Accelerating the Global Hydrogen Industry

After COP 27 concluded, countries and regions worldwide accelerated their low-carbon transformation of energy structure to achieve climate goals set by the Paris Agreement. After solar and wind energy, hydrogen—primarily green hydrogen produced from renewable energy, seen as one of the critical measures of energy transformation and carbon reduction—is a new energy source garnering international attention. Europe, the United States, China, and many other countries and regions around the world are making medium to long-term strategic development plans for the hydrogen industry, expecting to receive significant investments from both governments and the private sector.

The global hydrogen energy market forecasts from Goldman Sachs and the International Energy Agency (IEA) are highly consistent with those of the International Renewable Energy Agency (IRENA). According to Goldman Sachs, the current total value of the global hydrogen energy market is about US $125 billion, and the market size will exceed US $1 trillion by 2050. Similarly, an IEA report predicts the global demand for low-carbon hydrogen energy will reach 520 million tonnes/year by 2050, accounting for 13 percent of total international terminal energy use.

In the context of the accelerated expansion of the hydrogen energy market, green hydrogen will usher in unprecedented development opportunities as the cost of large-scale wind power and other renewable energy continues to decline. Although green hydrogen currently only accounts for a small proportion of the global total hydrogen production, expectations suggest that it will lead the hydrogen industry expansion in the next three decades, with many green hydrogen projects around the world under planning and construction. According to the data from IEA, green hydrogen accounted for less than 1 percent of total global hydrogen energy production, while by 2050, the figure is likely to exceed 60 percent. The increase in green hydrogen production will optimize the world's energy structure, reduce greenhouse gas emissions, and become the key to slowing down the rate of global warming.

In the context of the accelerated expansion of the hydrogen energy market, green hydrogen will usher in unprecedented development opportunities as the cost of large-scale wind power and other renewable energy continues to decline.

The United States, Europe, and China are the three primary hydrogen energy-producing countries and regions in the world. China's hydrogen energy output ranks first, with an annual production of 33 million tonnes in 2021. Production levels in Europe and the United States remain similar, producing about 10 million tonnes that year. Despite efforts to increase output, China, Europe, and the United States must significantly increase their hydrogen energy productivity levels (in particular, green hydrogen) to meet future demand and achieve carbon neutrality and net-zero goals.

For downstream application fields, China, Europe, and the United States plan to focus on implementing hydrogen energy in electricity, transportation, construction, and aerospace. There are also hopes for its application to the low-carbon transformation of the "hard-to-abate" sectors, such as steel. China, Europe, and the United States are actively raising funds to support R&D in the application field to break through technical barriers and expand the application market.

In the past two years, major countries and regions worldwide, including the US, Europe, and China, have all raised the development of hydrogen energy to the national strategy level and issued hydrogen plans and incentive policies with a strong emphasis on the development of green hydrogen. Besides setting short-, medium-, and long-term development goals, relevant technical and economic targets for the hydrogen industry have also been drafted.

In 2020, the European Commission published A Hydrogen Strategy for a Climate-Neutral Europe, which proposes three phases for the development of hydrogen energy across Europe:

1. 2020 to 2024: targets to install at least 6 GW of renewable hydrogen electrolyzers and produce up to 1 million tonnes of renewable hydrogen per year
2. 2025 to 2030: targets to install at least 40 GW of renewable hydrogen electrolyzers and produce up to 10 million tonnes of renewable hydrogen per year, and hydrogen needs to become an intrinsic part of an integrated energy system
3. 2030 to 2050: renewable hydrogen technologies should reach maturity and be deployed at a large scale to reach all hard-to-decarbonize sectors

According to Hydrogen Roadmap Europe: A Sustainable Pathway for the European Energy Transition, published by Fuel Cells and Hydrogen Joint Undertaking (FCH-JU), by 2030, the EU is expected to build 3,700 large hydrogen refueling stations, hire about 1 million highly-skilled workers; by 2050, the hydrogen industry is predicted to reach 820 billion euros (equivalent to around 880.5 billion US dollars), hire about 5.4 million highly-skilled workers, account for 24 percent of final energy demand, and reduce 560 million tonne CO ₂  emissions annually.

