The few that have some kind of fuel purchase agreement are mostly vague, non-binding arrangements that can be quietly scrapped if the potential buyers back out. As a result, many of the projects now being touted with great fanfare by countries seeking to become “the Saudi Arabia of hydrogen” are unlikely to ever be built. According to BloombergNEF, only 12 percent of hydrogen plants, which are considered low-carbon because they avoid natural gas or reduce emissions, have customers who have contracts to use the fuel.
The media could not be loaded because either a server or network error occurred or the format is not supported.
“No sensible project developer will start producing hydrogen without having a buyer for it, and no sensible banker will lend money to a project developer without having sufficient certainty that someone will buy the hydrogen,” says BNEF analyst Martin Tengler.
It’s easy to see why hydrogen boosters have so much potential. The molecule could be crucial to the world reaching net-zero carbon emissions in the fight against climate change. When burned in a turbine or run through a fuel cell, it generates energy without spewing greenhouse gases into the air. Almost all of the hydrogen molecule used today is derived from natural gas, but producing it from water and renewable energy releases no carbon at all.
BloombergMany analysts see no other way to decarbonize steel, shipping and other industries that cannot easily run on electricity. BNEF predicts that by 2050, we will need 390 million tons of hydrogen per year globally to eliminate the world economy’s carbon emissions—more than four times the amount used today. But the transition is not that simple. Most companies that could work with hydrogen would need expensive new facilities to use it—a step they are reluctant to take. According to BNEF, hydrogen produced with clean energy costs four times as much as hydrogen made from natural gas. And it is difficult to build the infrastructure to supply hydrogen—not just facilities to produce it, but also pipelines to transport it—when demand may not materialize for years.
“It’s no different than any other large-scale energy development. Natural gas pipelines weren’t built without customers,” says Laura Luce, CEO of Hy Stor Energy. Her company has an exclusive letter of intent to supply hydrogen to an iron plant that Sweden’s SSAB SA plans to build in Mississippi.Countries with the potential to generate abundant renewable energy, such as Chile with wind power and Australia and Egypt with solar, have announced major goals to produce the fuel, often for export. More than 360 plants have been announced in China alone, according to BNEF.The European Union has set a goal of producing 10 million tons of carbon-free hydrogen by 2030 and importing the same amount. In the U.S., President Joe Biden has allocated $8 billion to create “hydrogen hubs,” clusters of companies that make and use the fuel.
Andy Marsh, CEO of Plug Power Inc., says his company is doing engineering and design work for European projects that would collectively use about 4.5 gigawatts of renewable electricity to produce hydrogen. “If half of that comes to fruition, we’ll be happy,” he says. “If a quarter of that comes to fruition, we’ll be happy.” Although the EU has set ambitious goals, Marsh said, member states are still in the process of incorporating them into their own regulations, delaying private investment.In the U.S., industry and the Biden administration continue to haggle over the requirements for applying for hydrogen tax credits under federal law. Meanwhile, projects intended for export face additional hurdles. Unlike natural gas or oil, there is no global system for transporting hydrogen yet. To transport hydrogen, it must be supercooled, compressed or transported in another, more manageable form, such as ammonia, which combines hydrogen with nitrogen.
Werner Ponikwar, CEO of hydrogen plant manufacturer Thyssenkrupp Nucera AG, thinks pipelines are a good option, but many potential hydrogen exporters would not be able to reach their potential customers via pipelines. “If you have to bridge an ocean, it’s more difficult,” he says. Many expect a quiet weeding out of more ambitious projects. Some planned plants have already been put on hold.
Today, Ponikwar says, projects that are likely to succeed are those that involve “the whole ecosystem”—that is, locate a hydrogen plant near a clean energy source, with a customer nearby, ready to use. For example, his company is supplying equipment for a hydrogen plant in northern Sweden that will in turn supply an iron and steel plant being developed by H2 Green Steel. H2 Green Steel has secured 6.5 billion euros ($6.9 billion) in funding for the project. The region’s abundant hydropower will provide the electricity, and Mercedes-Benz Group AG has agreed to buy 50,000 tons of the plant’s steel per year. “For green steel, there is a market that is interested in it, and they are willing to pay a premium for it,” Ponikwar says.
Hy Stor has taken a similar path, designing a project that will be located near its customer SSAB. The company’s Mississippi project will use on-site wind and geothermal energy to produce the hydrogen and store it in an underground salt dome. Other customers are now interested in the project’s hydrogen, Luce says. Although construction hasn’t started yet, she aims to have the project operational by 2027. “We didn’t build a project and then try to sell it to people. We built a project around a customer,” Luce says. “I always believe that customer-focused projects find a way to get done.”
