New low-carbon hydrogen project announcements have accelerated sharply over the last 12 months but FIDs remain elusive, threatening the sector’s ability to meet government-led 2030 production capacity targets, according to speakers at the Gastech conference in Milan in early September.

The number of new projects unveiled by developers in the last 12 months has risen by 50pc, with Latin America showing the largest increase, Markus Wilthaner, partner and co-leader of global hydrogen at consultancy McKinsey, told the Gastech conference in Milan.

But FIDs on projects rose by only 10pc over the same period, he said. McKinsey has identified 680 large-scale projects at the proposal stage, projecting $240bn of investment in the sector by 2030.

“We are at a critical moment in the development of the industry” Opferman, Linde

The money to invest in scaling up hydrogen is available in the form of private capital and government funding, but the risk faced by projects continues to hamper progress to FID.

“We need to take the risk out of the value chain,” says Wilthaner.

The gap between projects reaching FID and government targets is widening, with the next three years critical for the sector’s ability to scale up by 2030, according to Andreas Opferman, executive vice-president of clean energy at industrial gases company Linde.

“We are at a critical moment in the development of the industry,” he says.

The EU ramped up its hydrogen targets in March as part of its response to the war in Ukraine and the need to replace imported Russian gas. It called for an extra 5mn t/yr of EU production and an extra 10mn t/yr of imports. In a similar move, the UK doubled its 2030 target for domestic hydrogen production capacity, to 10GW.

Leadership challenge

The economics of green hydrogen relative to blue and grey in Europe have improved markedly as gas and power prices have surged amid the energy crisis triggered by Russia’s invasion of Ukraine.

“Green hydrogen is in the money in Europe,” says Wilthaner, adding that the implied cost parity point for green hydrogen projects had moved forward by 3-7 years.

But the continent is starting to lose its early leadership position in the sector as other markets start to look more competitive and attract developers.

The new support offered to hydrogen projects by the US under the recently passed Inflation Reduction Act (IRA) has “moved the needle” in favour of that market, according to Ahmed Hababou, vice-president of green hydrogen product development at industrial gases company Air Products.

680 – Large-scale projects at the proposal stage

“Support can make projects move very fast,” he says.

Developers in the US could potentially qualify for subsidies of up to $3/kg under the scheme set out under the IRA.

There is now a risk that green hydrogen project developers could go to the US instead of Europe, according to Marco Alvera, CEO of Tree Energy Solutions, which is developing a green fuel and LNG import hub at Wilhelmshaven in Germany.

“The US has put Europe on the backfoot,” he tells Hydrogen Economist.

Linde’s Opferman called on policymakers in Europe to refocus support for projects on operational costs rather than the capital costs, and to simplify policy, or risk losing out to the US.

The UK recently launched a contract-for-difference (CfD) support scheme for electrolytic hydrogen projects, which is expected to provide projects with ongoing support for up to ten years, while the EU is also planning CfDs for hydrogen under its RepowerEU strategy.

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Author: Stuart Penson