Rapid growth in the pipeline of proposed clean hydrogen projects over the last 12 months has left the industry at a tipping point, with greater progress on FIDs and construction needed in 2022 to maintain the sector’s momentum, analysts say.

Supportive government policy will be crucial to moving the industry to the next phase, with long-term incentives needed to help de-risk projects to give investors and developers greater confidence as they look to scale up capacity.

“To date, many green hydrogen projects have been planned and announced in Europe, but relatively few have reached FID,” says Robert Bloom, service manager for Edinburgh-based research and consulting firm Delta-EE’s global hydrogen intelligence service. “Our research suggests that 2022 could be the year where we see the necessary policy environment develop that could drive projects in the tens or even hundreds of megawatts towards coming online.”

“Almost 40pc of the project pipeline does not have an estimated date of operation and 25pc does not have an estimated capacity" Evans, Wood Mackenzie

More than 2GW of green hydrogen production capacity is set to come online in 2022 and 2023 as green hydrogen reaches economic viability, with over 6GW of announced projects planned by the end of 2024, according to Delta-EE.

“If the necessary policy environment is achieved, 2022 could represent a tipping point for a flurry of activity,” says Bloom.

Support mechanisms for clean hydrogen projects are still taking shape in most countries. The UK government is analysing feedback on a recent consultation with the industry on the potential use of contracts-for-difference tied to gas and carbon prices but has yet to finalise the design. Germany’s recently installed coalition government, which has doubled the previous government’s 2030 target on electrolyser capacity, has also signalled it will support projects with CFDs linked to carbon prices.

Surging gas prices in Europe have supported the economics of green hydrogen relative to blue and grey technologies in recent months, but most analysts expect gas to stabilise at lower levels in the near to medium term. At current gas prices, green hydrogen production costs are at parity with blue and grey “all over Europe and in some other parts of the world”, Graham Cooley, CEO of UK-based electrolyser manufacturer ITM Power, told an industry event this week.

Capital inflow

More than $66 bn was invested in hydrogen in 2021, with projects looking at every aspect of the value chain from R&D to refuelling infrastructure, according to consultancy Wood Mackenzie. But more capital flow is needed for hydrogen production projects to reach FIDs in 2022, requiring an uplift in firm offtake agreements, it says.

Wood Mackenzie estimates the hydrogen sector needs an injection of $3.5-22bn for production projects to reach FID in 2022.

$3.5-22 bn – Estimated capital needed to bring projects to FID in 2022

The project pipeline for both carbon capture, utilisation and storage (CCUS) and low-carbon hydrogen saw record growth in 2021, with companies galvanised by increased net-zero targets, new policy support and technology advancements, Wood Mackenzie says. The CCUS pipeline of announced projects grew sevenfold, with 50 new hub projects globally. The low-carbon hydrogen pipeline more than doubled, with green hydrogen projects making up 75pc of the announcements.

A total of 33 projects—mainly in Europe and Asia—should begin operation in 2022. This will see 100,0000t/yr of low-carbon hydrogen and 50,000t/yr of green ammonia enter the market, Wood Mackenzie says.

“We do not believe we will see the same growth rate for the CCUS and hydrogen pipelines in 2022,” says Mhairidh Evans, principal analyst, CCUS and emerging technologies, at Wood Mackenzie. “The coming year will be about maturing projects and securing funding. About 75pc of the CCUS pipeline is in early development. For hydrogen, almost 40pc of the project pipeline does not have an estimated date of operation and 25pc does not have an estimated capacity. A mark of success for 2022 will be more projects in advanced development or under construction.”

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Author: Stuart Penson