As they focus on the decarbonisation of some of the world’s most hard-to-abate sectors, such as steel production, chemicals, aviation, shipping and long-haul truck transportation, stakeholders are starting to view a new energy source as the solution: clean hydrogen.
Clean hydrogen can be produced through electrolysis powered from renewable sources (green hydrogen) or from natural gas (in conjunction with carbon capture and storage) by steam methane reforming (blue hydrogen). In all its forms, clean hydrogen figures prominently in national and regional strategies to decarbonise and reach net-zero targets. The EU aims to use 20 million tons of clean hydrogen by 2030 as part of its effort to cut greenhouse gas emissions by 55% by that year. The US, meanwhile, estimates replacing fossil fuels with clean hydrogen could reduce overall emissions by 10% by 2050.
Although current production is negligible, the number and capacity of projects on the drawing board has ramped up rapidly in recent years. But there is a significant gap between the capacity planned globally (840 gigawatts [GW]) and the capacity of projects that have reached the final investment decision or construction phases (15 GW). A new report by Strategy&, PwC’s global strategy consulting business, Navigating the global hydrogen ecosystem, charts a road map for this vital global industry to gain momentum, overcome obstacles, and fulfil its potential.
Five barriers
As with any new technology, several significant obstacles stand in the way of widespread adoption of clean hydrogen.
1. The high price for end users is stifling development
Potential hydrogen producers are struggling to raise the financing they need to reach the final investment decision (FID) and construction phase because they don’t have binding off-take agreements. The ultimate consumers won’t enter binding agreements because the price for clean hydrogen is much higher than the fossil fuel equivalent. Renewable hydrogen in the EU can cost around €200 to €250 per megawatt hour (MWh). Natural gas costs less than a quarter of that.
2. The investment cost is too high for producers
Even when off-take agreements are in place, the initial construction costs for hydrogen production facilities remain high and are increasing. This is due to inflation in building materials and higher interest rates, which have eaten away at any opportunities to gain economic benefits of scale. In some cases, formerly profitable projects are now unprofitable.
3. Regulatory support is falling short
High requirements and sustainability standards (notably in Europe) govern how renewable electricity for hydrogen generation is produced. This creates a barrier to increasing production. Other regions of the world tend to have less strict regulations, but often are not setting the right incentives for development.
4. Renewable electricity capacity is limited
A dependable and scalable supply of renewable electricity is needed to produce renewable hydrogen: it takes around 500 terawatt hours (TWh) to produce 10 million tons of renewable hydrogen, for example. Construction of renewable power sources is growing rapidly. But as other industry sectors start to decarbonise by electrifying their operations, hydrogen will face increased competition for renewable electricity resources.
5. Improved hydrogen infrastructure is needed
The cheapest hydrogen production areas often are located far away from hydrogen consumption markets. At present, the lack of a comprehensive hydrogen infrastructure is a significant barrier, and building a network of hydrogen production, storage and distribution facilities requires substantial investment and coordination among many stakeholders.
Overcoming the barriers to hydrogen development
Overcoming all these barriers isn’t the work of a single player. Each of the stakeholders in the burgeoning hydrogen ecosystem can take actions to promote greater and more effective adoption of this fuel. Intensive collaboration will ensure that clean hydrogen fulfils its true potential in the energy transition.
Regulators and governments must establish clear and supportive regulatory frameworks, including setting clear targets and standards, and streamline permitting and approval processes. They need to foster international collaboration and harmonisation of standards, regulations and certification processes. And they must develop financial incentives to support research, development and commercialisation of hydrogen technologies.
Producers need to improve cost competitiveness and narrow the gap with fossil fuels through technological advancements, economies of scale, and optimised production processes. Partnering with off-takers will help secure buyers for volumes large enough to create a sound business case and spread the project risk.
Off-takers (especially in hard-to-abate sectors) must commit to incorporating hydrogen into their energy mix and set clear timelines for its adoption. This will create a stable demand and allow producers to invest in infrastructure and generate volumes that can realise economies of scale.
Distributors, traders and intermediaries should expand the infrastructure needed—including pipelines, storage facilities and refuelling stations—for hydrogen to reach its end users. This effort will require standardised protocols and safety guidelines for handling, storing and transporting the fuel.
Aggregators can manage the consistent demand for hydrogen—enabling larger projects to be built and transforming long-term contracts required for producers into short-term contracts required for off-takers. Helped by government or private funding, aggregators can bridge price gaps and reduce market inefficiencies.
Our new report details the concrete steps that stakeholders in every major region can take to make progress. If we address the barriers and take collective action, the hydrogen market can grow rapidly, enabling the transition to a low-carbon economy and helping to achieve climate targets.
This article is part of PwC’s presence at the World Energy Congress. The conference, held 22–25 April 2024 in Rotterdam, welcomes leaders from all corners of the world as they come together to shape the future of energy.
About the authors
Navigating the global hydrogen ecosystem
What's preventing progress and how to gain momentum?
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