Research From Cyclicals Team

• New green hydrogen project starts delayed by permitting hurdles, uncertainty on European subsidies, increasing interest rates, decreasing natural gas prices
• Green hydrogen needs to be priced at €2-€2.5 per kg to compete against natural gas (€1.36 per kg); current prices range from €3/kg in Southern Europe to €9/kg in Northern Europe
• TKA GR, PLUG, NEL NO expected to gain electrolyzer share during next 6–12 months; Chinese manufacturers, including Longi (601012 CH), Envision and PERIC, attracting attention with growing production capacity, technological improvements; other Chinese players expected to enter electrolyzer market
• LIN GR, AI FP expected to gain share during next 12–24 months as suppliers of compressors, purifiers, refueling stations; SHEL LN, TTE FP also likely to benefit in refueling station segment

In 2022, hydrogen accounted for less than 2% of Europe’s energy consumption and was mostly (96%) produced as so-called “gray” and “blue” hydrogen from natural gas, resulting in significant amounts of CO2 emissions. The European Union’s goal is to produce 10 million metric tons of green hydrogen — the only type produced through a climate-neutral process — annually by 2030.

Many Projects Delayed
Although many new green hydrogen projects are announced in Europe almost every week, all sources said delays have continued to impede project starts. Sources reported challenges, including red tape on construction permits, uncertainty regarding European subsidies for the projects, increasing interest rates and decreasing natural gas prices since the end of 2022 — all of which have raised caution among industrial players considering the switch to green hydrogen.

Quotes
“We are talking about an industry which is still largely only virtual. There are large conferences like the World Hydrogen Summit [Rotterdam, Netherlands, May 9–11] that welcomed more than 11,000 decision makers. But if you look at the number of new green hydrogen projects that reach their FID [final investment decision], we are in fact looking at a very low number.” Project developer

“Some projects are on hold because of a misunderstanding regarding the European Union’s announcements made to counter the U.S. Inflation Reduction Act, which subsidizes hydrogen production by $3/kg. Many European project developers were waiting for those announcements before making investment decisions, and those announcements [on March 16] were disappointing — starting in October, there will be a budget of only €800 million over 10 years, which is very low. If Europe grants €3 per hydrogen kg, similar to what they do in the U.S., it means that only 26,600 tons will be subsidized every year. … Waiting for those subsidy announcements has been delaying some projects, which has also been very perturbing for the electrolyzer manufacturers, because they don’t know what to expect in terms of demand.” Project developer

“Fact is that when natural gas prices were at €300/MWh, or even €100/MWh in 2022, it put a high pressure on industrial players using gas to switch to hydrogen. Now that natural gas prices are back to €40/MWh, industrial players are looking a lot more closely at green hydrogen prices before switching.” Project developer

“Electrolyzers and stacks are still manufactured one by one. That’s much too slow. We need more capacity and automated electrolyzer production. … I see a lot of political micro- and overregulation in the EU and Germany. Like, hydrogen has to be 100% green and efficient and local and etc. … The market won’t work like that. The ramping up of electrolyzer production under those conditions will be far too slow, and our small companies will lose their technological and engineering advantage.” Industry expert

“Among the bottlenecks hindering hydrogen production, there is the iridium shortage issue for PEM electrolyzers, the lack of qualified workforce to work in the hydrogen plants, the lack of dedicated hydrogen pipelines to supply potential customers and the lack of bankable business plans, with money being extremely expensive at the moment.” Project developer

Green Hydrogen Prices Depend on Green Electricity Prices
Sources said European green hydrogen production prices ranged from €3–€9 per kg, which correlates to price of the energy source (solar or wind) required to produce it. Production costs are lowest in countries with strong solar irradiation (such as Portugal and Spain), while countries with weaker solar irradiation (such as Germany) or those harnessing wind power (such as Denmark or the Netherlands) produce at a higher price.

