The clean hydrogen sector has reached a major milestone in its development, with more than 500 projects reaching FID, representing investment of $110b, according to industry group Hydrogen Council.

Investment worth $35b has been committed in the past 12 months alone, and since 2020 the sector has seen “explosive growth”, with a 7.5-fold increase in new project announcements, it said in its Global Hydrogen Compass report, which was co-authored with consultancy McKinsey & Company.

These dazzling numbers—released as the energy industry reconvened after the summer break at the Gastech event in Milan—were clearly designed to reset the narrative around the clean hydrogen sector’s potential to scale up into a serious industry.

That potential has been called into question over the past 12 months. Major project cancellations, tinkering with federal support mechanisms in the US and elsewhere, and little or no meaningful progress in reducing capital or operational costs have threatened to consign hydrogen to the role of niche transition technology.

Unsurprisingly, the industry association the Hydrogen Council begs to differ. “In just five years, our sector has scaled at remarkable pace, with investment growing over 50% year-over-year,” said the group’s co-chairs in an open letter to mark the report’s launch. “The first wave of mature clean hydrogen projects is coming online.”

The industry is keen to draw parallels with the wind and solar sectors. “The hydrogen industry is reaching a similar stage of maturity as wind and solar did a decade ago, marking a critical moment of inflection,” the Hydrogen Council said.

Hype cycle

However, there is an acknowledgment that this nascent industry’s journey, which is inextricably linked to the push for net zero, has been far from smooth.

“This progress has not come without turbulence,” the co-chairs said. “The sector is navigating through the hype cycle and moving from a surge of announcements in 2022–23 to a more disciplined era of maturation, similar to the solar, wind, and battery industries.” Natural attrition has seen projects without strong business cases fall away.

Furthermore, the CEOs of the Hydrogen Council members interviewed in preparation for the report “acknowledged that the environment remains challenging for clean hydrogen, but shared a sense of optimism, particularly those leaders accustomed to the development cycles that come with large-scale industrial sectors”.

The great demand test

Those CEOs also acknowledged that, for all the progress made on the supply side, demand is the linchpin for the industry’s future growth.

Demand-side news in recent months has been less than encouraging. ArcelorMittal, the world's second-largest steelmaker, recently dropped plans to convert two German facilities to run on green hydrogen, citing high energy costs. In the mobility sector, European automotive manufacturer Stellantis has halted its development of hydrogen-powered light commercial vehicles and scrapped the launch of a planned new range of vans, claiming the hydrogen market has “no prospects of mid-term economic sustainability”.

The Hydrogen Council calls the creation of meaningful demand “our next great test”.

Roughly 3.6mt/yr of binding offtake has been secured globally, it says. That compares to total committed supply capacity of over 6mt/yr, of which 1mt/yr is already operational.

In key markets such as the EU, the US, Japan, and South Korea, implementation and enforcement of existing policies could enable a total of up to 8mt/yr demand by 2030.

“A further 13mt/yr could be unlocked through targeted infrastructure investment and continued cost reductions, but without timely implementation, much of the supply opportunity will remain unfulfilled,” the Hydrogen Council said.

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Author: Stuart Penson