Europe’s electrolyser industry remains off track for the EU’s 2025 capacity targets, despite expected rapid growth in the next three years, as manufacturers must balance today’s oversupply with a potentially huge increase in demand from hydrogen producers in the coming years.

European manufacturing capacity—including Norway but not the UK—is on course to reach 21GW/yr by 2025 from just 3.1GW/yr currently and 2.5GW/yr a year ago, according to a recent joint statement from the Electrolyser Partnership, an alliance of 44 companies active in the electrolyser supply chain that includes Nel, Thyssenkrupp Nucera, Siemens and Cummins.

This is still short of a target of 25GW/yr set last year to help the EU meet its goal of producing 10mn t/yr of green hydrogen locally by 2030. 

For now, the electrolyser market remains oversupplied, posing a risk to producers’ investment in scaling up capacity. A report by global CEO-led initiative the Hydrogen Council in May found that only 1.5GW of green hydrogen projects in Europe have reached FID. 

25GW – EU 2025 capacity target

The same report found that more than 80GW of projects have been announced in Europe, although only 40% of this was “at the planning stage or beyond”. The electrolyser industry must therefore perform a balancing act of avoiding excessive oversupply now while being ready to deliver when orders do pick up. It also has the tricky task of estimating how many of these announced projects will actually go ahead. 

Policy roadblocks are slowing investment decisions, and thus the electrolyser capacity rollout, the manufacturers say. Developments in China and the US also threaten Europe’s strong position in manufacturing.

Despite the uncertainty, developers have announced a slew of gigafactories on the back of the EU’s Important Project of Common European Interest funding, which will make a combined 12.4GW/yr. 

Italy’s De Nora has won funding for a 2GW/yr factory in Italy. Advent in Greece and Sunfire in Germany have won funding for 1.5GW/yr facilities. In France, Elogen, Mcphy and Genvia all have plans for 1GW/yr factories. In Belgium, both John Cockerill and Cummins have won funding for 1GW/yr facilities. Nordex in Spain and Stargate in Estonia have also been granted funding for 1GW/yr facilities.

Elsewhere Topsoe is building a 500MW/yr facility in Denmark and Cummins is building a 500MW/yr production line in Spain. And John Cockerill expects to complete a 1GW/yr facility in France soon.

Policy

The manufacturers acknowledged that major policy progress has been made recently, especially with the EU’s delegated acts on additionality and greenhouse gas emission accounting methodology entering into force in June. 

But these still need to be transposed into national law. In addition, certification schemes for renewable hydrogen remain under development, as does the regulatory framework for infrastructure. “These unavoidable steps add uncertainty to FIDs between hydrogen producers and offtakers, causing them to be postponed in most cases and thus reducing the visibility of demand for electrolyser manufacturers,” the companies say.

There is also “a huge gap between the deployment ambitions and allocated funds in Europe that are needed to attract private investment”, they say.

The European Hydrogen Bank has an €800mn ($894mn) budget for its first auction round for support for local hydrogen producers. The auction will allocate fixed price support for ten years. Consultancy Aurora Energy Research estimates this would support only around 200MW of capacity.

Chinese competition

A general provision in the EU’s proposed Net-Zero Industry Act requiring 40pc of all manufacturing of net-zero technologies to be in Europe has created some confusion around domestic electrolyser rules. 

Electrolyser manufacturers have sought reconfirmation the EU still aims for 100pc of electrolysers deployed in the bloc to be manufactured in Europe. This was the basis of the 25GW/yr target, they say. 

Any opening of the market for non-European electrolysers could be challenging for European manufacturers as Chinese models are understood to be far cheaper, according to recent analysis.

Eyes on US

There is a risk of investment being redirected to the US because of the strong support for hydrogen and local content rules in the Inflation Reduction Act (IRA), the manufacturers say. 

Nevertheless, US manufacturers face a similar timing challenge with ramping up as investors are mostly waiting on clarification of IRA rules.

The US government is drawing up plans for a $1bn funding programme aimed at “jumpstarting” the hydrogen economy by stimulating demand, in a sign of its growing frustration with the sector’s pace of development.

Norwegian electrolyser manufacturer Nel has announced it will build a 4GW factory in Michigan, amid strong incentives from the US for equipment manufacturing and hydrogen project development. The factory will manufacture both proton-exchange-membrane and alkaline electrolysers.

While FID has not yet been taken, Nel is expected to invest up to $400mn in the project and employ up to 500 workers at the factory at full scale. The plant will be “built in stages to match supply with demand”, Nel says. Similarly, US manufacturer Plug Power’s planned gigafactory has a 2.5GW nameplate capacity, but the company has so far ramped it up to just 100MW.

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Author: Killian Staines