The momentum behind inexperienced hydrogen has notably decelerated, with builders being hit with some laborious residence truths. Far fewer tasks have taken the ultimate funding determination (FID) this yr than anticipated. As of Might 2024, lower than 7% of the introduced electrolytic capability had handed the FID stage globally, based on information by the Hydrogen Council. A number of large-scale hydrogen tasks have been cancelled or delayed, together with the 17MW Hannover undertaking and the 12 GW HyEnergy undertaking in Australia.
Builders level fingers at price escalations throughout the worth chain, uncertainty across the buyer offtake, issue getting grid connections, and hard-to-access regulatory schemes. On the Investing in Inexperienced Hydrogen 2024 occasion in London final month, there was rather a lot to be taught on the topic.
Regulatory Quagmire
The U.S. The Inflation Discount Act (IRA) held promise of reducing inexperienced hydrogen costs, with a subsidy that interprets into $3/kg – some of the beneficiant tax subsidies on inexperienced hydrogen on this planet. Nevertheless, the hourly matching requirement, which implies that to qualify for the subsidy producers should present that they’ve used renewable energy sources each hour to provide hydrogen, has made it tough for builders to entry the tax subsidy.
So, the typical price of inexperienced hydrogen within the U.S. is presently estimated at $5/kg, with the IRA subsidy already deducted. In the meantime, the price of gray hydrogen, which is produced from fossil fuels with out carbon seize and storage, is presently estimated at $0.5/kg.
In early October 2024, U.S. undertaking developer Hy Stor’s Mississippi Clear Hydrogen Hub (MCHH) cancelled a 1 GW hydrogen order. Hy Stor didn’t state the rationale for the delay, however the undertaking was unsuccessful in receiving funds from the U.S. authorities’s $7B Regional Clear Hydrogen Hubs scheme.
Escalating Venture Prices
Many hydrogen tasks had been introduced with the expectation of the supply of low-cost energy in addition to prices declining throughout the worth chain because the business scales. In Europe, the expectation that energy costs will decline has not materialized and the high-interest fee surroundings has put upward strain on undertaking prices throughout the worth chain.
Builders reported a mean three-fold price to the upfront CAPEX. A report from the Hydrogen Council on the finish of December 2023 prompt that tasks confronted price escalation of as much as 65%. The fee and availability of elements has additionally not improved, with the typical anticipate transformers estimated at two years. There may be as much as a ten yr wait in lots of nations for a grid connection.
As a consequence, the forecast worth declines haven’t materialized, and inexperienced hydrogen costs stay too excessive to draw any long-term offtake curiosity, and fewer than ten FIDs on European crops have been made this yr. It’s also turning into more and more clear that hydrogen will stay too costly in comparison with a number of the competing decarbonizing applied sciences, and so is more likely to solely be fitted to some area of interest functions. For instance, it’s unlikely that hydrogen will ever play a serious function in house heating.
Lengthy-term offtake agreements (Hydrogen Offtake Agreements (HOAs)) are essential to safe undertaking financing. With little or no visibility into hydrogen pricing and consequently diminished alternative for worth threat hedging, consumers are understandably reluctant to signal on the dotted line. It’s estimated that between 100-200 offtake agreements in Europe have been signed with tenures of 5-15 years. In the meantime, banks and different undertaking financiers have to see at the very least 12-year offers to offer undertaking capital.
It’s tough to align the client’s and vendor’s expectations. Giant-scale electrolyzers are nonetheless a reasonably nascent expertise and so it’s laborious for builders to present efficiency ensures that will fulfill clients.
One strategy to circumvent the worth threat is for consumers to acquire a stake in a hydrogen manufacturing facility. As a fantastic instance, Scania signed a provide settlement with the H2 Inexperienced Metal undertaking, and likewise participated in its $105B Collection A spherical. Venture builders can even construct enterprise fashions on tolling agreements, the place an offtaker gives an enter, comparable to electrical energy or water, and solely pays for its conversion into hydrogen. A tolling settlement sometimes stipulates minimal offtake volumes.
As builders are scaling up, extra issues have emerged. Optimizing the steadiness of plant (BoP) is proving to be a studying curve, builders conceded. Moreover, it’s tough to match the manufacturing profile with the demand curve. Builders underlined that it was simpler to get smaller tasks over the end line than gigaprojects. Certainly, solely 9% of unpolluted hydrogen gigaprojects globally have handed the FID, based on the Hydrogen Council information.
Nonetheless some tasks have certainly managed to progress over the FID line, providing learnings to those that observe. Shell took a last funding determination on its 100MW PEM electrolyzer on the Chemical compounds Park Rhineland manufacturing website in Germany. Tim Calver, VP of Business at ITM Energy, the expertise supplier for the Rhineland undertaking, famous that the success of the undertaking’s progress might be attributed to receiving readability round subsidy schemes, together with the grid exemption subsidy, a monetary incentive offered to entities that generate and eat their very own electrical energy with out counting on the standard energy grid.
Moreover, new hydrogen use circumstances, comparable to distributed ammonia manufacturing, are rising. Ammonia manufacturing is usually performed through the Haber-Bosch course of which usually requires an uninterrupted energy provide and economies of scale. Nevertheless, start-ups like Ammobia require decrease temperatures and ten instances decrease strain to provide ammonia than the conventional Haber-Bosch course of, making distributed manufacturing case doable.