HydrogenInsights2023Thestateoftheglobalhydrogeneconomy,withadeepdiveintorenewablehydrogencostevolutionDecember2023HydrogenInsightsDecember2023PublishedinDecember2023bytheHydrogenCouncil.CopiesofthisdocumentHydrogenCouncil,McKinsey&Companyareavailableuponrequestorcanbedownloadedfromourwebsite:www.hydrogencouncil.comThisreportwasauthoredbytheHydrogenCouncilincollaborationwithMcKinsey&Company.Thereproductionofthiswork,savewhereotherwisestated,isauthorised,providedthesourceisacknowledged.Allrightsareotherwisereserved.Theauthorsofthereportconfirmthat:1.Therearenorecommendationsand/oranymeasuresand/ortrajectorieswithinthereportthatcouldbeinterpretedasstandardsorasanyotherformof(suggested)coordinationbetweentheparticipantsofthestudyreferredtowithinthereportthatwouldinfringetheEUcompetitionlaw;and2.Itisnottheirintentionthatanysuchformofcoordinationwillbeadopted.Whilstthecontentsofthereportanditsabstractimplicationsfortheindustrygenerallycanbediscussedoncetheyhavebeenprepared,individualstrategiesremainproprietary,confidential,andtheresponsibilityofeachparticipant.Participantsareremindedthat,aspartoftheinvariablepracticeoftheHydrogenCouncilandtheEUcompetitionlawobligationstowhichmembershipactivitiesaresubject,suchstrategicandconfidentialinformationmustnotbesharedorcoordinated–includingaspartofthisreport.2TheHydrogenCouncilhas145+membersandisaglobalCEO-ledinitiativewithaunitedvisionandlong-termambitionforhydrogentofosterthecleanenergytransitionSteeringmembersSupportingmembersInvestorsHydrogenInsightsistheHydrogenCouncil’sperspectiveonthehydrogenindustry’sevolution.Itsummarizesthecurrentstateoftheglobalhydrogensectorandactualhydrogendeployment.TheHydrogenCouncilandMcKinsey&Companyco-authorthispublication.Itrepresentsacollaborativeefforttoshareanobjective,holistic,andquantitativeperspectiveonthestatusoftheglobalhydrogenecosystem.11.DetailedmethodologyexplainedinHydrogenInsights2021HydrogenInsightsDecember20233HydrogenCouncil,McKinsey&CompanyExecutivesummary1Hydrogenwillplayacrucialroleindecarbonizinghard-to-abate4Thecleanhydrogenindustryisfacingheadwinds.Costsandsectors,enabletheat-scaletransportofenergytoresource-costexpectationshaverisensubstantially,particularlyforconstrainedregions,andenableacleanandresilientenergyrenewablehydrogen.Theestimatedlevelizedcostofproducingsystem.Itsdeploymentisataninflectionpoint–ononehandtherearerenewablehydrogen(LCOH)isabout4.5to6.5USDperkilogram(USD/tailwindssuchasagrowingandgraduallymaturingpipelineofprojectskg)ifbuilttoday,4upby30%to65%.Multiplefactorshavecausedthisandsupportivedecarbonizationregulation.Ontheotherhand,thereincrease-higherlaborandmaterialcosts,highercostforbuildingtheareheadwinds:costincreases,projectdelays,continuedregulatorybalanceofelectrolyzerplants,3to5percentagepointshighercostuncertainty,andhigherfinancingcosts.ofcapital,andanincreaseofrenewablepowercostbymorethan30%.However,thecostofproducingrenewablehydrogenisexpectedto2Theprojectpipelineisgrowing,withover1,400projectsdeclineto2.5to4.0USD/kgtowards2030,drivenbyadvancementsannouncedacrossallregions(upfromabout1,040intheinelectrolyzertechnology,manufacturingeconomiesofscale,designpreviouspublication),equalingUSD570billioninvestmentsimprovements,andreductioninrenewablepowercost.