Uncertainty around demand and incentives coupled with cost pressures are weighing on the global adoption of low-carbon hydrogen despite an uptick in final investment decisions in the past year, the International Energy Agency (IEA) said in a new report on Wednesday.
World demand for hydrogen rose by 2.5% to 97 million tons in 2023, with demand concentrated in refining and chemicals, and mostly covered by hydrogen produced from unabated fossil fuels, the IEA said in its annual Global Hydrogen Review 2024.
“As in previous years, low-emissions hydrogen played only a marginal role, with production of less than 1 Mt in 2023,” the agency said.
The report found that the number of low-emission hydrogen projects that have reached a final investment decision (FID) is growing. Announced production that has taken FID doubled compared with last year to reach 3.4 million tons per annum (Mtpa). The split is roughly even between electrolysis, 1.9 Mtpa, and fossil fuels with carbon capture, utilization, and storage (CCUS)—1.5 Mtpa.
In green hydrogen, the total electrolyzer capacity that has reached a final investment decision now stands at 20 gigawatts (GW) globally.
If all announced projects are realized worldwide, total production could reach almost 50 million tons a year by the end of this decade. But this would need the hydrogen sector to grow at an unprecedented rate of over 90% each year between now and 2030, well above the growth experienced by solar PV during its fastest expansion phases, the IEA noted.
Moreover, “several projects have faced delays and cancellations, which are putting at risk a significant part of the project pipeline,” the agency said.
Most recently, Shell and Equinor have ditched plans for low-hydrogen production and transportation in north Europe, due to a lack of demand.
According to the IEA, the main reasons for the slow uptake of low-carbon hydrogen “include unclear demand signals, financing hurdles, delays to incentives, regulatory uncertainties, licensing and permitting issues and operational challenges.”
“[F]or these projects to be a success, low-emissions hydrogen producers need buyers,” said IEA Executive Director Fatih Birol.
“Policymakers and developers must look carefully at the tools for supporting demand creation while also reducing costs and ensuring clear regulations are in place that will support further investment in the sector.”
By Tsvetana Paraskova for Oilprice.com