The US Department of Energy issued the Hydrogen Program Plan in 2020, followed by the National Clean Hydrogen Strategy and Roadmap in 2022, which set technical and economic indicators for the hydrogen energy development and proposed near-, medium-, and long-term development goals. The annual production of green hydrogen in the US is expected to reach 10 million metric tonnes in 2030, 20 million metric tonnes in 2040, and 50 million metric tonnes in 2050 and enable an estimated 710 million tonnes of GHG emissions reduction annually by 2050. In addition, the Fuel and Hydrogen Energy Association (FCHEA) forecasts that by 2030 the US hydrogen industry will create 700,000 jobs and generate $140 billion per year in revenue. They also predict that by 2050, hydrogen will create 3.4 million jobs, generate $750 billion per year in revenue, and meet 14 percent of US energy needs.

In 2022, China's National Development and Reform Commission (NDRC) and National Energy Administration (NEA) proposed the country's Medium and Long-term Plan for the Development of Hydrogen Energy Industry (2021-2035), which highlights the strategic position, objectives, and main tasks of the hydrogen energy development. The plan focuses on developing hydrogen production from renewable energy sources and restricting hydrogen production from fossil energy sources.

China's renewable hydrogen production is expected to far exceed the goals set out in the plan. As per the plan, by 2025, the fuel cell vehicles in China will reach around 50,000, supported by a network of hydrogen refueling stations. During that time, the productivity of renewable hydrogen will reach approximately 100,000 to 200,000 tonnes per year and reduce 1 to 2 million tonnes of CO ₂  emissions per year. Moreover, by 2035, the proportion of China's renewable hydrogen for end-use will also increase. The goals set out in the plan are relatively conservative as the productivity of the renewable hydrogen projects in operation and those under development in China already accounted for almost 250,000 tonnes.

According to China Hydrogen Energy Alliance, by 2030, China's hydrogen energy will account for five percent of the final energy consumption, and demand for hydrogen will reach 35 million tonnes. By 2050, hydrogen energy will account for 10 percent of the final energy consumption, and demand for hydrogen will reach 60 million tonnes. The value of the industrial hydrogen chain will reach about 12 trillion RMB per year (equivalent to around 1.76 trillion US dollars) and reduce CO ₂  emissions by 700 million tonnes annually.

With a promising hydrogen energy market on the horizon, various international governments are actively encouraging the investment of private sector funds in addition to public funding to fill the funding gap for the development of the hydrogen energy market.

In 2022, the European Commission approved two hydrogen energy projects within three months named Hy2Tech and Hy2Use. These two projects will support research and innovation of the hydrogen value chain, industrial deployment, and relevant infrastructure construction. The member states participating in the project will jointly contribute 10.6 billion euros (equivalent to around 11.4 billion US dollars) and leverage about 15.8 billion euros (equivalent to about 17 billion US dollars) of private-sector funding.

Additionally, the European Commission announced the establishment of the European Hydrogen Bank, which can invest three billion euros (equivalent to around 3.2 billion US dollars) in developing the hydrogen energy market. Currently, most European hydrogen projects are facing significant funding gaps, partially due to the slow deployment of private-sector funding and limited support of public financing. The funding gaps are also partly due to most projects either currently being finalized or in between the announcement and final investment decision. This situation will improve as projects progress, and private-sector funding is deployed.

In 2021, the Biden Administration passed the Bipartisan Infrastructure Law, establishing US$9.5 billion for Clean Hydrogen Initiatives. In 2022, the Department of Energy kicked off a Regional Clean Hydrogen Hubs program, H2Hubs, which includes up to US$7 billion in funding through the Bipartisan Infrastructure Law. The program is expected to leverage billions of dollars in private investment.

