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Reflections from Hydrogen Week: Where is the European hydrogen Giga-market?

Summary

Explore LCP Delta's Hydrogen team's Brussels conference insights, covering key takeaways and market analysis, unveiling the future of the hydrogen market in 2024.

Europe has a clear goal: to maintain its global leadership position in the emerging clean hydrogen economy. However, this coveted position feels under threat from new hydrogen hotspots such as the US. Europe’s political and business leaders need to reinject a new urgency to continue to be an attractive investment prospect in these crucial next few years.  

European Hydrogen Week 2023 brought together influential leaders, policymakers, researchers, and end-users from across the hydrogen value chain to discuss hydrogen’s role in the energy transition, spotlight investment opportunities and navigate industry challenges.  

LCP Delta’s Hydrogen team were in Brussels, analysing the panel discussions and engaging with delegates on the expo floor. In this blog, we share our key takeaways from the conference as well as analysis on where the market is today, and what’s coming in 2024. 

 

A reflection one-year-on…

Last year’s Hydrogen Week underscored the need for the European market to move with speed if we are to meet targets, especially ones around the corner in 2030. It begs the question: Have we seen an increase in momentum this year? Or are we still moving at the same pace? 

After a trip back to Brussels for last week’s conference, it’s clear to see that from a project implementation perspective we have not seen the speed we need. 2023 was poised to be a very active year for hydrogen in Europe where we expected to see several projects break ground. But it has not been the Giga-year for hydrogen installations in Europe which we had hoped to see.  

A lack of clear regulatory frameworks and delays in defining the ‘rules of the game’ contributed to this stagnation, as well as inflation and high costs. However, in other areas such as policy support we have seen promising developments in Europe in 2023.  

Ideally, with this public support in place the baton can be passed to the private sector to continue the race in 2024. But of course, there are hurdles to overcome in this race. 

 

Policymakers give the green light: standards and OpEx models

Last year, a main pain point for the sector was the lack of public support and regulatory certainty. Policymakers have listened, and there has been tangible progress on this front over the past 12 months: REDIII, Delegated Acts, RePowerEU, AFIR, and FuelEU have all been published. Now that we have this certainty at the EU level, the next step will be translating it to Member States. 

The European Hydrogen Bank was the star of the show at this year’s conference. Indeed, the first auction was launched the same week with €800m up for grabs. Moreover, it was confirmed that a second round of auctions in Spring 2024 will bring a further €2.2bn. Developers now have certainty on the timeline for this these funding rounds, and the second is especially encouraging as the total €3bn will have a strong impact. It appears that a lack of policy support will no longer be an excuse for slow movement in the market! 

 

The bottleneck persists in the project pipeline

Even with public support beginning to be unlocked, there’s been only a minor increase in electrolyser capacity in Europe this year: According to HYbase, the market has grown from 193 MW in 2022 to 214 MW in 2023. This isn’t as big of an increase as we would’ve liked to have seen, and the pipeline over the next three years is shrinking as FID gets delayed. At the conference, Hydrogen Europe warned that if we are to continue this growth rate the market will only reach 1 GW by 2030, so it is clear the momentum must pick up in the coming years.  

Despite this disappointment on the project commissioning side, electrolyser manufacturers are receiving enquiries for larger electrolysers (~100s of MW for individual projects, up from ~10-20 MW), signalling an increased ambition for large-scale hydrogen projects. 

A key highlight that emerged from Brussels was the amount of money already being spent in the pre-FID stage for these projects stuck in the pipeline. Permitting processes are still lengthy (without a standard procedure) and project developers are facing competition for green electricity. Discussions with developers also highlighted the difficulty they face in securing offtakers. Without a strong demand pull for clean H2, projects will struggle to get over the finish line. Increased involvement from offtakers in H2 project development going forward is therefore critical. 

 

We need to be able to compare apples with apples

If we are talking about comparing apples with apples, then the hydrogen colour spectrum is bringing the “oranges” to this idiom. Speakers at the conference called for a move away from this spectrum (which is subject to different interpretations) and towards an emissions-based approach. In this line, there was an emphasis on technology-agnostic allocations of public funding to H2 production that are focused more on carbon intensity than colour. 

