From our recent analysis of clean hydrogen demand in the European industrial in 2030 across 6 countries (UK, DE, NL, ES, IT, PL), we conclude that clean hydrogen will represent 26% of all hydrogen demand for current hydrogen consuming applications (ammonia, refining, methanol, and other chemicals). These applications are in industry sectors that use grey hydrogen today and have the best prospects for developing clean hydrogen demand before 2030.
Ammonia production is clearly the standout application – clean hydrogen can greatly reduce emissions from the process and uptake factors are the most favourable here. Conditions for uptake are also strong in the refining and other chemicals sectors; however, CO2 reduction impact here is lower if clean hydrogen is only used to replace the incumbent grey hydrogen consumption.
Emerging industrial applications will make up ~40% of clean hydrogen demand in industry by 2030
New applications for clean hydrogen are as a feedstock (e.g., iron and steel) or as a clean fuel (for high temperature process heat). Clean hydrogen can decarbonise steelmaking, and here is where we would expect by far the greatest demand for clean hydrogen in new applications by 2030, but timelines are short to covert the massive plants across Europe.
Similarly synthetic fuels for shipping (methanol, ammonia) and aviation (biofuels and e-kerosene), face a lack of short-term regulatory pressure and makes clean hydrogen a largely post 2030 phenomenon. Hydrogen for high temperature process heat has the largest market potential as a user of clean hydrogen in Europe (if it were to completely replace natural gas and coal) but the cost implications and competitors in electrification, biomass and CCUS mean that its outlook to 2030 is limited.
Clean hydrogen demand will grow but speed needs to accelerate to replace 50% of grey hydrogen demand in industry by 2030
Overall, we predict 54-74 TWh (~1.9-2.2 Mt) of demand by 2030 across the 6 countries, compared to a current grey hydrogen consumption of 190 TWh. This is significantly lower than some estimates – reflecting the regulatory and policy uncertainty around clean hydrogen, the lack of time to convert major assets like steel plants or refineries and the small margins for industrial products from Europe in a global market.
Where are the hydrogen hot spots in Europe?
While we are cautious about the overall market demand potential of clean hydrogen before 2030, we do expect to see the emergence of hydrogen clusters – industrial sites where anchor demand for clean hydrogen will provide the scale for infrastructure investment. This in turn will drive costs down and open the clean hydrogen market to a wider market post-2030.
So where will these early clusters be? Unsurprisingly Germany has the most favourable conditions for clean hydrogen demand by 2030. Its policy ambition and value chain maturity are key drivers. The UK, the Netherlands and Spain form a secondary set of markets. The UK boasts high target for production but challenges on value chain maturity, Spain has excellent renewables potential but lacks a planned support mechanism compared to other advanced markets while the Netherlands boasts great infrastructure but lacks the scale and speed of renewable development.
Industrial customers have voiced their concerns
While the opportunity for clean hydrogen is obvious, our research has identified three major challenges:
- De-industrialisation in Europe: cost-sensitive production plants may move outside Europe to avoid decarbonisation costs if carbon borders aren’t regulated.
- Value chain build-out to reach scale: large volumes of hydrogen will be required to reach targets, but expertise is limited today.
- Long timescales and associated risks: projects require quick investment decisions to transform industrial landscape by 2030, while market direction remains uncertain.
Time is of the essence – 2030 is only 8 years away
Eight years is not a long time when measured against plant lifetimes of 50+ years in the chemical sector or the anticipated seven years to build a new steel plant. To achieve serious demand for clean hydrogen in this timeframe, a mix of ambitious policy, rapid commercial development, and fast production scale up is essential. To build out production, quick wins in industrial production should be targeted in markets which support the development of a hydrogen economy.
As part of our our ongoing Hydrogen Intelligence research service, we evaluate how the markets, policies and commercial landscape are developing across Europe, with a focus on unpicking hydrogen demand applications.