London — Hydrogen is emerging as a solution to meet 2050 climate targets, but growing the market to meet those needs will require a combination of massive investment, policy support and a steep reduction in costs, Barclays Capital said Monday.
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Hydrogen has the potential to become a $1 trillion market by 2050 as it transforms hard-to-decarbonize parts of the economy and supports electrification, said Barclays in its note, 'Hydrogen – a climate megatrend.'
"The world is not yet on a pathway that is consistent with temperatures remaining at less than 2 degrees Celsius above pre-industrial levels, and rapid change is needed across government, companies, investors and consumers," Barclays said. "In this context, hydrogen is emerging as a viable solution."
Barclays estimates that by 2050 annual CO2 emissions will drop by 5 Gt/year, or 15% of current emissions, and hydrogen growing eightfold to a market cap of $1 trillion.
For this to happen, Barclays identifies two key roles for hydrogen to play: first as a form of energy storage and second as a fuel source in harder to decarbonize sectors such as trucking, heating, steel and other industrial uses.
As the market evolves, hydrogen will need to come from both low-and-zero carbon sources, Barclays said.
Both blue hydrogen, produced mostly from natural gas using Steam Methane Reforming with carbon capture and storage technologies, and green hydrogen, using predominantly renewable sources through electrolysis, will take over from conventional hydrogen production without carbon abatement. Green hydrogen will take market share from 2030 onwards, Barclays said.
Higher production costs, however, along with the need to scale up production, will require investments totaling around $500 billion over the next 30 years to grow the market, which could rise to 575 million mt/year under Barclays' base case scenario. Currently, the global hydrogen market is around 70 million mt.
"At present, we estimate global electrolyser capacity at just 3 GW," Barclays said. "Our base case calls for electrolyser capacity of 900 GW. Yet to achieve this and for hydrogen to be competitive, we see costs needing to fall nearly 75% for green hydrogen and 30% for blue hydrogen or more without allowing for the cost carbon."
As hydrogen scales up to meet these cost concerns, policy support is needed in areas such as carbon pricing, Barclays said.
S&P Global Platts recently launched an expanded suite of hydrogen assessments, including looking at four different production pathways in the Netherlands, and other production hubs, including SMR with and without CCS, and electrolysis.
Platts assessed Friday the Netherlands with and without CCS prices, including Capex at Eur0.5258/kg and Eur1.1436/kg, respectively, and assessed Alkaline and PEM Electrolysis including Capex at Eur1.9579/kg and Eur2.4592/kg.