A Perspective on Hydrogen Investment, Deployment and Cost Competitiveness
17 February 2021
Deployment and investments in hydrogen have accelerated rapidly in response to government commitments to deep decarbonisation, establishing hydrogen as a key component in the energy transition.
To help guide regulators, decision-makers, and investors, the Hydrogen Council collaborated with McKinsey & Company to release the report ‘Hydrogen Insights 2021: A Perspective on Hydrogen Investment, Deployment and Cost Competitiveness’. The report offers a comprehensive perspective on market deployment around the world, investment momentum as well as implications on cost competitiveness of hydrogen solutions.
Deployment and investments:
- There are over 30 countries with hydrogen roadmaps, and 228 large-scale hydrogen projects announced across the value chain, with 85% located in Europe, Asia, and Australia. If all projects come to fruition, total investments will reach more than $300 billion in spending through 2030, including $80 billion which can be considered “mature” – meaning that these projects are in the planning stage, have passed a final investment decision (FID), or are under construction, already commissioned, or operational. Governments worldwide have committed more than US $70 billion in public funding.
- On a company level, members in the Hydrogen Council are planning a sixfold increase in their total hydrogen investments through 2025 and a 16-fold increase through 2030. They plan to direct most of this investment toward capital expenditures (capex), followed by spending on merger and acquisition (M&A) and R&D activities.
- Renewable hydrogen production cost could fall faster than estimated, if scaled up with the right long-term regulatory framework and public support, continued decline in renewable costs, and a rapid scale-up of value chains for electrolysis and carbon management. Projections show that by 2030 the costs of renewable hydrogen production could be in the range of $2.3 per kilogram and $1.4 per kilogram (the range results from differences between optimal and average regions).
- Low-carbon hydrogen can break even with grey hydrogen between 2028 to 2034 at a cost of about $35-50 per ton of carbon dioxide equivalent.
- To unlock hydrogen applications, a cost-efficient transmission and distribution will be required. Long-term, a network of pipelines offers the most cost-efficient means of distribution, while in the short- to medium-term, the most competitive setup involves co-locating hydrogen production on- or near-site that connects resource-rich regions to demand centers via trucks, trains, refueling stations, and smaller industrial users.
- Longer distances can be covered by shipping, where hydrogen needs to be converted to increase its density. While several potential hydrogen carrier approaches exist, three carbon-neutral carriers – liquid hydrogen (LH2), liquid-organic compounds (LOHC) and ammonia (NH3) – are gaining most traction. The end use of hydrogen needs to be considered to determine the most cost-optimal solution.
- With increased scale of hydrogen deployment and subsequent falling costs of hydrogen and various technologies, from a total cost of ownership (TCO) hydrogen could be the most competitive low-carbon solution in more than 20 applications by 2030, including long haul trucking, shipping, and steel.
- However, pure TCO is not the only driver of hydrogen application adoption. Customers and investors’ decisions will be influenced by future environmental regulations, ESG-compliant investments, and the associated “green premiums”. Hydrogen application is also advancing in aviation. Other end-applications such as buildings and power will require a higher carbon cost to become cost competitive.
- It is expected that hydrogen clusters will emerge with large-scale hydrogen off-takers at their core. Three cluster types are already gaining traction:
- Industrial centres that support refining, power generation, and fertiliser and steel production;
- Export hubs in resource-rich countries; and
- Port areas for fuel bunkering, port logistics, and transportation.
Want to have the most up-to-date hydrogen market data and insights? This report is accompanied by Hydrogen Insights, a paid subscription-based platform that will provide a regularly updated, global perspective on hydrogen investment momentum, market development, and cost competitiveness. The paid service is available for non-members of the Hydrogen Council. To subscribe and for more information, contact the Secretariat – email@example.com.