In this list
Electric Power | Energy Transition | Natural Gas | Metals | Petrochemicals

Commodities 2022: Year set to be a 'critical investment point' for European hydrogen

Commodities | Electric Power | Electricity | Energy | Nuclear | LNG | Natural Gas | Natural Gas (European) | Oil | Crude Oil | Refined Products | Fuel Oil | Gasoline | Jet Fuel | Petrochemicals | Olefins

Market Movers Europe, Jan 24-28: Commodities remain on knife edge despite reduced gas price driver

Metals | Steel

Platts Steel Raw Materials Monthly

Energy Transition | Renewables | LNG | Coronavirus

Asia Energy Transition Conference

Energy | Oil | Crude Oil | Refined Products

Crude oil futures rises as US troops put on alert over Ukraine

Energy | Energy Transition | Oil | Crude Oil | Refined Products | Gasoline | Metals | Non-Ferrous | Petrochemicals | Shipping | Containers

Commodity Tracker: 5 charts to watch this week

Commodities 2022: Year set to be a 'critical investment point' for European hydrogen

Highlights

Investments leave gap to hydrogen targets

Hydrogen production additions 65,000 mt in 2022

Europe production capacity nears 1 mil mt by 2024

The European hydrogen industry faces a "critical investment threshold" in 2022 with financers queuing up to channel money into the sector, and a wealth of capacity targets from governments, but many projects are yet to take final investment decisions, industry leaders said.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

2022 will be a "very important year" for the hydrogen industry, electrolyzer manufacturer ITM Power CEO Graham Cooley said at the S&P Global Platts Hydrogen Markets Europe Conference in November.

S&P Global Platts Analytics shows 65,000 mt/year of hydrogen production capacity due to come online in Europe in 2022 for a total of a little over 100,000 mt/year, before more significant additions ramp up in 2023 and 2024, to total almost 1 million mt/year.

Platts Analytics expects 2021 global pure hydrogen demand to grow 4% on the year to 73.8 million mt, with a further 3% growth to 76.1 million mt in 2022, driven largely by refining.

Current EU industrial sector hydrogen demand is around 8 million-10 million mt/year, with 45% for refining, 38% for ammonia production and 8% for methanol.

"We see emergence of renewable hydrogen production for industrial consumers in refining, steel, ammonia, and chemicals production, including the synthesis of e-fuels" in 2021-23, industry group Hydrogen Europe told Platts.

These projects are in the 5-30 MW range in 2021-22, with electrolyzers located on-site at demand centers, it added.

'Critical threshold'

Industry group the Hydrogen Council warned at the UN Climate Change Conference in Glasgow in November that "investment has reached a critical threshold and urgent, decisive policy action is now needed to fully unlock hydrogen's climate and societal benefits."

The council said global demand for renewable and low-carbon hydrogen could grow by 50% by 2030, but a significant scaling up of production, infrastructure and end uses was needed to unlock this demand.

The group identified over 90 GW of announced electrolyzer capacity globally, but said a fourfold increase in investments by 2030 was needed to put the world on course for net zero by 2050.

Fit for 55

In Europe, the EU's legislative package on climate released in July included a 50% renewable share for hydrogen used in industry and a 2.6% target for renewable fuels of non-biological origin (RFNBO) in transport by 2030. Hydrogen and its derivatives are expected to make up most of the RFNBO.

Platts Analytics estimates that around 11 million mt/year of hydrogen would be needed to meet the demand targets, with around 5.2 million mt going to industry and 5.8 million mt to transport.

However, the nature of the targeted sectors means much of the hydrogen will need to be converted to ammonia, leading to large conversion losses.

S&P Global Platts Analytics said the global low-emissions hydrogen project pipeline had grown 550% in 2021.

"Despite rapid recent expansion, the clean hydrogen industry has massive growth potential: the entire current pipeline would supply just 33% of 2021 pure hydrogen demand," Platts Analytics said.

"There are a lot of government strategies and plans, but not so many of them have got down into the details of the implementation where the asset allocation is clear, the project portfolio is clear, the funding is put in place," Hydrogen Council Executive Director Daryl Wilson told Platts.

Electrolyzer producers ready

The ramp-up of projects is gathering momentum, with energy transition initiatives accelerated by economic recovery plans after the coronavirus pandemic and the UN Climate Change Conference in Glasgow in November.

Now, developers say there is a need to see the first large-scale, 100-MW projects progressing.

The size of installed electrolyzers in Europe growing. A 10-MW electrolyzer was installed in 2021, with multiple 20-MW plants and a 30-MW facility under construction, scheduled to come online in 2022, Hydrogen Europe said. Several projects in the 100-MW range are planned to start by 2023.

Electrolyzer manufacturers are bullish as they report order books slanted increasingly towards larger projects.

However, more than a year has passed since the EU launched its hydrogen strategy, and none of the contracts for difference or other market support mechanisms were yet in place, Cooley said at the EU's European Hydrogen Week conference Dec. 1.

"Capital markets are absolutely behind green hydrogen," Cooley said, pointing to around Eur500 million ($566 million) the company had raised in funds, and a similar amount it had turned down from financial institutions.

ITM is targeting 5 GW/year of electrolyzer manufacturing capacity by 2024, Norwegian manufacturer Nel has started a 500 MW/year facility in Heroya, Norway, with scope to expand to 2 GW/year, and Sunfire aims to have 500 MW/year online by 2023.

Market frameworks needed

European hydrogen projects face a funding gap due to slow deployment of private capital and limited government support, leading banks said.

ABN Amro Executive Director, Project Finance, Lisa McDermott noted a dearth of final investment decisions for new hydrogen projects. Most projects were between announcement and FID, with very few close to a decision, she said at Platts Hydrogen Markets Europe Conference in November.

ING Bank's Head of Energy and Infrastructure, Iberia, Wafaa Ermilate, said too many FIDs were dependent on receiving public grants or support, and said some use cases did not make financial sense.

More critical choices were needed from governments on which industries and sectors should be targeted for deploying low-carbon and renewable hydrogen, McDermott added.

Governments could also help by bringing clarity to rules around carbon intensity of hydrogen production, and a finalized EU taxonomy for renewable energy, the banks said. Combined offshore wind and hydrogen tenders would also help stimulate investment.

The EU on Dec. 15 launched its hydrogen and gas decarbonization package and was poised to seek consultation on a delegated act of the Renewable Energy Directive that sets rules on the additionality of renewables for hydrogen generation.

Meanwhile 10 member states have allocated specific funding for hydrogen in their Recovery and Resilience Plans, worth Eur12 billion, Hydrogen Europe said.

UK business model

In the UK, several pieces of the country's hydrogen strategy are expected in 2022.

The government has promised a finalized low-carbon hydrogen business model and design standard, and the launch of its GBP240 million ($318 million) Net-Zero Hydrogen Fund, aiming to allocate contracts under the business model from the first quarter of 2023.

Indicative heads of terms and a consultation response are expected early in 2022. Renewable hydrogen advocates say the favored government position of referencing a natural gas price in contracts would disadvantage electrolytic hydrogen production.

"Industry is looking for flexibility to accommodate production at various scales and to having a standard which is not overly burdensome, whilst encouraging progressive decarbonization," UK Hydrogen and Fuel Cell Association CEO Celia Greaves told Platts.

"All of these developments will be critical to accelerating the scale-up that we need to see in the next few years to deliver our net zero targets," she said.

Explore this topic: Commodities 2022