Interest in new hydrogen projects is still strong, though lagging policy support and growing cost pressures are putting investment plans at risk, a report has warned.
In its Global Hydrogen Review 2023, the International Energy Agency (IEA) detailed how momentum in low emissions hydrogen is continuing to grow despite the challenges facing the industry. More than 40 countries worldwide now have hydrogen strategies in place and electrolyser deployment could hit 2GW by the end of 2023, rising to 420GW by 2030 – a 75% increase on last year’s forecasts – if all announced projects are realised.
However, in time, the issues of a slow roll-out of financial incentives and those stubborn cost pressures could end up delaying new projects. Actual capacity and volumes of low emissions hydrogen installed remains low, with it accounting for less than 1% of overall hydrogen production and use. Industry is still waiting for government support before they commit to making investments.
For example, North America and Europe have taken the lead in implementing initiatives to encourage low emissions hydrogen production, with large amounts of funding being made available through the likes of the US Hydrogen Production Tax Credit, EU Important Projects of Common European Interest, and the UK’s Low Carbon Hydrogen Business Model. Yet, lengthy time lags between the initial announcement and actual implementation of these schemes are leaving project developers having to delay their progress at least.
Furthermore, despite hydrogen demand hitting a historical high in 2022, efforts to stimulate demand are also lagging behind what is needed to meet climate ambitions. Global hydrogen use hit 95Mt in 2022. This represented a 3% increase year-on-year, with strong growth in all major consuming regions, except for Europe due to the sharp increase in natural gas prices. Yet, hydrogen use is still concentrated in traditional applications, including industry and refining. Less than 0.1% has come from new applications.
Looking ahead, the IEA made a series of recommendations, including for governments to get a move on and implement their support schemes for low emissions hydrogen and production use and to take bolder action to stimulate demand creation for low emissions hydrogen, especially in existing hydrogen uses.
It also is calling for governments to foster international cooperation to accelerate solutions for hydrogen certification and mutual recognition of certificates; to quickly address regulatory barriers, especially for project licensing and permitting; and to support project developers to keep going during the inflationary period and extend regional reach.
Ways governments can do this include taking actions that can respond to near-term financial risks, including loan guarantees, export credit facilities, or public equity investments in projects, supporting developers struggling with increases in costs for equipment and capital.
