Europe has seen marked growth in green hydrogen projects, with 228MW on line as of September from 58.9MW in 2017. But at this 25% annual growth rate, only around 1GW of electrolyser capacity will be operational by 2030 — well below the scale needed to produce the EU’s ten-million-tonne domestic production target by that year.
This is according to industry association Hydrogen Europe’s Clean Hydrogen Monitor report published yesterday (Tuesday), which tracks the pipeline of production projects as well as demand for H2.
Electrolysers dedicated to making green hydrogen, as opposed to used in the chlor-alkali process, only account for 0.33% of Europe’s total 11.5 million tonnes-a-year H2 production capacity.
Part of the problem is that the individual green hydrogen projects starting up today are still extremely small.
Hydrogen Europe found that the average size of an electrolyser is just 1.37MW — only a slight increase from the 0.93MW average in 2020— while 13 green hydrogen projects with capacities higher than 5MW account for 52% of total combined capacity.
The report also notes that the combined capacity of all of Europe’s projects is smaller than the 260MW Kuqa project in China brought on line this year.
Another problem is that nearly all of the projects operating today are for research or demonstration purposes, with little appetite from potential clean hydrogen offtakers for large volumes in the near-term due to the cost gap between renewable and incumbent fossil H2.
But does a slow start necessarily mean that the hydrogen industry is off-track?
After all, when it comes to demand, Hydrogen Europe forecasts 7.1 million tonnes a year of offtake by 2030 for announced European clean steel, ammonia, refining or e-fuels projects.
This is only expected to ramp up in coming years, as member states transpose the updated Renewable Energy Directive targets for green hydrogen and derivatives use in industry and transport into national legislation and regulations.
Meanwhile, the number of announced renewable H2 projects set to start up in 2030 has grown by 30% compared to last year.
And if the current pipeline were to be developed, this would almost reach the 100GW of electrolyser capacity Hydrogen Europe estimates would be necessary to produce 10 million tonnes of renewable H2 by 2030.
However, Hydrogen Europe points out that “similarly to previous years, projects continue being delayed”. For example, while its report from 2022 tracked 257 plants set to come on line in 2024, it only tracked 194 this year “after accounting for revised timelines”.
And these delayed projects tend to be much bigger, with Hydrogen Europe noting that “while 2021 and 2022 reports tracked ~6[GW] to come online in 2024, this year’s report tracks 2.4[GW] as the rest was delayed or cancelled”.
“The real number that will have come online by the end of 2024 will likely be significantly lower,” the report adds.
Although around 9GW of new capacity was announced this year for installation by 2030, Hydrogen Europe’s figures for cumulative installed capacity by the end of this decade have dropped by 54GW to 85GW, in part due to the “cancellation” of a single large previously-announced project.
However, Hydrogen Europe notes that in addition to collecting information from confidential sources, it will also list a project as cancelled in its report if there has been no further news on its progress in 18 months.
When it comes to the known reasons for project cancellations or delays, the industry association highlights regulatory uncertainty and funding access.
Hydrogen Europe cites Boston Consulting Group’s interviews with banks, which indicate that only 26% of respondents expect hydrogen projects today to have risk-adjusted returns at par or higher than solar PV or wind assets — although when compared with renewables more generally, this rises to 67% of interviewees anticipating similar returns and 20% predicting higher returns from H2 by 2030.
The report also notes that these developers cite a lack of offtakers at current renewable H2 prices compared to grey, component delivery issues, teething problems with first-of-a-kind facilities, uncertainty around standardisation and certification, and a slower pace of development on transportation and storage infrastructure.
Hydrogen Europe has also tracked 29 large-scale storage projects, ie with more than 30GWh of capacity, albeit all early-stage.
Meanwhile, the industry association notes that the Belgium and the Netherlands “are the most advanced member states in terms of infrastructure development” for H2 transmission, having already started construction on their own national “backbone” of hydrogen pipelines.
Will Europe need imported electrolysers?
Europe currently has 3.9GW of annual electrolyser manufacturing capacity as of last month, or a 0.6GW increase from last year, giving it a 27% market share, compared to China’s 4.9GW (34%).
However, Hydrogen Europe points out that this would only deliver up to 23.4GW of electrolyser capacity over the next seven years. This means electrolyser manufacturing capacity would have to increase by 40% every year, or else Europe will be dependent on imported equipment.
Manufacturers have already announced 27.8GW of expansions by 2030, with a 10GW bump from 2025, which would enable 169GW of electrolysers to be made by the end of 2030—more than enough to produce the ten million tonnes of domestically produced H2 the EU targets by that year.
However, Hydrogen Europe notes that new manufacturing capacity generally has an investment lead time of 3-4 years, while two-thirds of the expansion projects are still at a pre-FID stage — ie, “with a significant risk of cancellation, delay or relocation”.
Which countries are leading green hydrogen development?
Unsurprisingly, Spain—with its higher availability of cheap solar power compared to much of Europe—dominates the green hydrogen project pipeline, with 21.6GW of capacity spread across 141 announced facilities. However, around half of this capacity has not even started a feasibility study, with only 14% at “preparatory” stage, ie front-end engineering design.
Meanwhile, Sweden has 3.1GW of advanced-stage projects, or 61% of its project pipeline, while 59% of Finland’s project pipeline (3.3GW) is similarly progressed.
“These numbers reflect the relative attractiveness of the Scandinavian countries and their position as first movers in developing [power-to-hydrogen] projects due to affordable and low-carbon grid electricity and willingness to pay from local offtakers,” the report notes.
According to Hydrogen Europe, grid-connected green hydrogen production in Sweden and Finland cost €3.9/kg and €4.8/kg respectively, compared to an average European cost of around €9.9/kg. This is mainly due to a lower proportion of gas-fired power plants in these countries' electricity mix, which muted the impact of spiking gas prices on electricity in these markets.
However, hydrogen projects with a direct connection to renewables have also seen estimated prices increase 60% between 2021 and 2022 due to rising inflation.
Hydrogen Europe puts the current average levelised cost of renewable H2 production in Europe at around €7/kg, based on average wind and solar conditions within each country.
Assuming project development in regions with the best resources, the industry association estimates these costs could be as low as €4.4/kg using solar PV or €3.1/kg using onshore wind.
Meanwhile, although the UK is in the middle of the pack for green H2, with only 5.3GW of electrolysis capacity announced, its political push for blue hydrogen means the country tops the leaderboard for total announced production capacity by 2030 at 3.1 million tonnes a year.
Norway, at the bottom of the table for announced electrolyser capacity with only 2.3GW, similarly rises to fourth in announced clean hydrogen production by 2030 (1.7 million tonnes a year) if blue H2 is included.
But while the UK has more than 800,000 tonnes of blue hydrogen production capacity by 2030 at the preparatory phase, this is likely to hinge on the timely development of the first carbon transportation and storage “clusters”, which are set to be operational by the mid-2020s — although no FID has been taken yet.