As early as 2013, the US began to build a strategic plan around hydrogen infrastructure development by establishing the H2USA. This program formulates strategic plans for financing, network planning, and market expansion of hydrogen refueling stations in the United States, strengthening the country's world-leading position in the hydrogen energy infrastructure sector. Since 2017, the US Department of Energy has invested around $150 million per year in hydrogen and fuel cell development, actively supporting hydrogen energy-related innovation and technology transfer, hydrogen energy and fuel cell R&D, etc.

The hydrogen energy industry has enormous potential to grow in the future. Overall, the number of enterprises in China's hydrogen energy industry has grown steadily for 12 years, with the total number exceeding 2,000 with more than 150 hydrogen-related listed companies. Most companies are in the Beijing-Tianjin-Hebei area, the Yangtze River Delta, and the Pearl River Delta. Despite the rapid growth of the hydrogen energy industry in the past few years, the number of enterprises in the hydrogen energy industry is relatively small compared with more matured new energy industries such as photovoltaic and wind power.

According to an industrial research institute in China, the total annual investment in the hydrogen energy industry has reached RMB 310 billion (equivalent to around 45.3 billion US dollars) in 2021 and has caught the attention of capital markets. After the Chinese government released the Medium and Long-term Plan for the Development of Hydrogen Energy Industry (2021-2035), it became clear there would be a growing number of opportunities for hydrogen energy investment and financing. Both state-owned enterprises and financial institutions are actively investing in the hydrogen industry.

China's five major state-owned power generation groups have deployed the hydrogen energy industry. Over one-third of the central enterprises, such as hydrogen production, storage, refueling, and consumption, have been deployed in the entire industry chain. Among state-owned enterprises, State Power Investment Corporation is leading the hydrogen energy development by establishing SPIC Hydrogen Energy in 2017, which promotes the R&D of critical technologies such as catalysts and membrane electrodes.

On the other hand, financial institutions are actively setting up hydrogen energy industry funds. According to the Wind Data, as of June 2022, there are 56 hydrogen energy industry funds in China, raising more than 12 billion RMB (equivalent to around 1.8 billion US dollars). Most domestic hydrogen energy industry investments are concentrated in the upstream fuel cell and hydrogen production sectors. In contrast, the capital support for the downstream hydrogen application industry is relatively weak, calling for capital inflow to expand the application scenarios and the market scale.

While green hydrogen shows promise, scale and commercialization are challenging due to technical and policy challenges.

Green hydrogen is about three to four times more expensive than blue and grey hydrogen produced by fossil fuels. This cost makes green hydrogen less competitive, with far less production type than other types of hydrogen. However, with the continuous reduction of the renewable energy price brought by the scaling-up of generation, the breakthrough of hydrogen production technology, and the large-scale green hydrogen production, the cost of green hydrogen is expected to drop from the current US $5/kg to US $1/kg by 2030. This price decrease will significantly improve the market competitiveness and application scenarios of green hydrogen.

Another challenge of hydrogen energy development comes from transportation. Due to the unique characteristics of hydrogen energy and the high technical requirements in the transportation process, hydrogen energy transportation faces multiple risks, such as ultra-high pressure, ultra-low temperature, high transportation loss ratio, and potential explosion.

In addition, the industry management and standard system are still being established, and the application market urgently needs development. Moreover, the interaction between upstream and downstream enterprises in the industrial chain and the communication between different projects can also be improved.

The development of the hydrogen energy industry will promote the low-carbon transformation of global energy and is expected to reduce GHG emissions significantly.

Despite all the challenges, the world's green hydrogen industry will enter the fast lane of development. The development of the hydrogen energy industry will promote the low-carbon transformation of global energy and is expected to reduce GHG emissions significantly. The United States, Europe, China, and other countries and regions have attached great importance to developing hydrogen energy, especially green hydrogen, and are actively deploying the hydrogen energy industry. Establishing green hydrogen industry standards and implementing incentive mechanisms are crucial for attracting private capital. Meanwhile, green hydrogen costs will reduce gradually with technological breakthroughs and the development of large-scale business scenarios.  

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