While there continues to be a high level of interest in new hydrogen projects, the current challenging economic climate means that a timely and well-structured roll-out of policy support is needed for the successful realisation of these investments, says the International Energy Agency (IEA).

The IEA elaborates that momentum in favour of low-emissions hydrogen remains strong, even in the face of delayed financial incentives and persistent cost pressures that pose potential project delays. It notes that production levels can still increase substantially by 2030 if all announced projects are realised.

The IEA emphasises the importance of proactive measures by countries to encourage hydrogen uptake. Despite more than 40 countries globally unveiling national hydrogen strategies, the actual capacity and production volumes remain limited. This is mainly owing to developers awaiting government support before committing to investments. As such, low-emissions hydrogen accounts for less than 1% of overall hydrogen production and use.

This while inflation remains relatively high and supply chains disrupted, which threatens long-term profitability. The IEA explains inflation and more expensive borrowing costs are affecting the entire hydrogen value chain, driving up financing costs for developers and reducing the impact of government support.

This confluence of factors is particularly detrimental for an industry that faces high upfront costs related to equipment manufacturing, construction and installation.

Nonetheless, electrolyser capacity for hydrogen production had reached almost 700 MW by the end of 2022.

Based on projects that have reached final investment decision or are under construction, total capacity could more than triple to 2 GW by the end of 2023, with China accounting for half of this figure.

If all announced projects are realised, a total of 420 GW could be achieved by 2030, an increase of 75% compared with the IEA’s Global Hydrogen Review 2022.

The IEA notes low-emissions hydrogen plays a key role in decarbonising energy-intensive sectors such as chemicals, refining and steel, but a challenging economic environment will now test the resolve of hydrogen developers and policymakers to follow through on planned projects.

IEA executive director Fatih Birol reiterates that greater progress is needed on technology, regulation and demand creation to ensure low-emissions hydrogen can realise its full potential.

Beyond the challenges facing manufacturers and developers, the IEA’s Global Hydrogen Review 2023 also finds that efforts to stimulate demand for low-emissions hydrogen are lagging behind what is needed to meet climate ambitions.

Hydrogen use globally reached 95-million tonnes in 2022, which marks an increase of nearly 3% compared with the previous year.

The IEA explains there was strong demand growth in all major consuming regions except Europe, which suffered a hit to industrial activity owing to the sharp increase in natural gas prices. However, the uptake of low-emissions hydrogen remains very limited, accounting for only 0.6% of total hydrogen demand.

As a result, hydrogen production and use in 2022 released 90-million tonnes of carbon dioxide emissions into the atmosphere.

The report further outlines how low- emissions hydrogen can be an opportunity for countries to boost their economies for the future by creating new industrial supply chains.