This of course raises its own questions as to how to define the scope of emissions associated with a quantity of hydrogen. To hopefully remedy this, a new ISO standard will be launched next year to standardise methodologies. The conference also highlighted some solutions emerging around digitalisation of production certification and compliance. This included concepts such as digital H2 passports to help track emissions across the global value chain and cut down on the time-intensity of these data management processes. 

On the same ‘apples with apples’ theme, electrolyser customers are facing a somewhat confusing market as OEMs (original equipment manufacturer) quote different scopes and pricing for their products. This further brings into the spotlight the lack of standardised approaches in the market, which results in more time and money spent on the consumer side. 

 

H2 innovation is at risk of falling into the “valley of death”

Several hydrogen production technologies (e.g., PEM, AEL) are proven at lab, and we have first commercial prototypes live, but now the technology needs private funding to unlock commercialisation. Otherwise, manufacturers fear that these technologies are at risk of falling into a so-called “valley of death” where public funding for research wanes before private funding picks it up at scale (see Figure 1).  

From the financing side, investors lack confidence on the timing of production projects and the performance of electrolyser technology at scale. But private institutions at the conference maintained that the money is out there and ready to be mobilized.  

In the AEL vs. PEM technology debate, we aren’t necessarily seeing one poised to dominate over the other. The industry sentiment is that a range of technologies will have their place in the market, and this is echoed by offtakers. It was encouraging to see that alternative hydrogen production pathways received a dedicated panel at the conference, with price points as low as €3/kg quoted from gasification using non-recyclable materials.  

Start-ups also took the stage to pitch their innovative products, and they demonstrated that there are still improvements being made in materials and efficiency of H2 tech which can enhance performance and bring down costs. Innovation is therefore ongoing to make this technology more attractive to investors and consumers, but it is important to keep in mind that some more advanced technologies are approaching a critical junction in the funding curve.  

A graph depicting manufacturers fear that H2 technologies are at risk of falling into a so-called “valley of death” where public funding for research wanes before private funding picks it up at scale.
Figure 1: Innovation Valley of Death

 

Global presence is increasing in the European market, both to collaborate and to compete

There are two sides to the global hydrogen coin – collaboration and competition – and there was a clear tension between the two at the conference. 

Collaboration 

If Europe plans to import 10 million tons of hydrogen by 2030, partnerships with production abroad must be fostered. A flagship of this collaboration is the 10 GW production project in Piaui, Brazil which, with EU backing, will bring clean H2 and ammonia to European ports. We noticed several international delegations in the expo, from South Africa to India, which further signalled this increasing engagement with potential export markets. 

Competition 

While collaboration paints a rosy picture, there were also discussions from the conference on Chinese electrolyser manufacturers and the threat they pose to the European manufacturers. In fact, some EU bosses are calling for policies to ensure a certain fraction of the market is reserved for European manufacturers.  

Chinese manufacturers are ultimately bringing to the market a product that can achieve a lower unit cost of hydrogen (considering total efficiency & CapEx) which will undoubtedly give them a competitive advantage. Current OpEx support from the European Hydrogen Bank is a cost-based auction, which could push developers to favour this lower-cost equipment. What should be the focus is to ensure that projects consider non-price criteria (e.g., ESG) in their equipment purchasing to support a ‘just transition’, although this may mean a higher price tag for the customer.  

 

Hydrogen Wishlist 2024

With the festive season approaching, here’s a few things on the LCP Delta Hydrogen team’s wishlist for the new year: 

  • In 2024, we are eager to see the results of public allocation funds and increased private capital deployment into the sector supporting FID. 
  • This will hopefully increase the number and scale of live electrolysis projects. The market needs these learning experiences from operational technologies at scale. 
  • We want to see a closer collaboration between offtakers and H2 project developers, with more of a demand pull than a market push getting these projects going. 

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