- Hydrogen stocks retreated in 2021 after posting tremendous gains in 2020
- The number of green hydrogen projects soared in 2021
- Closer public-private collaboration is critical to increasing investments
Low-carbon hydrogen could play a crucial role in the decarbonization of energy-intensive industries and in helping nations to reduce emissions and move closer to their net-zero emission targets, analysts and forecasting agencies say. The number of announced green hydrogen projects—those looking to produce hydrogen from water electrolysis using renewable energy—has soared over the past year, doubling from the number of projects announced in 2020.
Renewable hydrogen, however, still faces a steep learning curve for significant cost reductions as well as roadblocks on the path to becoming a competitive large-scale alternative to grey hydrogen, made from fossil fuels, or blue hydrogen produced from natural gas using carbon capture.
Hydrogen Stocks Cool
Investors have seemed to realize that the bright future for green hydrogen still depends on achieving significant cost reductions and becoming a competitive energy source. Shares in electrolyzer hydrogen-producing companies retreated in 2021, following a blistering rally in the previous year, according to FactSet data compiled by The Wall Street Journal.
The market seems to have realized that green hydrogen still has a long way to go to become a competitive large-scale alternative to traditional fuels and storage solutions, and still depends on government incentives and initiatives for deployment, demand creation, and cost reductions, the Journal’s Rochelle Toplensky notes.
But Green Hydrogen Projects Gather Momentum
While the stock performance of low-cost hydrogen makers in 2021 has started to reflect the Street’s recalibrated view that it could take green hydrogen up to a decade to become cost-competitive, green hydrogen projects are being announced at the fastest pace ever seen.
More than 520 projects were announced in 2021, up by 100 percent compared to 2020, according to a November 2021 report by the Hydrogen Council, a global CEO-led initiative. As many as 221 of those projects are for large-scale industrial usage, 133 in the transport sector, 74 in the integrated hydrogen economy, 51 are infrastructure projects, and 43 are giga-scale production projects, the Council said in its ‘Hydrogen for Net-Zero’ report.
According to the Hydrogen Council, the fuel is central to reaching net-zero emissions because it can abate 80 gigatons of CO2 by 2050 and is critical in enabling a decarbonized energy system.
Clean Hydrogen Needs More Investment, Policy Support
However, scaling will also be critical this decade, as will be investments because half a trillion U.S. dollars in additional investment is still needed in net-zero scenarios.
Closer public-private collaboration is critical to increasing investments because a fourfold increase is required by 2030 to put the world on the trajectory to Net Zero, the Council says.
“There is clear momentum in hydrogen investments, but a transformation of such magnitude requires unprecedented mobilisation of public and private resources through strong partnerships and policy support,” said Tom Linebarger, Chairman and CEO of Cummins and Co-Chair of the Hydrogen Council, commenting on the report.
Clean hydrogen needs more pledges and investments in order to see cost reductions and usage in various industries, the International Energy Agency (IEA) said in its Global Hydrogen Review 2021 in October.
“Governments need to move faster and more decisively on a wide range of policy measures to enable low-carbon hydrogen to fulfill its potential to help the world reach net zero emissions while supporting energy security,” the IEA said.
“We have experienced false starts before with hydrogen, so we can’t take success for granted. But this time, we are seeing exciting progress in making hydrogen cleaner, more affordable and more available for use across different sectors of the economy,” said Fatih Birol, the IEA Executive Director.
Government and private investment in hydrogen are still way below the capital necessary to put the sector on track for net-zero by 2050, the agency says. Countries have committed at least $37 billion, and the private sector has announced $300 billion in investment. Yet, net-zero by 2050 requires $1.2 trillion of investment in low-carbon hydrogen supply and use through to 2030, the IEA notes.
When Will Green Hydrogen Become Cost Competitive?
According to the agency, low-carbon hydrogen can become competitive within the next decade.
Green hydrogen can be competitive in some major markets by 2030, with Brazil and Chile front-runners, Bridget van Dorsten, Hydrogen Research Analyst at Wood Mackenzie, said last month.
Currently, green hydrogen has a small share of the global energy market and is still largely uncompetitive against fossil-fuelled alternatives, van Dorsten says.
Electrolyzer capex is expected to significantly decline by 2025, due to a range of factors, including economies of scale, new entrants to the market, greater automation, and increased modularity, according to Wood Mackenzie.
The real game-changer for hydrogen will come when low-carbon green hydrogen costs become competitive in major markets, WoodMac reckons.
“However, the momentum behind net zero ambitions means that investors are betting on its long-term potential,” van Dorsten noted.
Renewable hydrogen has the chance to become an alternative game-changer fuel for the global energy market, but it has to overcome several barriers before that, including high input costs and dependence on government policies.