A Perspective on Hydrogen Investment, Deployment and Cost Competitiveness
17 February 2021
Deployment and investments in hydrogen have accelerated rapidly in response to government commitments to deep decarbonisation, establishing hydrogen as a key component in the energy transition.
To help guide regulators, decision-makers, and investors, the Hydrogen Council collaborated with McKinsey & Company to release the report ‘Hydrogen Insights 2021: A Perspective on Hydrogen Investment, Deployment and Cost Competitiveness’. The report offers a comprehensive perspective on market deployment around the world, investment momentum as well as implications on cost competitiveness of hydrogen solutions.
Deployment and investments:
There are over 30 countries with hydrogen roadmaps, and 228 large-scale hydrogen projects announced across the value chain, with 85% located in Europe, Asia, and Australia. If all projects come to fruition, total investments will reach more than $300 billion in spending through 2030, including $80 billion which can be considered “mature” – meaning that these projects are in the planning stage, have passed a final investment decision (FID), or are under construction, already commissioned, or operational. Governments worldwide have committed more than US $70 billion in public funding.
On a company level, members in the Hydrogen Council are planning a sixfold increase in their total hydrogen investments through 2025 and a 16-fold increase through 2030. They plan to direct most of this investment toward capital expenditures (capex), followed by spending on merger and acquisition (M&A) and R&D activities.
Renewable hydrogen production cost could fall faster than estimated, if scaled up with the right long-term regulatory framework and public support, continued decline in renewable costs, and a rapid scale-up of value chains for electrolysis and carbon management. Projections show that by 2030 the costs of renewable hydrogen production could be in the range of $2.3 per kilogram and $1.4 per kilogram (the range results from differences between optimal and average regions).
Low-carbon hydrogen can break even with grey hydrogen between 2028 to 2034 at a cost of about $35-50 per ton of carbon dioxide equivalent.
To unlock hydrogen applications, a cost-efficient transmission and distribution will be required. Long-term, a network of pipelines offers the most cost-efficient means of distribution, while in the short- to medium-term, the most competitive setup involves co-locating hydrogen production on- or near-site that connects resource-rich regions to demand centers via trucks, trains, refueling stations, and smaller industrial users.
Longer distances can be covered by shipping, where hydrogen needs to be converted to increase its density. While several potential hydrogen carrier approaches exist, three carbon-neutral carriers – liquid hydrogen (LH2), liquid-organic compounds (LOHC) and ammonia (NH3) – are gaining most traction. The end use of hydrogen needs to be considered to determine the most cost-optimal solution.
With increased scale of hydrogen deployment and subsequent falling costs of hydrogen and various technologies, from a total cost of ownership (TCO) hydrogen could be the most competitive low-carbon solution in more than 20 applications by 2030, including long haul trucking, shipping, and steel.
However, pure TCO is not the only driver of hydrogen application adoption. Customers and investors’ decisions will be influenced by future environmental regulations, ESG-compliant investments, and the associated “green premiums”. Hydrogen application is also advancing in aviation. Other end-applications such as buildings and power will require a higher carbon cost to become cost competitive.
It is expected that hydrogen clusters will emerge with large-scale hydrogen off-takers at their core. Three cluster types are already gaining traction:
Industrial centres that support refining, power generation, and fertiliser and steel production;
Export hubs in resource-rich countries; and
Port areas for fuel bunkering, port logistics, and transportation.