Sources said green hydrogen would have to be priced at €2–€2.5 per kg to compete against natural gas (€1.36 per kg), and only countries in Southern Europe, North Africa or the Arabian peninsula are capable of producing green hydrogen at those prices.

Quotes
“Clients do not want green hydrogen at a price above €3 per kg — steel factories even demand a lower price. When you see that German players cannot offer green hydrogen below €6 per kg, you see the huge gap that exists between what the hydrogen industry can currently offer in Northern European countries, and the reality of what clients want.” Project developer

“The maximum price that the industry would pay for green hydrogen is €2 per kg. There’s no business case yet in Germany.” Component supplier

“Green hydrogen is already competitive against natural gas in countries with strong solar exposure and hydrogen gigafactories built near the solar plants. It all depends on where the hydrogen is produced. … ArcelorMittal [SA] has signed a mega project in Spain, with green hydrogen production expected to start in 2025, with electricity coming from solar installations and electrolyzers working on pressurized alkaline technology.” Project developer

“Northern European countries will need to import green hydrogen produced in Southern European countries with strong solar irradiation — like Spain, which is at the forefront of green hydrogen production in Europe. Spain is actually going faster than expected with green hydrogen production. While its goal was to reach 4GW by 2030, it is already at 15.5GW.” Project developer

“For trucks and cars, with the lowest selling price at around €10 per kg, green hydrogen is already competitive because a car only needs about 1.2 kg to drive 100 km. For the industry, it’s more problematic, because green hydrogen will not be competitive against natural gas unless much higher CO2 taxes are implemented or we can produce hydrogen much cheaper thanks to giga hydrogen factories.” Project developer

“Even in the mobility sector, I don’t think that final customers will be ready to pay [for] green hydrogen more than €5 per kg at the distribution station, which means that with the compression costs, purifying costs, transport costs, etc., hydrogen production costs can’t be above €3 per kg.” Project developer

PEM Technology Deploys Despite Iridium Concerns
Sources said the two main electrolysis technologies already being used at the industrial level — alkaline and PEM (polymer electrolyte membrane) — were benefiting from strong demand but low production of electrolyzers (in line with previous findings). Alkaline technology is favored for the construction of green hydrogen gigafactories because it is cheaper and easier to handle than PEM, while the latter is preferred for construction of smaller hydrogen factories, as it is more flexible to varying power levels and it provides a higher efficiency rate than the former.

There have been concerns about PEM technology because of the need for gigafactories to meet the European Union’s green hydrogen production goals, as well as PEM electrolyzers’ dependance on rare-earth elements, such as iridium (for which South Africa represents 83% of global production). However, sources said new PEM technologies, which require less iridium, as well as the possibility to recycle 100% of the element in new electrolyzers, were likely to support demand for PEM electrolyzers.

Quotes
“Most current projects in Germany are working with PEM electrolyzers because [they are] more flexible than alkaline electrolyzers for smaller hydrogen plants built near wind or solar installations. However, alkaline electrolyzers are cheaper, more scalable and don’t face the iridium issue — which favors gigafactories.” Component supplier

“Iridium can become a problem because there is a worldwide production of just eight to nine tons each year, which could limit the construction and deployment of PEM electrolyzers.” Industry expert

“Some European and Chinese electrolyzer manufacturers are now working on new PEM electrolyzers that need less iridium, which considerably lower the costs of PEM electrolyzers. This is very interesting.” Project developer

“Several electrolyzer technologies will find their place and applications, but there will be a giant need for thousands of GW all over the world soon. The most mature technology worldwide is alkaline, and it will remain so for a while.” Industry expert

“Even rSOC electrolyzers are being more and more tried out — like by Sunfire [GmbH], for example — but this is still a bit experimental and will need a few more years before it can be run as standard for certain industrial processes.” Industry expert

Western Manufacturers Threatened by Chinese Players
Six of seven sources expect ThyssenKrupp AG to gain share within the overall electrolyzer market in the next six to 12 months through its PEM electrolyzers, given the company’s strong foothold in the German market. Five sources expect Plug Power Inc. to expand its market share, highlighting its increasing PEM electrolyzer production figures, while four expect Nel ASA to make inroads, based on its strong positioning in both the PEM and alkaline segments. Three sources each said they expect gains from Hydrogenics (owned by Cummins Inc. and L’Air Liquide S.A.), because of its presence in both segments, and from Volkswagen AG’s H-TEC’s PEM solutions.

