up to €1.2bn in support for renewable hydrogen producers located in the European Economic Area (EEA). Building on the lessons of the pilot auction, the second auction includes a number of new resilience requirements and aims to help meet the goals of Europe’s Net Zero Industry Act.

The EC has also called for feedback on new legislation aimed at clarifying the methodology for evaluating emissions savings from low-carbon hydrogen. This secondary legislation is required under the revised European Union hydrogen and gas market legislation that entered into force over the summer.  

UK’s first utility scale green hydrogen project

Meanwhile, in the UK, plans are advancing for what is claimed will be the country’s first utility-scale green hydrogen project. Statera Energy has submitted proposals for Kintore Hydrogen in Aberdeenshire, which could become the largest green hydrogen facility in Europe, with a capacity of 3 GW once fully operational. The first 500 MW of capacity is expected to be online by 2028.  

The project would help balance the UK’s electricity grid by using surplus renewable energy to produce hydrogen. It could reduce CO₂ emissions by up to 1.4mn t/y, according to Statera.