Investment and projects in low-emissions hydrogen are growing, but policies to stimulate demand in key sectors such as heavy industry, refining and long-distance transport are needed to speed up deployment
A wave of new projects shows the continued momentum for low-emissions hydrogen despite challenges due to regulatory uncertainties, persistent cost pressures and a lack of incentives to accelerate demand from potential consumers, a new IEA report says today.
The IEA's annual Global Hydrogen Review 2024 shows that the number of projects that have reached final investment decision has doubled in the past 12 months, which would increase today's global production of low-emissions hydrogen fivefold by 2030. The total electrolyser capacity that has reached final investment decision now stands at 20 gigawatts (GW) globally.
If all announced projects are realised worldwide, total production could reach almost 50 million tonnes a year by the end of this decade. However, this would require the hydrogen sector to grow at an unprecedented compound annual growth rate of over 90% between now and 2030, well above the growth experienced by solar PV during its fastest expansion phases.
Of the more than 6 GW of electrolyser capacity to reach final investment decision in the past year, China accounts for more than 40%. The country's expertise in mass manufacturing of clean energy technologies, including electrolysers, means it is home to 60% of global electrolyser manufacturing capacity, which, at 25 GW per year, is well above the average deployment rate globally.
Despite new project announcements, installed capacity for electrolysers and low-emissions hydrogen volumes remain low as developers wait for clarity on government support before making investments. Uncertainty around demand and regulatory frameworks mean most potential production is still in planning or early-stage development, with some larger projects facing delays or cancellations due to these barriers along with permitting challenges or operational issues.
"The growth in new projects suggests strong investor interest in developing low-emissions hydrogen production, which could play a critical role in reducing emissions from industrial sectors such as steel, refining and chemicals," said IEA Executive Director Fatih Birol. "But for these projects to be a success, low-emissions hydrogen producers need buyers. 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."
The report highlights a gap between government goals for production and demand. Production targets set by governments worldwide add up to as much as 43 million tonnes per year by 2030, but demand targets only total just over a quarter of this, at 11 million tonnes by 2030. Some government policies are already in place to stimulate demand for low-emissions hydrogen and hydrogen-based fuels. Examples, such as carbon contracts for difference and sustainable fuel quotas for aviation and shipping, are triggering action on the industry side, leading to an increase in signed agreements between producers and commercial consumers. However, the progress made in the hydrogen sector so far is not sufficient to meet climate goals, the report finds.
As a nascent sector, low-emissions hydrogen still faces technology and production cost pressures, with electrolysers in particular slipping back on some of their past progress due to higher prices and tight supply chains. A continuation of cost reductions relies on technology development, but also optimising deployment processes and moving to mass manufacturing to achieve economies of scale.
Cost reductions will benefit all projects, but the impact on the competitiveness of individual projects will vary. For example, hydrogen production via electrolysis in China could become cheaper than hydrogen produced from unabated coal by 2030, assuming the entire global electrolyser project pipeline of around 520 GW is realised. Industrial hubs - where low-emissions hydrogen could replace the existing large demand for hydrogen that is currently met by production from unabated fossil fuels - remain an important untapped opportunity by governments to stimulate demand.
This year's Global Hydrogen Review shines a spotlight on Latin America as a potential hub for low-emissions hydrogen production and use. Many Latin American countries already have hydrogen strategies with a strong focus on export opportunities, but near-term opportunities lie mostly in refining and ammonia production for domestic use, which offer immediate large-scale applications. A phased approach to supply in the region, starting with smaller-scale projects, will help mitigate risks, reduce capital investment, and provide valuable experience for scaling up in the future.
Global Hydrogen Review 2024: Explore report
