This is the third in a series of GTM Squared articles looking at the companies poised to manufacture the building blocks of Europe's new clean-energy economy. In the first piece, we looked at Europe's emerging battery supply chain, then solar's second chance at building a manufacturing base in Europe. In this third installment, we explore the potential for Europe to build the electrolyzers required for a green hydrogen boom.
Europe is betting big on green hydrogen. From heat to heavy transport, the miracle molecule holds the potential to decarbonize all those hard-to-reach places.
The global green hydrogen project pipeline grew from 3.5 to 10 gigawatts in the 10 months leading up to this summer, according to Wood Mackenzie, even in the absence of solid policy frameworks. Now nations are starting to fill in the blanks, and the EU has pledged to keep fossil-fuel-derived hydrogen in reserve as a bridge fuel only. Green hydrogen has been greenlighted.
Germany has a €7 billion ($8.2 billion) hydrogen strategy in place to build domestic demand and help heavy industry convert to hydrogen-based processes. It’s targeting 5 GW of functioning domestic hydrogen projects by 2030. A further €2 billion will be used to seed projects overseas using “made in Germany” equipment. Germany joins Australia, Japan and the Netherlands among those countries formulating plans.
The EU wants 40 GW of electrolyzer capacity within its own borders and the same amount to call upon in neighboring renewables-rich regions, all by 2030. Stay tuned for details on how that will be incentivized.
One of the many issues to resolve is how to keep up with the demand for electrolyzers. Current electrolyzer manufacturing capacity is two orders of magnitude smaller than the project pipeline. But that is changing, and quickly.
Siemens has big plans to integrate hydrogen into its new energy business. The U.K.’s ITM Power and Germany’s thyssenkrupp are hitting gigawatt-scale electrolyzer manufacturing, and smaller players, including France-based McPhy, plan to increase by an order of magnitude from 40 to 400 megawatts.
ITM Power is currently ramping an electrolyzer gigafactory in the U.K. (Credit: ITM Power)
Norway’s Nel was planning to develop a new 350 MW facility in Herøya. In August, the company announced it was exploring the potential to ramp that up to 500 MW; in the process, it has identified a route to 2 GW of annual production at that location.
Electrolyzer costs may not impact the final cost of green hydrogen as much as the cost of the electricity or the utilization rates of the electrolyzer, but they still add their share.
ITM Power is moving into its own single-site gigafactory in Sheffield, England. The firm has spent two years developing a semi-automated manufacturing process and making improvements to its product.
"We have two routes to cost reduction. One is a large-scale stack, and we're moving from a 2 MW module to a 5 MW module," said Graham Cooley, CEO of ITM Power, in an interview. "And the other one is volume through the factory and efficiencies in manufacturing, that we will get from the new factory,”
The cost reductions attainable from scaled-up manufacturing are compounded when you consider that ITM is not alone in chasing gigawatt capacity.
What kind of policy support does green hydrogen need?
The success or failure of this surging electrolyzer manufacturing capacity will be in part dictated by whether there is actually any demand.
With gigawatt-scale projects being announced almost as frequently as governments reveal new green hydrogen strategies, there is reason for confidence in both the political and business outlook. Hydrogen task forces, advisory groups and councils are working to find the best way to support the fledgling hydrogen economy. The dual crises of COVID-19 and climate change have concentrated the public's focus on job creation.
German industrial giant thyssenkrupp and Italian electrochemical manufacturer De Nora have partnered on electrolyzer manufacturing. In June they revealed they have the collective ability to deliver 1 GW of electrolyzers annually across their European facilities.
Christoph Noeres, head of energy storage and hydrogen at thyssenkrupp, said Europe's ambitious plans for hydrogen are a useful “incubator” for projects. The next step is to transform this from moral support at the political podium into actual policies.
“Important measures would be the regulatory recognition of green hydrogen for processing in refineries; tax and emissions-trading exemption of electricity for electrolysis; carbon taxation or carbon trading at an appropriate price level; and, of course, expanded capacities of renewable electricity,” said Noeres in an email.
As it stands, green hydrogen as a fuel and green-hydrogen-derived fuels are acknowledged under the renewable energy directive but not when used in a refinery as a feedstock. This oversight is likely to be addressed at some point, and a change could incentivize the conversion to green hydrogen of Europe’s largest existing source of hydrogen demand.
There is also a plan on the EU’s drawing board to develop a contracts-for-difference program to offer investors some certainty around carbon prices.
Cooley said some simple tweaks, such as support for natural gas with a hydrogen blend or an incentive for renewable transport fuels, could make all the difference. The U.K. is currently consulting on a "green gas levy," but support is only planned to extend to biomethane.
Green vs. blue
Aside from the current absence of demand for hydrogen, another threat to future electrolyzer demand is the potential for blue hydrogen to creep in and take an early share of what early demand is already in place. The two are often weighed against one another, but after a fair degree of lobbying on both sides, Europe is beginning to coalesce around the idea of keeping blue hydrogen in mind for the near term only. That means getting gigawatt-scale carbon capture and storage (CCS) in place for gas power plants.
ITM’s Cooley is skeptical about the window of opportunity for blue hydrogen, given the pace of electrolyzer capacity expansion.
“CCS players are saying that they can have something in operation toward the end of the 2020s; time scales being discussed are around 2028...[and the industry] will have deployed 6 GW of electrolyzers by 2024," Cooley said.
BP’s Energy Outlook has forecast a sustained presence for blue hydrogen. One argument the oil giant puts forward is that retrofitting CCS to gas plants reduces the amount of renewables that need to be deployed in markets such as Europe, where hydrogen will come to the fore first. They say that this leaves renewables available for electrification of transport and heat instead of hydrogen. (There’s also the small matter of BP's natural-gas business to consider alongside that assertion.)
Siemens and a sign of things to come
Another German industrial giant, Siemens, will join thyssenkrupp in chasing the green hydrogen market.
For Siemens, this will happen under the umbrella of its new Siemens Energy unit, which emerged as a new €19 billion standalone entity at the end of September. Siemens Energy brings together Siemens’ gas turbine and power transmission units, along with wind turbine manufacturer Siemens Gamesa.
The picture painted for potential Siemens Energy investors is a company that will largely mirror the power sector’s transition. An offshore-wind-powered green hydrogen project, increasingly common in the European energy transition, could be supplied entirely by Siemens Energy, from the moment when wind nudges the turbine’s blades to the final delivery of the green hydrogen.
Siemens Energy’s investment prospectus confirms planned investments in electrolyzer manufacturing capacity in Germany.
“The shift to a sustainable and economically viable energy supply will require major investments. And this presents a great opportunity for Siemens Energy," Siemens CEO Joe Kaeser told shareholders in July.
“Hydrogen has the potential to replace fossil hydrocarbons as an energy source in the future," Kaeser said.
The hope for companies like Siemens is that the current rush toward electrolyzer manufacturing proves more than the equivalent of making shovels in a gold rush, and that hydrogen blossoms into a sizable component of the clean energy sector.