Hydrogen is a key part of the solution toolbox in achieving global decarbonization. Policy makers are focused on creating the necessary framework for the hydrogen economy to flourish, investor appetite to back hydrogen initiatives is high, and industrial conglomerates are busy developing production, transportation, and storage solutions for commercialization. COP28 can be pivotal on giving further momentum to what is already a high growth sector.

End-user industries, globally,  are busy partnering with key stakeholders on proof-of-concept trial projects for these new solution offerings. A key priority is to ensure that future hydrogen comes from either low-carbon or carbon-abated sources. Currently, grey hydrogen, which is carbon from un-abated fossil fuels, dominates global production – it is vital that this situation changes.

This is where alternative forms of hydrogen production will become important. Substantial investment is being made in building up capacity for green hydrogen, whereby renewable energy is zutilized to power zelectrolyzers to produce hydrogen. This method of production currently has significantly higher costs, but these are forecast to decline over the course of the decade as the industry achieves scale. Policy and regulations are a key part of the solution. The Inflation Reduction Act (2022) contains a number of provisions that are set to turbocharge growth within the US market, the most important of which is the production tax credit that will provide up to $3 per kg to zsubsidize the product cost of hydrogen from low carbon sources (the exact amounts for each technology have yet to be released). Given that average costs for hydrogen from renewable energy are currently $5-$6 per kg vs. $1.5-$2 per kg for those from fossil fuels, this will significantly close the gap. Other countries are also offering incentives with more to come, but the IRA has attracted the most investor attention. Further reductions will be achieved as new production facilities come online and automation is increasingly deployed. Another key element in the industries development will see material supply chains expanded and the zutilization of advanced materials such as polymers and composites. Ultimately all of this will create a virtuous circle with more and more projects commissioned.

However, the demand for hydrogen will be so high that other options will be needed. Momentum is building behind blue hydrogen, which is where carbon capture is deployed to capture the emissions from hydrogen production, and is expected to receive at least a partial tax credit when the final rules for the IRA are released. A significant volume of new plants utilizing this technology are expected, along with the retrofitting of some existing hydrogen plants. Blue hydrogen encompasses a range of different production methods. One technology that is forecast to have very high growth by the end of the decade is methane pyrolysis, which has attracted substantial sums of innovation investment. Another source of hydrogen production will be electrolyzers combined with nuclear power plants, which will provide an additional revenue stream for plants that are struggling to compete against renewable energy, whilst utilizing the waste heat that nuclear plants produce. Finally, there is the wildcard of natural occurring hydrogen, which could significantly increase the volume of hydrogen available globally at a very low production cost.

Early success for the hydrogen economy will come from proximity. Hydrogen can be effectively stored and transported, but this will become more achievable once the industry matures and can prove its viability. Both storage and transportation increase the cost of hydrogen, so minimizing the need for both will be vital to overall development. Proximity will be achieved by ensuring that production is collocated as close as possible to the off-taker (customer).

Creating hydrogen clusters where off-takers and producers are in proximity will be vital to lowering the costs of hydrogen storage and transportation. The creation of hydrogen clusters will require numerous stakeholders in the hydrogen ecosystem to act in harmony. A stable regulatory climate will be needed to ensure investor confidence—from those financing the projects and the offtakers using the hydrogen. Companies must consider the offtakers’ profile. Will the volumes produced be enough to meet demand? Can waste heat in generation or industrial processes be utilized to boost overall hydrogen production? What is the best mix of production solutions to meet local requirements? Governments’ are developing policy mechanisms to try and that offtaker demand can be paired with supply.

It is important to note that hydrogen will not always be the best solution for an industrial customer. It should be considered as part of a wider decarbonization strategy that includes electrification solutions, process efficiency, resource efficiency, demand management and emissions abatement.

In the longer-term, the hydrogen economy will become a globalized industry. Most highly developed economies have hydrogen strategies and are looking to boost domestic production, but the reality is that some countries will be import dependent. For these countries, having a secure supply base will be vital. Traditional energy producers such as Saudi Arabia and Australia will continue to be important global energy players. Saudi Arabia has massive potential for renewable energy if it wants to focus on renewable-linked dedicated hydrogen production, but in reality its priority option is likely to be abating its fossil fuels and then utilizing the production to drive its own decarbonization. Similar strategies can be deployed in the other Gulf States. The United Arab Emirates could do this and go a step further – utilize its nuclear plants in the production of hydrogen, which would make it a global leader in this form of hydrogen production along with France. Ultimately however, the nature of hydrogen production means that any country that can accommodate a large amount of renewable energy capacity, draw on excess nuclear power or have abated fossil fuels could be a player in the hydrogen economy.

To learn more about the implications of COP28 developments on your Growth Journey and to speak to Frost & Sullivan Growth Experts, contact Nimisha Iyer at nimisha.iyer@frost.com

Jonathan Robinson

Jonathan Robinson, Vice President, Energy & Environment Growth Opportunity Analytics, Frost & Sullivan

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