Electrolyser manufacturers are downgrading their plans to expand production capacity for the first time since 2021, on the back of policy hold-ups and a backlog of green hydrogen projects unwilling to commit to firm orders, research house BloombergNEF (BNEF) has warned.

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The expected annual assembly capacity for 2023 — as determined by manufacturer announcements and BNEF sources — fell by 19% in August, against what was being touted in January.

And the dip was even more pronounced for 2024, where cumulative capacity by year’s end was in August downgraded by 26% compared to January’s estimates.

This means that companies, especially those in Europe and the US, have quietly scaled back their ambitions for the next two years between January and August this year.

Nevertheless, stack assembly capacity is still expected to reach 33.5GW in 2023, a leap of 145% on last year, according to BNEF’s Electrolyser Market Outlook for the second half of 2023, published for its clients earlier this week and seen by Hydrogen Insight.

Manufacturers plan to continue increasing capacity in 2024 but at a slower rate, with total electrolyser manufacturing capability rising by 57% to 52.6GW by the end of next year.

The biggest reason for manufacturers scaling back their ambition, says BNEF, is that they are struggling to secure solid orders for their electrolysers, despite signing a flurry of “purchase orders”, which may turn out to be less firm than initially suggested.

The underlying cause is continuing delays to green hydrogen projects, which in Europe and the US have been hampered by policy hold-ups, and in China by sputtering demand.

Many green H2 schemes in the US and Europe have been holding off on making firm financial commitments until policymakers agree the specifics of subsidy programmes — often the subject of long and protracted discussion.

The EU finally agreed the terms of its Delegated Act for green hydrogen production earlier this year, while the US recently missed a deadline to firm up its renewable H2 definitions.

In China, the world’s biggest electrolyser market, efforts by central government to introduce an estimated $500m subsidy programme for green hydrogen production was likely dampened by the fact that only state-affiliated organisations were informed of the scheme and eligible to apply, and that they were given a very small window in which to make their case.

Lack of demand for green hydrogen in China has further undermined electrolysis projects in the country — borne out by an incoming oversupply of green hydrogen reported by Hydrogen Insight last week — which has contributed to a 45% cut in demand for electrolysers in 2023.

As a result, China is expected to produce just 1.3GW of machines in 2023, most of which is split among four brands, with the remainder up for competition from over 180 smaller Chinese firms, which BNEF suggested are now at risk of folding.

This tracks with analysis from Citigroup, which told Hydrogen Insight this week that Chinese electrolyser producers may need to scale back or shut production to compensate for the factory overbuild.

UPDATED: to reflect that Thyssenkrupp's deal with H2 Green Steel was originally characterised as a binding production reservation agreement