De-risking low carbon hydrogen: a strategic guide for industrial companies

Hydrogen offers the potential to drive decarbonisation of hard-to-abate sectors like steel and refineries. The market potential especially for machinery and equipment manufacturers and EPC companies is also significant at around €25 billion by 2030. However, ramping up hydrogen production faces hurdles, and companies involved in hydrogen technology must navigate significant risks.

Setbacks in the hydrogen ramp-up

Despite its potential, global hydrogen ramp-up has been slower than expected. Demand is projected at 14 mtpa by 2030, about 30-40% lower than needed for climate targets. Rising costs, fossil fuel competition, and hydrogen project delays add uncertainty. Europe, while a technology leader, has installed only 0.5 GW of electrolyser capacity against a 6 GW target for 2024. Costs are also higher than projected.

Competing global players

The US and China are advancing their hydrogen agendas, but neither has fully solved the economic challenges. In the US, incentives like the 45V tax credit offer up to $3 per kg for hydrogen based on carbon intensity, but high production costs remain a challenge.

China, driven by provincial initiatives, has rapidly increased its capacity, producing hydrogen at lower costs, yet faces challenges in creating domestic demand, with much of its output aimed at international markets. However, China is scaling and moving rapidly down the learning curve, marking especially their fuel cell manufacturing industry as an emerging market leader. Chinese electrolyser manufacturing industry will likely also become a market leader if not challenged by machinery makers and technology providers in other regions.

Imperatives for industrial companies

For companies involved in the hydrogen value chain, particularly machinery makers and technology providers, navigating these complex dynamics requires a multi-faceted strategy. The white paper outlines several key actions that companies can take to de-risk their hydrogen investments and remain competitive.

1. Reevaluate business models: Companies must revisit their business cases in light of delayed revenue expectations and shifting market dynamics. This includes focusing on early demand pockets such as specific customer segments and regions. Also, opportunities for collaboration with Chinese OEMs such as licensing models, and JVs.
2. Secure critical raw materials: Access to key materials, such as membranes and ionomers, will be vital for scaling hydrogen production. Companies should focus on long-term supply agreements, material recycling, and avoiding single-source dependencies.
3. Reduce costs through efficiency: Reducing costs will be essential as hydrogen technology matures. Companies should leverage AI-enabled solutions for tender assistance and supplier scouting while exploring new profit streams, such as pay-per-use models and equipment leasing.
4. Foster ecosystem partnerships: Collaborative efforts across the hydrogen value chain will be essential for delivering projects on time and within budget. Companies should refine their partnerships to share risks and benefits, enhancing system efficiency and improving the levelised cost of hydrogen.

The global hydrogen market is at a critical juncture. Different regions bring unique strengths to the table, but no region has yet unlocked the economic potential of low carbon hydrogen. For companies operating in this space, de-risking their hydrogen investments will be crucial for success. By embracing flexible business models, technological innovation, and strategic partnerships, companies can position themselves to rapidly expanding hydrogen economy. At the same time, policymakers must create environments that foster innovation and enable scalable solutions to support the industry’s growth.