China takes the lead in low-emissions hydrogen. Rising costs and falling gas prices are holding back Europe and the US

Although the number of announced low-emissions hydrogen projects is growing rapidly, only a handful have reached at least the final investment decision stage. According to the International Energy Agency, planned projects are currently at risk primarily because of rising costs and falling natural gas prices.

The International Energy Agency (IEA) said in its annual Global Hydrogen Review 2023 report that annual low-emissions hydrogen production could reach 38 million tonnes in 2030 if all projects announced to date were completed. A year ago, potential production in 2030 was estimated at roughly half that level.

Of the 38 million tonnes, most (75%) of the announced projects are focused on producing hydrogen through water electrolysis using low-emissions electricity. According to the IEA, around 10 million tonnes of low-emissions hydrogen could be produced from natural gas in 2030 using technologies to capture and store or use CO2 emissions.

The growing number of announced projects may seem fairly encouraging, but, as the IEA notes, several factors are putting their implementation at risk.

"For hydrogen produced using electricity from renewable energy sources, for example, a 3-percentage-point increase in financing costs raises total project costs by one-third. Many projects have already revised their initial cost estimates upwards, by as much as 50%," the agency said, adding that, in addition to inflationary pressures, projects—particularly those in Europe—are at risk from falling natural gas prices and supply-chain problems that are delaying their completion.

According to the IEA, the situation described above means that government subsidy schemes already announced will ultimately help only a small number of projects, and that funding will need to increase for low-emissions hydrogen to compete on price with hydrogen traditionally produced from fossil fuels.

Despite announced support schemes in the US and Europe, development is progressing fastest in China

The International Energy Agency noted that Europe and the US are leaders in initiatives aimed at supporting the development of low-emissions hydrogen production. However, the development of individual projects is significantly slowed by the long delays between the announcement of subsidy schemes and their actual availability.

The slow development of new projects in Europe and the United States means that China has taken the lead in low-emissions hydrogen production. While China accounted for less than 10% of total global electrolyser capacity for green hydrogen production in 2020, its share had risen to 30% last year, thanks to newly completed projects with a combined capacity of more than 200 MW.

"By the end of 2023, total electrolyser capacity in China is expected to reach 1.2 GW (50% of global capacity), also thanks to a new largest-ever project with a capacity of 260 MW, which began operating this year," the IEA added, noting that China is likely to strengthen its position in the future, as 40% of projects that have already reached a final investment decision are located in the country.