The global hydrogen economy is growing despite global headwinds resulting from rising interest rates and constrained supply chains, according to an analysis of more than 1,400 large hydrogen projects published by the Hydrogen Council.

Hydrogen Insights 2023 December Update, co-authored by McKinsey & Company, is the industry’s latest update on global hydrogen development. The project pipeline has grown to US$570 billion, including clean hydrogen production, end use and infrastructure—a 35% increase from 6 months ago.

Source: Hydrogen Insights 2023 December Update

Europe is found to maintain its lead in the overall project pipeline with more than US$190 billion of announced investments. However, only 7% of announced investments in clean hydrogen have passed FID; in Europe this figure is only 4% (US$8 billion), in North America 15% (US$10 billion), in China 35% (US$12 billion).

Hydrogen projects globally account for 45 Mt p.a. of announced clean hydrogen production capacity through 2030, of which more than 3 Mt p.a. have passed FID as of October this year.

While the reported growth continues to be strong, more projects need to be announced and existing projects need to mature faster. An additional US$430 billion in projects are required to put the world on track to a timely decarbonization.

It’s promising to see clean hydrogen projects developing across geographies, with 12 GW of electrolyzer capacity reaching FID. However, we need to further build on this momentum if hydrogen is to fulfil its role in supporting the energy transition. This is achievable with the right regulatory frameworks in place, and through collaboration across the entire hydrogen value chain.

—Sanjiv Lamba, CEO of Linde and Co-Chair of the Hydrogen Council

These developments in hydrogen are playing out in a more challenging macroeconomic environment. Higher costs of capital, higher EPC costs and higher costs of renewable power have increased the cost of making renewable hydrogen. Estimates for production costs of renewable hydrogen are up 30-65%, resulting in US$4.5-6.5/kg.

In the long run, the Hydrogen Council expects production costs to fall to US$2.5-4/kg of renewable hydrogen.

Reductions in electrolyzer costs of up to 70% through 2050 are considered to be the strongest lever to bring down renewable hydrogen CapEx and overall costs. However, further measures—such as the standardization of projects—are required to optimize renewable hydrogen production CapEx fully, and while it could fall by 45% through 2030, the report finds that active project optimization could decrease costs by an additional 25%.

Optimizing renewable hydrogen CapEx is key to countering recent increases in the cost of producing renewable hydrogen of about 30-65%. Cost increases have mainly been caused by global interest rate hikes, supply chain constraints, and increased renewable energy costs. Optimizing renewable hydrogen production could cut CapEx by half vs 2023 levels.

—Bernd Heid, Senior Partner at McKinsey