Additionally, two sources each expect Chinese manufacturers — including Longi Green Energy Technology Co. Ltd. (601012 CH), Envision Energy Co. Ltd. and PERIC Hydrogen Technologies Co. Ltd. — to gain share, reporting these manufacturers are rapidly ramping up production of all electrolyzer types and improving PEM technology to use less iridium. A project developer said, “Chinese manufacturers are very likely to gain share, and I think that we’ll see with the electrolyzer industry the same thing we already saw with the PV module industry — or, maybe, actually faster. We are set to see 95% of the global electrolyzer production made in China in the short-to-medium term. … There are new players that were not even here a year ago and that are now rapidly ramping up their production capacities.”

Quotes
“ThyssenKrupp does projects in Saudi Arabia, for example, and they are gaining share in Germany because, when you’re German, it’s natural to buy German. Just like the French buy from McPhY [Energy S.A.]. But in terms of volumetry and competitivity, we are very skeptical about Western electrolyzer manufacturers’ capacity to compete against the Chinese.” Project developer

“Plug Power has just published sensational production figures of its PEM electrolyzers.” Project developer

“Plug Power is very active, building partnerships with a lot of players around the world, but they are completely off in terms of competitivity. They make a lot of announcements and generate a lot of expectations, but they will just keep on disappointing in terms of sales.” Project developer

“If we look at the hand-built Western PEM electrolyzers, similar to what Louis Vuitton does for its luxury handbags, they are definitely not viable. To be competitive, we need large and cheap electrolyzers, which is what the Chinese are doing — even with their PEM electrolyzers.” Project developer

“Really, the main race is currently run in China. They are ramping up their hydrogen industrial infrastructure so fast. It’s amazing.” Industry expert

“Longi is already the world’s largest electrolyzer manufacturer, using the alkaline technology. Envision is a new player, but it started building alkaline, PEM and AEM [anion exchange membrane] electrolyzers last year. And there is also PERIC, which does both PEM and alkaline electrolyzers. Our contacts in China tell us there are about 100 manufacturers that are about to enter the electrolysis industry, some of which are already big industrial players in other fields.” Project developer

“Just look at Envision Energy, which is one of the largest manufacturers of wind turbines, and which is also a battery manufacturer. They are — already now — building a site coupling wind energy and solar energy with three hydrogen gigafactories. One with a low pressure alkaline electrolyzer, one with a high pressure electrolyzer and one with a PEM electrolyzer. Regarding their PEM electrolyzer, they are using a new PEM technology that is using less rare-earth elements, which is extremely interesting because it should very considerably lower the cost of PEM electrolyzers.” Project developer

“The IRA will not redirect green hydrogen production projects from Europe to the U.S., because there will be little green hydrogen produced in the U.S — natural gas prices in the U.S. are very low, while solar electricity is very highly taxed. Just look at the U.S. solar market. Solar installations in the U.S. fell by 16% in 2022 because a ban on some Chinese goods limited the availability of PV panels. The only type of hydrogen production that is making progress in the U.S. is blue hydrogen, not green hydrogen — so there is no real potential market for electrolyzer manufacturers in the U.S.” Project developer

Linde, Air Liquide Best Positioned in Refueling, Compressors
Sources said compressor, purifier and refueling-station manufacturers were among the third-party suppliers likely to benefit the most from the surge in activity in the hydrogen sector. Five sources each said Linde PLC and L’Air Liquide were best positioned to gain share, given their activity in all aforementioned segments. They are part of the H2 Mobility consortium, which also includes the refueling station manufacturers Shell PLC, TotalEnergies SE and OMV AG.