The Impact of the Top 3 Strategic Imperatives on the Global Electrolyzer Industry for Hydrogen Production

Disruptive Technologies

Why: 

• To meet global decarbonization goals, clean hydrogen (H2) must replace fossil H2. However, from a cost standpoint, to replace fossil H2, clean H2 costs must decrease three- to five-fold to reach those of grey H2, depending on the region of production—an extremely challenging feat to achieve.
• In that sense, the cost of electricity needs to decrease, and its consumption efficiency needs to increase during clean H2 production.

Frost Perspective: 

• Increasing consumption efficiency requires higher electrolyzer and balance of plant electrical efficiency. This is vital to reduce the operational costs of owners/operators. Electrolyzer manufacturers must consistently pursue technology disruption and innovation to achieve this and avoid becoming trapped in lower electrolyzer system standardization.

Transformative Megatrends

Why: 

• The world is racing to meet net-zero goals, with each country pursuing specific pathways according to their strengths and weaknesses. Clean H2 production will be a key pathway—among many—to decarbonize the economy’s demand side.
• Clean H2 will contribute to decarbonizing fertilizer production, hydrogenation (oils, petrochemicals, and food manufacturing), and desulphurization and hydrocracking (crude oil refining).

Frost Perspective:

•  In the next 5 to 10 years, clean H2 production's significant growth capacity will come online, considering the number of projects in the pipeline. As a result, electrolyzer demand will increase over the coming years with the added support of federal- and state-level support policies.

Industry Convergence

Why: 

• The race to net-zero emission is about collaboration between various ecosystem stakeholders to meet common objectives so that costs do not pass onto end consumers, to keep system reliability strong, and to reach decarbonization goals.
• Without collaboration, progress will be imbalanced and biased, and stakeholders will fail to meet their netzero goals.

Frost Perspective: 

• Collaboration in the supply side of the H2 economy—between electrolyzer manufacturers, material providers, and surface finishing providers—and between the supply and demand sides must increase to accelerate clean H2's impact on decarbonization.

Scope of Analysis

• Product Description: An electrolyzer is a low-carbon technology that utilizes water and electricity as input to generate H2. An electrolyzer system is made of individual stacks assembled in parallel. Each stack consists of a membrane electrode assembly (MEA), bipolar plates, seals, gaskets, and cell frames.

• There are four main types of electrolyzer technologies—alkaline, proton-exchange membrane (PEM), solid oxide, and anion-exchange membrane (AEM).
• Current commercial examples are highlighted below:
  • Thyssenkrupp Nucera’s Scalum (alkaline)
  • Accera’s (Cummins) HyLYZER series (PEM)
  • Bloom Electrolyzer (solid oxide)
  • Enapter (AEM)
• Market Description: The electrolyzer market size calculations account for the electrolyzer and balance of plant (BOP) systems, including gas conditioning, power electronics, and other components. This analysis provides information on annual capacity and the installed base forecast data of electrolyzer systems, as well as the volumes of H2 produced (for green H2).
• Regulatory Landscape: This analysis covers the regulatory landscape in North America, Europe, Asia-Pacific, and the Middle East and Africa.
• Cost Analysis: This includes the capital cost estimates for electrolyzers. Key examples provide additional insight related to costs.

Growth Drivers

Government Incentives and Subsidies: National and region-level support for green H2 production in the United States, Canada, the European Union, the United Kingdom, China, India, and the Middle East highlight the importance of policy when encouraging investments to boost green H2 production. Key examples include the announcement of $10 billion of funding from the US government under the Bipartisan Infrastructure Law, $3.25 billion (€3 billion) of funding under the European Hydrogen subsidy scheme, the green H2 PLI Scheme in India, and green H2-based power generation auctions in South Korea.

Transitioning Feedstock Fossil Hydrogen: Industries that rely on fossil fuel H2 for feedstock or as a constituent have no option but to switch to clean H2 and achieve their net zero goals. Fertilizer production (ammonia), hydrogenation (oils, petrochemicals, and food manufacturing), desulphurization and hydrocracking (crude oil refining), and a subset of industries within chemicals and petrochemicals fall under this category.

National Clean H2 Strategies: More than 75 governments have recognized clean H2 as a critical decarbonization method by releasing of national clean H2 strategy roadmaps. This demonstrates clean H2's importance in achieving strategic national decarbonization imperatives.

Developments in H2 and H2-derivatives Strengthen the Ecosystem: Commercial announcements in the wider H2 and H2-derivative value chain are more numerous every year. These announcements regard transportation, storage, and utilization, among other aspects of the H2 production process.

Growth Restraints

High Clean Energy Prices, Supply Chain Bottlenecks, and Material Tariffs Lead to Non-competitive, Expensive H2 Production: At $7 to $20 per kg of H2, green H2 is not competitive and expensive compared to conventional fossil H2. At such prices, attracting customers for offtake is not easy and, ultimately, it is detrimental to decarbonization. Policymakers must improve conditions to enable operators to deliver economically competitive clean H2 to consumers.

Lack of Demand-side Interventions Complicate Hydrogen Application Growth: Government subsidies tend to focus on the supply side, often neglecting the demand side. Policymakers should consider subsidies for projects that include a clear offtake plan and intervene directly to enable H2 applications in relevant industries.

Long Project Life Cycles Threaten Market Growth in Certain Regions: In the United States, for instance, the overall timeline, from feasibility and FID/construction to approvals and operation, ranges anywhere from 2.5 to 5 years. Besides project economics, acquiring grid interconnection infrastructure is a critical pain point.

Renewable Energy Affordability Concerns Impede Future Investments: Renewable energy input is the largest cost component for electrolyzer operations. In recent years, renewable energy costs, especially for offshore wind, have increased substantially. This jeopardizes several investment plans. In regions with high renewable energy availability, this issue is less relevant; however, keeping renewable energy production prices affordable is vital for this industry’s growth.

Regulatory Uncertainty and a Lack of Global Compatible Certification Standards: Regulators are uncertain in the United States, where the clean H2 production standard has not been legally mandated yet, despite multiple consultation phases. This slows down developers and hydrogen manufacturers concerning their investments. Furthermore, there is no global certification standard for clean H2, so issues remain regarding certification systems.

Competitive Environment