Total electrolyser capacity that has reached final investment decision (FID) now stands at 20 gigawatts (GW) globally, according to the IEA’s annual Global Hydrogen Review 2024.
In another positive sign, the number of projects that have reached FID has doubled in the past 12 months, which would increase today’s global production of low-emissions hydrogen fivefold by 2030. Installed water electrolyser capacity reached 1.4 GW by the end of 2023 and could reach 5 GW by the end of 2024.
But persistent challenges remain, both within the electrolyser sector and broadly across the hydrogen industry. Underutilised factory capacity could drive up electrolyser manufacturing costs by up to four times, the report warns.
The main obstacles are regulatory uncertainties, cost pressures and lack of incentives to accelerate demand particularly in hard-to-abate sectors – and ultimately progress in the hydrogen sector so far is insufficient to meet climate goals, with low-emissions hydrogen making only a ‘marginal’ impact. Producing renewable hydrogen today is generally one-and-a-half to six times more costly than unabated fossil-based production.
Fatih Birol, IEA Executive Director, said growth in new projects suggests strong investor interest in developing low-emissions hydrogen production, which could play a critical role in reducing emissions from industrial sectors such as steel, refining and chemicals.
“But for these projects to be a success, low-emissions hydrogen producers need buyers. Policymakers and developers must look carefully at the tools for supporting demand creation while also reducing costs and ensuring clear regulations are in place that will support further investment in the sector,” he said.
Source: IEA Global Hydrogen Review 2024
If all announced projects are realised worldwide, total production could reach almost 50 million tonnes a year by the end of this decade, the review states.
However, this would require the hydrogen sector to grow at an unprecedented compound annual growth rate of over 90% between now and 2030, well above the growth experienced by solar PV during its fastest expansion phases.
The report highlights a gap between government goals for production and demand. Production targets set by governments worldwide add up to as much as 43 million tonnes per year by 2030, but demand targets only total just over a quarter of this, at 11 million tonnes by 2030.
Source: IEA Global Hydrogen Review 2024
Hydrogen trade remains minimal and mainly limited to small-scale, localised transport between neighbouring countries, and trade in hydrogen-based products such as ammonia or methanol.
Global hydrogen demand reached 97 Mt in 2023, an increase of 2.5% compared with 2022. Demand remains concentrated in refining and the chemical sector (up 1 Mt to 43 Mt), with low-emissions hydrogen production totalling less than 1 Mt.
Global hydrogen demand in industry reached 54 Mt last year, an increase of almost 2% year-on-year. About 60% of this demand was for ammonia production, 30% for methanol and 10% for DRI in the iron and steel subsector – the same sectoral distribution as in previous years.
There are currently 150 terminals and ports capable of handling ammonia but this infrastructure is relatively limited in comparison to the announced projects for trading 13 Mt of hydrogen as ammonia by 2030 (equivalent to around 70 Mt of ammonia).
“To meet this demand, there is a need for a significant expansion of ammonia trade infrastructure, effectively tripling the current capacity within this decade,” it notes.
Hydrogen blending is seen as an ‘interim solution’ until more efficient uses of hydrogen are available, or as a derisking option for large production projects while demand becomes available and the required infrastructure to deliver hydrogen to end users is deployed.
Of the more than 6 GW of electrolyser capacity to reach FID in the past year, China accounts for more than 40%. The country’s expertise in mass manufacturing of clean energy technologies, including electrolysers, means it is home to 60% of global electrolyser manufacturing capacity, which, at 25 GW per year, is well above the average deployment rate globally.
Policy clarity and infrastructure build out
Despite new project announcements, installed capacity for electrolysers and low-emissions hydrogen volumes remain low as developers wait for clarity on government support before making investments. Electrolysers are ‘slipping back’ on some of their past progress due to higher prices and tight supply chains.
Uncertainty around demand and regulatory frameworks mean most potential production is still in planning or early-stage development, with some larger projects facing delays or cancellations due to these barriers along with permitting challenges or operational issues.
Delays in the deployment of hydrogen infrastructure have a ‘knock-on effect’ on the speed at which low-emissions hydrogen production and demand can scale up, and only three projects for underground hydrogen storage worldwide have reached FID.
Some government policies are already in place to stimulate demand for low-emissions hydrogen and hydrogen-based fuels. Examples, such as carbon contracts for difference and sustainable fuel quotas for aviation and shipping, are triggering action on the industry side, leading to an increase in signed agreements between producers and commercial consumers.
One positive omen is the number of countries with a hydrogen strategy in place continues to increase: 19 governments have published a new strategy in the past 12 months, principally in emerging markets and developing economies. In the past year, the equivalent of almost $100bn of public funds have been announced.
“Policy support is now moving from visions and targets to implementation, with specific policies and funding programmes, using various instruments that aim to close the cost gap between low-emissions hydrogen and fossil counterparts,” the report states.
Industrial hubs – where low-emissions hydrogen could replace the existing large demand for hydrogen that is currently met by production from unabated fossil fuels – remain an important untapped opportunity by governments to stimulate demand.
The Review shines a spotlight on Latin America as a potential hub for low-emissions hydrogen production and use. Many Latin American countries already have hydrogen strategies with a strong focus on export opportunities, but near-term opportunities lie mostly in refining and ammonia production for domestic use, which offer immediate large-scale applications.
A phased approach to supply in the region, starting with smaller-scale projects, will help mitigate risks, reduce capital investment, and provide valuable experience for scaling up in future.
Hydrogen production from fossil fuels with CCUS has gained ground over the past year – although the total potential production from announced projects grew only marginally compared with last year, there were several FIDs for previously announced large-scale projects, all of which are located in North America and Europe.
As a result, the potential production in 2030 from projects using fossil fuels with CCUS that have taken FID more than doubled in the last year, from 0.6 Mtpa in September 2023 to 1.5 Mtpa today.
