Electrolyzer projects rise but hydrogen demand remains a concern

Global development of hydrogen electrolyzers rose 4% in the last six months to 1.2 TW as some 55.2 GW of new projects were added, according to Aurora Energy Research’s global electrolyzer database. Europe leads, the Q2 2024 European Hydrogen Market Report (HyMaR) said, making up 32% of the capacity share, followed by Oceania at 21%.
North America announced just 1.5 GW of projects in that same period, 1 GW of which was due to the Coyote Hydrogen Project in Canada, Aurora said. The global clean hydrogen market is developing more slowly than many expected and, while the increase was sizeable, researchers noted that 90% of announced projects are still in early phases.
“The disclaimer is that one needs to take those numbers with a grain of salt, because not all those projects are going to be realized,” says Dilara Caglayan, lead expert at Aurora Energy. “These are ambitions or projects that people have started looking at in the form of a feasibility study or front-end engineering design, but only a limited number of those projects have taken a final investment decision.”
The numbers were also somewhat skewed by an especially ambitious project, the Spirit of Scotia by Green Hydrogen International in Nova Scotia, Canada, which accounts for some 500 GW of the 1.2 TW of total global projects cited in the study. Total operational capacity of existing projects is less than 2 GW while 130 to 140 GW of more advanced projects are in the works, the study showed. Around 15 GW of projects have reached a final investment decision (FID), representing 12% of all global operational and under-construction capacity, the report showed.
Even with the rise in projects seen in Europe, electrolyzer capacity is expected to fall short of EU targets for 2030 due to high electrolyzer CAPEX, rising cost of capital, and uncertainty in offtake agreements, according to Aurora.
Early starters. In the U.S., some manufacturers have already begun to produce hydrogen despite uncertainties.
The H2B2 Electrolysis Technologies-operated SoHyCal facility in California has been running since November 2023 and currently produces around 300 kg of hydrogen from proton exchange membrane (PEM) electrolyzers. 
The electrolyzers, the first phase, are powered by electricity generated using biogas from a nearby dairy farm.
The plant will switch to solar PV power source as part of its second phase, expected in 2025. It boasts a nameplate capacity of up to 3,000 kg/day and includes on-site storage. The two offtakers for hydrogen produced at the site operate with a take-or-pay contract – in which the customer either takes the agreed amount of hydrogen from H2B2 or pays a penalty – and are in the transport sector, according to Pedro Pajares, CEO of HSB2 US.
The market for clean hydrogen is currently medium- to heavy-vehicles, cleaning trucks, garbage trucks and eighteen-wheeler trailers, Pajares says and HSB2 is working through the permitting process for at least two fueling stations along California’s main highways. Further expansion, however, will need high level guidance and a final ruling on how low-emission hydrogen will be defined (known as 45V) in order to receive production tax credits (PTCs) under the huge Inflation Reduction Act (IRA), Pajares says. “We are extremely curious to see how 45V is going to play out and, depending on how the layout is, how we move going forward,” says Pajares.
Projects on hold. Final details of which projects are eligible for the inflation act’s PTCs are expected later this year and until that is decided, many projects are on hold. The simplicity of the inflation act grants makes the U.S. an attractive destination for clean hydrogen companies.
While Europe has forged ahead on the surrounding regulation including supply and demand incentives, the U.S. promised large subsidies at the beginning and is now grappling with the details. “Europe began strong in 2020, then slowed down as it got into the nitty gritty of the legislation and criteria that was needed to develop, and that’s similar to what we’re seeing in the United States right now,” says Constantine Levoyannis, Head of EU Affairs at Norwegian alkaline and PEM electrolyzer manufacturer Nel Hydrogen. “The longer we have this uncertainty around the rules on 45V, that's going to slow down the FIDs. It's not a stretch to say that we're waiting for that step to happen so that we can keep progressing.”
Nel Hydrogen has secured close to $170 MM in support from the U.S. Department of Energy (DOE) and the State of Michigan for planned manufacturing expansion in Detroit. This includes inflation act incentives and around half of the funding support is in cash incentives. In April, the company announced it was partnering with Hy Stor Energy on the Mississippi Clean Hydrogen Hub and received a capacity reservation for more than 1 GW of alkaline electrolyzers.
Sticks and carrots. Europe and the U.S. also differ in how they incentivize production and offtakers, sometimes referred to as the carrot and stick approach. Europe has given industry incentives to switch to clean hydrogen (carrots) – through the Innovation Fund, contracts for difference (CfD), and the European Hydrogen Bank auctions - and disincentives to continue the use of fossil-fuel hydrogen (sticks), in the form of carbon taxes and use targets for transport and fertilizer manufacturers.
The U.S. has offered a sizeable carrot for producers in the form of the generous PTCs while rolling out little in terms of demand incentives to encourage users to move away from fossil-fuel-sourced hydrogen. The U.S. government is unlikely to use demand-side incentives to facilitate a switch to expensive clean hydrogen from cheap fossil-fuel hydrogen, according to CEO of Plug Power, which runs the largest PEM electrolyzer in the U.S. in Georgia with eight 5 MW electrolyzers. “There is no way the U.S. will implement sticks. Regardless of what happens (in November’s Federal election) Congress will be divided without a single working majority, so there’s not going to be sticks,” says Plug Power CEO Andy Marsh.
The price of clean, low-emission hydrogen will depend largely on the tax credit, he says, though this puts greater emphasis on clarifying the 45V rules that guide those credits. “You need the carrot of the tax credit really clear before people jump in,” he says.

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