Investment in the production of hydrogen powered by renewable sources, or green hydrogen, is likely to exceed $1-billion by 2023, says research agency IHS Markit.
The agency attributes an elevated investment outlook to falling costs and policy support from governments that are looking to shift towards low-carbon economies.
Operating capacity for splitting water into hydrogen and oxygen through electrolysis technology - also known as 'Power-to-X' – currently stands at 82 MW with a pipeline of over 23 GW to 2030, according to the IHS Markit Power-to-X tracker.
This pipeline – including projects announced, planned and under construction – is up from less than 8 GW at the end of 2019 and 5 GW at the end of 2018. IHS says electrolysis production is ramping up with multiple “gigafactories” under development.
“Investment in electrolysis is booming around the world. The pipeline through 2030 is for over 23 GW of capacity to be developed—more than 280 times the current capacity.
“The increasing interest has been driven by falling electrolysis and renewable power costs and by increasing government focus on green hydrogen,” confirms IHS Markit hydrogen and renewable gas director Catherine Robinson.
Green hydrogen production costs have decreased by 40% since 2015 and are expected to fall by a further 40% through to 2025.
Reductions in the cost of renewable power account for two-thirds of the reduction in the cost of green hydrogen seen since 2015 with one-third due to reductions in the cost of the electrolysis equipment.
Through to 2025, the main driver of green hydrogen cost reductions is expected to be the development of larger electrolysis projects.
By 2030, IHS Markit expects green hydrogen costs could drop below $2/kg where it would compete with hydrogen produced from natural gas with carbon capture, also known as blue hydrogen.
Low-carbon hydrogen is a major component of many governments' post-Covid recovery plans and their long-term climate strategies. For example, European countries individually, the European Commission, Russia and Chile have all released hydrogen strategies since May.
The strategies set out production targets for low-carbon hydrogen and electrolysis and start to define the support that will be available to project developers.
Development of green hydrogen on the scale demonstrated by the current pipeline will create a whole new sector of power demand, says IHS Market.
The current electrolysis pipeline implies that, by the mid-2020s, electricity supplied to electrolysers globally could be on par with the total electricity consumption of Belgium or the US state of New Jersey.
Modelling by IHS Markit shows that, by the early 2040s, production of green hydrogen could be the single largest user of electricity, exceeding industrial electricity use.
To meet this demand, deployment of low-carbon power generation – particularly in regions with high-quality renewable resources – will accelerate.