(previouslyUSD435billion2)and45milliontonsperannum(Mtp.a.)ofcleanhydrogen3supplyannouncedthrough2030(previously5Theheadwindshavecausedaslowerdevelopmentofthe38Mtp.a.).Europeshowsthelargestnumberofprojects(540),globalhydrogenindustrythanhadbeenpreviouslyexpected.followedbyNorthAmerica(248).AquarterofprojectswithknownSuchhurdlesarereflectedin,forinstance,a10%dropincommissioningdatehasprogressedpastfinalinvestmentdecisionannouncedcleanhydrogensupplythrough2025.Concertedaction(FID),representing7%ofthetotalannouncedinvestments.Investmentsofindustriesandgovernmentswilllikelybeneededtofurtherglobalarematuring,withUSD110billioninfront-endengineeringanddesigncleanhydrogengrowth,facilitatingadditionaldecarbonization.(FEED)andbeyond(upfromUSD75billion),with60%growthininvestmentsundergoingFEED.Electrolysisdeploymentgloballyhasshownsimilargrowth,passingthe1gigawatt(GW)mark(upfrom0.7GWpreviously),withabout12GWcapacityhavingpassedFID.3Theregulatorylandscapeoverallisevolving.Forinstance,supportismaterializingviaproductiontaxcredits(PTC)andfinancialsupportforhydrogenhubsintheUS,renewablehydrogenmandatesintheRenewableEnergyDirective(REDIII)inEurope,orcontractsfordifference(CfD)inJapan.However,regulatoryuncertaintiesremain,suchasthedefinitionofrequirementstoreceivetheUSInflationReductionAct(IRA)PTCandtheimplementationofREDIIIinEUmemberstates,implyingthesepolicieshavenotyetfullyimpactedthemarket.2.Anincreaseintotaldirectinvestmentreflectsrefinedestimatesofcapitalexpendituresrequired(primarilyforrenewablehydrogensupply)resultinginthepreviouslyestimatedUSD320billionincreasingtoUSD435billion.3.Seecleanhydrogendefinitionin‘HydrogenforNet-Zero’reportonpage52.4.ExamplefromtheUSGulfCoast.HydrogenInsightsDecember20234HydrogenCouncil,McKinsey&CompanyHydrogenInsightsDecember202301HydrogenmomentumHydrogenCouncil,McKinsey&Companycontinuestoaccelerate,butinvestmentdecisionsarelagging1,418hydrogenprojectsannouncedglobally,1,011ofwhichplanfullorpartialdeploymentby2030USD570billiondirectinvestmentsinhydrogenprojectsannouncedthrough2030(+30%)–USD39billion(+26%)havepassedFID45Mtp.a.ofcleanhydrogensupplyannouncedby2030,ofwhich70%isrenewableand30%islow-carbon5Exhibit11,418projects1166Hydrogenmomentumisstrong:1,4181,046inMay2023Giga-scaleproductionprojectshavebeenannouncedglobally–USD570billioninvestmentsannounced719Globally,theindustryhasannounced1,418cleanLarge-scaleindustrialusehydrogenprojectsasofOctober2023.Sincethepreviouspublication,5372newprojectshavebeen256announced.ofthetotal,morethan1,000aimtobefullyorpartiallycommissionedthrough2030,representingMobilityinvestmentsofaboutUSD570billioninhydrogenvaluechains(upfromUSD435billion).Giga-scaleprojects144(over1GWofelectrolysisforrenewablehydrogensupplyormorethan200,000Mtp.a.oflow-carbonIntegratedH2economyhydrogen)accountforoverUSD330billion.Growthisapparentacrossmostregionsinterms126ofbothinvestmentsandthenumberofprojects.Europecontinuestohavethelargestnumberofprojects(540),InfrastructureprojectsfollowedbyNorthAmerica(248).Europealsohasthehighesttotalinvestmentsannounced(USD193billion)Jan2023²Oct2023aswellasthehighestabsoluteinvestmentgrowth(USD32billion).LatinAmericahasthesecondlargestEurope193volumeofinvestmentsannounced(USD85billion),eventhoughithasannouncedfewerthanhalfthenumberLatinAmerica856ofprojectsofNorthAmerica(120),duetolargerproject75sizesandahighershareofgiga-scalerenewableOceania68hydrogenprojects.GrowthinannouncementsinNorth54AmericawasUSD12billion,anincreaseofaboutNorthAmerica20%,indicatingcontinuedmomentumfollowingthe$570BinvestmentsrequiredtodevelopannouncementoftheIRA.IndiashowsthehighestMiddleEastrelativegrowthininvestmentsofabout140%,projectsannouncedthrough2030correspondingtoabout40projects.TheMiddleEastChina35andChinafollowwithabout80%and50%growthin32investments,respectively.Africa225.HydrogenInsights2023,publishedinMay2023;comparisonsinthisIndiareportarerelativetothispublicationunlessstatedotherwise.RestofAsia5HydrogenInsightsDecember2023HydrogenCouncil,McKinsey&CompanyJapanandSouthKorea³41.Projectannouncementsbelow1MWexcluded;includes7projectswithoutspecifiedtype2.Jan2023valueshavebeenupdatedtomostrecentcapexestimationstokeepvaluescomparable3.RestatementofJan2023dataforJapanandSouthKoreapreventscomparisontoOct2023dataSource:Project&Investmenttracker,asofOct2023Exhibit2Directhydrogeninvestmentsuntil2030,$BTheprojectfunnelisgrowingacrossproject259$570Bstages,withmostgrowthoccurringintheadvancedplanningstage200203totalannouncedEnduse160investmentsThetotalannouncedinvestmentsthrough2030haveincreasedandofftakeby30%inthepastninemonths–fromaboutUSD435billionto$310BmorethanUSD570billion.TheincreaseisunevenlydistributedInfrastructureacrossprojectmaturitystageswiththestrongestgrowthinmatureadvancedplanning(FEED)ofabout60%,followedbyannouncedinvestments(about30%),planning(about25%),andcommitted(about25%).ThegrowthininvestmentsattheadvancedplanningstagewasProduction71strongestinNorthAmerica(aboutUSD11billion),followedbyandsupply44Europe(aboutUSD9billion)andOceania(aboutUSD5billion).Thepipelineismaturingbutremainstiltedtowardannounced39andplanningstage(about75%),withonly7%oftheannounced31investmentsintocleanhydrogenhavingpassedFID.JanOctJanOctJanOctJanOctOfthecommittedinvestmentvolumes,Chinaleadswithabout20232023202320232023202320232023USD12.5billion(addingaboutUSD6billion)duetoseverallargeprojectslocatedincentralandnorthernChinathataccountforAnnouncedPlanningAdvancedCommittedthelargestshareofinvestment.NorthAmericareachedaboutstageplanningUSD10billionincommittedinvestments(addingaboutUSD0.5FID,underbillion),followedbyEuropeataboutUSD7.5billion(addingaboutFeasibilityFEEDconstruction,USD1billion).Thisimpliesthatonly4%ofannouncedinvestmentsstudiesstudiesoperationalinEuropehavepassedFID,eventhoughtheregionhasthemosttotalinvestmentvolumes.Incontrast,theshareofinvestments+30%75%pastFIDstandsat35%and15%inChinaandNorthAmerica,respectively.ThelowestprojectpipelinematurityisfoundinLatininvestmentgrowthin9months¹ofinvestmentsfocusonsupplyAmericaandOceaniawherelessthan1%ofinvestmentshavepassedFID.Theinvestmentpipelinecontinuestoleantowardcleanhydrogensupply(about75%),whereasinvestmentsininfrastructureandenduseaccountonlyforabout10%and15%,respectively.Lookingonlyatmatureinvestments,regionsdiffersignificantlyinthesectoralcomposition.Africashowsthestrongestconcentrationwithabout95%ofmatureinvestmentsfocusedonsupply,followedbyChina(about80%)andLatinAmerica(about80%).Reflectingtheirstrongfocusonimportedcleanhydrogen,JapanandSouthKoreashowashareofonly3%ofsupply-focusedinvestments.Whenlookingatenduseinvestments,ChinahasthehighestshareofinvestmentspastFID,followedbyNorthAmericaandEurope.Thefocusvariesacrossregions–ammoniaandindustrialusageleadinChinaandNorthAmerica,whilstEuropeismoreprominentinmobilityandrefining.1.Jan2023valueshavebeenupdatedtomostrecentcapexestimationstokeepvaluescomparableSource:Project&Investmenttracker,asofOct2023HydrogenInsightsDecember20237HydrogenCouncil,McKinsey&CompanyExhibit3Giga-scaleproductionLarge-scaleindustrialuseMobilityIntegratedH2economyInfrastructureprojectsEurope,NorthAmericaandChinahave310projects1announced214projectsinfeasibilitystudiesthelargestnumberofprojectswithcommittedcapitalPreliminarystudiesorpressannouncementstageConsideringprojectswithpartialorfullcommissioning4217146203148112222111by2030,moreprojects(bynumberofprojects)havepassedFIDstage(about35%)thantheannounced117projectsinFEEDstudies370projectscommittedstage(about30%).However,about45%oftheprojectspastFIDarenotyetoperational.TheprojectsthatFIDtaken,underconstructionoroperationalhavepassedFIDarecenteredinEurope,Asia,andNorthAmerica.Thisimpliesmarketswithanearlier24452912771731094833focusoncleanhydrogenasadecarbonizationvectorhavealreadybuiltearlyexperienceindeployingcleanhydrogenprojects.Generally,cleanhydrogenprojectsinearlierstagesofdevelopmenttendtobelarger.166giga-scaleprojectshavebeenannounced,121ofthesewithcommissioningdatethrough2030.However,thesearemostlystillinearlystagesofdevelopment.Only71projectssurpassingUSD100millionannouncedinvestmentshavepassedFID,7ofthesewithannouncedinvestmentofmorethanUSD1billion.ProjectsthathavepassedFIDhaveanaverageinvestmentsizeofaboutUSD160million.However,aspilotprojectscontinuetorepresentalargeshareofprojectspastFID,themedianinvestmentvolumeforsuchprojectsisconsiderablyloweratUSD20million.Projectsintheearlierstagesofdevelopment(announcedtoFEED)haveasignificantlylargeraverageinvestmentsizeofaboutUSD890million(medianaboutUSD280million),whichreflectsover110projectswithannouncedinvestmentsexceedingUSD1billion.1,011projectswithfullorpartial+407projectswithoutspecifiedCODcommissioning(COD)by2030orCODpost-2030(notshown)HydrogenInsightsDecember20231.Formultiphaseprojects,phase1decidestheprojectmaturityHydrogenCouncil,McKinsey&CompanySource:Project&Investmenttracker,asofOct20238Exhibit4Cumulativeproductioncapacityannounced,Mtp.a.Low-carbon45hydrogenAnnouncedproductionvolumesAnnouncedasincreasedto45Mtp.a.ofOct2023Announced1Jan2023Companieshaveannounced45Mtp.a.ofcleanPlanning2hydrogenproductioncapacitygloballythroughMay20222030acrosslow-carbonandrenewablehydrogenCommitted3(previously38Mtp.a.),ofwhichabout50%ofvolume2021Renewableisintheplanningstageand7%iscommitted.Morehydrogenthan70%ofthe45Mtp.a.isrenewablehydrogencapacity(about32Mtp.a.),theremainderbeinglow-Announced1carbon(about13Mtp.a.).Ofthe7Mtp.a.capacityannouncedinthepastninemonths,morethan90%Planning2isforrenewablehydrogendrivenbythehighgrowthinannouncementscomingfromrenewables-richregions2020intheglobalsouth.2019However,deploymentisnotmovingasfastaspreviouslyexpectedbydevelopers.AlthoughannouncementsCommitted3in2021indicated6GWoftheelectrolysiswouldbeoperationalbytheendof2022,operationaldeployment20202122232425262728292030asofOctober2023standsat1.1GW,orabout20%ofthatnumber.Scalingupisaconsiderablechallenge:70%+15Mtabout860ktp.a.ofcapacityisoperationalwithabout3Mtp.a.pastFID(slightgrowthcomparedwithpreviousshareofcapacityintop3marketsadditionalcapacity(low-carbonandpublication).About60%ofcommittedcapacityis(Europe,NorthAmerica,LatinAmerica)renewable)announcedforpost-2030locatedinNorthAmerica,followedbyChina(about20%),andEuropeaswellastheMiddleEast(about8%1.Preliminarystudiesoratpressannouncementstageeach).2.Feasibilitystudiesoratfront-endengineeringanddesignstage3.Finalinvestmentdecisionhasbeenmade,underconstruction,commissionedoroperationalConsideringtheshareoflow-carbonandrenewableSource:Project&Investmenttracker,asofOct2023hydrogen,low-carbonhydrogenaccountsformorethan75%oftoday’soperationalcleanhydrogen9volume,potentiallyduetoitslowercost.Announcedinvestmentssuggestthebalancemaystarttoshifttowardsahighershareofrenewablehydrogenbefore2025-ifannouncedvolumesaredeployedaccordingtotheplannedtimeline.Changesincompositionofcleanhydrogenovertimewilllikelyreflectawiderangeoffactorssuchasregulatorydevelopmentsandinputcost.HydrogenInsightsDecember2023HydrogenCouncil,McKinsey&CompanyExhibit5Cleanhydrogenvolumesannounced,Mtp.a.EuropeisthelargestregionintermsRenewableLow-carbonTotalannounced,Mtofannouncedsupply,followedbytheAmericasandOceaniaRegion20252030Changein2030Europe1.5announcementsGloballyannouncedcleanhydrogencapacityby2030fromJantoOctcontinuestogrowacrossmostregions,withEurope,2023theAmericasandOceaniatogetheraccountingfor%over80%ofthetotalofabout45Mtp.a.ofannouncedvolumes.China,IndiaandtheMiddleEastshowthe13.95highestrelativegrowthinannouncedcleanhydrogenproductionby2030,withgrowthbetween50%NorthAmerica2.610.110(inChina)and150%(inIndia)inthepastninemonths.ThehighestabsolutegrowthinannouncedcleanLatinAmerica0.86.630hydrogenproductionisinLatinAmericaandtheMiddleEast(about1.4Mtp.a.each).Notably,relativegrowthOceania0.75.620inEuropeandNorthAmerica,thetwolargestregions,isabout5%and10%respectively–lowerthantheirMiddleEast0.73.370growthininvestmentvolumes(about20%each).ThiscouldindicatecompaniesarefocusingmoreonChina1.01.650maturingexistingannouncedprojectsorondevelopingotherpartsofthehydrogenvaluechain.India0.11.6150Announcedcapacityby2025hasdeclinedfromAfrica0.11.5-8.4Mtp.a.by10%overall,indicatingdelaysinprojectdeployment.ChinaisanotableexceptionwithaboutJapanandKorea0.10.3-40%growthin2025volumes.ThegreatestreductionisseenintheMiddleEastandEurope(abouta30%RestofAsia0.10.345reduction),pointingtoprojectdelayswhichmaybeduetodelayedfundingorchallengesinsecuringofftakeTotal4.23.332.112.7agreements.FurtherprojectprogressinallregionswilllikelybeimpactedbythedevelopmentoftheSource:Project&Investmenttracker,asofOct2023correspondingregulatoryandeconomicenvironments.10Globalgrowthinrenewablehydrogenannouncementsby2030(morethan6.5Mtp.a.)substantiallyoutpacedlow-carbonhydrogenannouncements(about0.4Mtp.a.).Thestrongergrowthinrenewablehydrogenannouncementscouldbelinkedto,forinstance,astrongerregulatoryfocusonrenewablehydrogenorthelargernumberofregionswithattractiveresourcesforrenewablehydrogenproduction.HydrogenInsightsDecember2023HydrogenCouncil,McKinsey&CompanyExhibit6Cumulativeelectrolysiscapacity(announced),¹GWOver300GWofelectrolysiscapacityhas305GWbeenannouncedthrough2030,upfromOct2023232GWpreviously232GW305GWofelectrolysisdeploymenthasbeenJan2023announcedthrough2030,673GWmorethanpreviouslyannounced.Halfthiscapacity(about150GW)is175GWpastthe‘announcedonly’stage.Nearly140GWareMay2022undergoingfeasibilityorFEEDstudies,andanother12GWhavepassedFID.Thevolumesofelectrolysis115GWcapacitypastFIDincreasedfrom9GWto12GW,withDec2021mostofthecapacityinChina(about55%ofthe12GW)followedbytheMiddleEast(about15%),Europe(about55GW15%),andNorthAmerica(about5%).Previously,ChinaDec2020accountedforabout40%ofcommittedelectrolyzervolumes,implyingthatdeploymentinChinaisoutpacing20202122232425262728292030therestoftheworld.+73GW>60%>90GWOftheEuropeanrenewablehydrogeninvestmentpipeline,40GW(about45%)hasenteredatleasttheincreaseinannouncedelectrolysiscapacityannouncementsfoundannouncedelectrolysiscapacityplanningstage.Despitesupportschemesthroughthecapacityby2030inthepast9monthsin3regions,i.e.,Europe,Latinby2030inEuropeIRA,theNorthAmericanrenewablehydrogenpipelineAmerica,andOceaniastandsatabout20GWthrough2030.LatinAmericaishometo20%ofallannouncedvolumesthrough2030.1.Forprojectswithoutknowndeploymenttimeline,capacityadditionswereinterpolatedbetweenknownmilestonesSource:Project&Investmenttracker,asofOct2023Despitethelargevolume,lessthan5%ofrenewablehydrogensupplyinvestmentsarecommitted.Torealize11thepipelineof305GW,significantaccelerationinthecomingsevenyearsisneededtogrowtoday’s1.1GWinstalledelectrolysiscapacitybyafactorofmorethan250.Forannouncedprojectstodeploy,thoseplannedtobecomeoperationalinthecomingthreetofiveyearswouldneedtoreachfinancialcloseinthenextonetotwoyears.Thisimpliesnotonlythatprojectdevelopersacrossregionsandsectorsneedtomatureprojects,butalsothatoriginalequipmentmanufacturers(OEMs)needtoscaleupsupplychainsandmanufacturingcapacity.6.Notethatannouncedelectrolyzercapacitycannotbedirectlytranslatedtorenewablehydrogenvolumes.Hydrogenoutputdependsonthecapacityfactorofagivenelectrolyzer,determinedbyindividualtechnicalsetup.HydrogenInsightsDecember2023HydrogenCouncil,McKinsey&CompanyExhibit7Announcedandrequireddirectinvestmentsintohydrogenuntil2030,$BAninvestmentgapofUSD430billion4301,000remainstobeinlinewiththe2030ambitionEnduseAnnouncedinvestmentsthrough2030surpassedUSDandofftake570billion(previouslyaboutUSD435billion).However,moreprojectsneedtoemergeacrossthecleanhydrogenInfrastructurevaluechaintobeinlinewithanet-zeroscenario.7570TheremainingtotalinvestmentgapofaboutUSD430billionthrough2030standsatabout45%ofthetotalProductionneed.Thegapnarrowedbyabout10%ofthetotalneedandsupplycomparedwiththepreviouspublication.AnnounceddirectInvestmentgapTotalneedThelargestabsolutegapremainswithinhydrogeninvestmentsinfrastructure(aboutUSD210billion)whereonlyabout20%ofrequiredinvestmentshavebeenannounced.$160B$210B$60BItisfollowedbygapsinenduseandofftake(aboutUSD160billion),andproductionandsupply(about60investmentgapinenduseinvestmentgapininfrastructureinvestmentgapinproductionbillion),representinggapsofabout65%andabout10%,applicationsandsupplyrespectively.TheslowerrateofannouncedinvestmentsintohydrogeninfrastructurecouldstemfromuncertaintySource:Project&Investmenttracker,asofOct2023astothetimelineofhydrogensupplyandenduse12deploymentinsomeregions.Atthesametime,large-scaleinfrastructureinitiativessuchastheEuropeanHydrogenBackbonearefocusingondeployingacomprehensivehydrogeninfrastructure.Growthinannouncedhydrogensupplyprojectscontinuestooutpaceenduseandinfrastructureinvestments,accountingforabout75%oftotalannouncedinvestments,andgrowingbyaboutUSD120billioninthepastninemonths.AnnouncedinvestmentsinhydrogeninfrastructuregrewonlybyUSD3billion(about5%relativetothepreviouspublication)reachingUSD50billion,whereasannouncementsofenduseinvestmentsgrewbyaboutUSD15billion(approximately25%relativetothepreviouspublication),reachingaboutUSD80billion.Althoughoverhalftheneededinvestmentshavebeenannounced,moreareneeded.ThecurrentannouncedprojectsneedtobematuredanddeployedtoclosethegapfromUSD39billionpastFIDtodaytomorethanUSD1trilliondeployedthrough2030.MoreprojectsarelikelyneededbeyondtheUSD1trillionmark,asnotallcurrentlyannouncedprojectsarelikelytoberealized.Astheindustryisfocusingonmaturingtheexistingprojectpipeline,itshouldalsocontinuedevelopingnewprojects.7.Foradetailedexplanationoftheappliednet-zeroscenariosee‘HydrogenforNet-Zero’HydrogenInsightsDecember2023HydrogenCouncil,McKinsey&CompanyHydrogenInsightsDecember202302CleanhydrogenHydrogenCouncil,McKinsey&Companydeploymentsteadilycontinues>1.1GWofelectrolysiscapacitydeployedgloballybyOctober2023(additional400MW),withabout12GWhavingpassedFIDglobally(additional3GW)860ktp.a.operationalcleanhydrogensupplycapacitydeployedtoday–about1%ofthegreyhydrogenmarkettoday>1,100hydrogenrefuelingstationsdeployedglobally,withmorethan60%growthoverthelasttwoyears13Exhibit8SupplyTransmissionManufacturingcapacityEnduseDeploymentissteadilygrowingacrossthevaluechain3706Supply:About860ktp.a.ofcleanhydrogensupplyisProjectshavepassedFID,methanol-readyshipsoperationalglobally,upfrom800ktp.a.previously.AboutmajorityareinEuropeinservice710ktp.a.islow-carbonhydrogen(primarilyinNorthAmerica),andtheremainderisrenewablehydrogen.1,100MW+81fromprevious11GW+163ordered>130About3Mtp.a.havepassedFID,ofwhich55%islow-publicationcarbonhydrogen.8electrolysismfg.capacity79,000fuelcellvehiclemodelsElectrolysiscapacityoperationalaccordingtoOEMtobeassembledbyInfrastructure:Thedeploymentofhydrogeninfrastructure2023;>600MWinChinaannouncementsfuelcellvehiclesOEMsin2023isslowlyprogressingtowardsensuringthatlow-cost+2GWontheroadin2023+20%from2022andcleanhydrogensupplymeetsdemand.Committed+400MWfromprevious+20%from2022²investmentsinhydrogeninfrastructurehavegrownto15GW>1,100aboutUSD6.5billion,ofwhich45%areinMiddleEast.publication710ktp.a.5,000Thishasnotyettranslatedintoasubstantialincreasein,fuelcellmfg.capacityhydrogenrefuelingstationforinstance,hydrogenpipelinecapacity.Today,thereare3Mtp.a.low-carbonhydrogentodayaccordingtoOEMskmofhydrogenpipelinedeployment:>350inabout5,000km9ofhydrogenpipelines,primarilyinexistingcapacityoperationalin2023operationalChina,>350inSouthgreyhydrogenhubsandindustrialareas.Thedeploymentcleanhydrogencapacity+3GW+600inFID+ofinfrastructureforhydrogen-fueledmobilityisgraduallyhaspassedFID,inadditionto25ktp.a.Korea,>240inEurope,growing,withmorethan1,100hydrogenrefuelingstationsunderconstruction¹>160inJapandeployedglobally,concentratedinChina,SouthKorea,majorityofwhichisandJapan.inNorthAmerica12GWManufacturingcapacity:ElectrolyzersandfuelcellelectrolysiscapacityatFID+manufacturersarepreparingtoscaleup.Electrolyzermanufacturingcapacityhasreachednearly11GW(upfrom~7GWinChina,9GWpreviously)accordingtoOEMstatements.Forfuelcell~2GWintheMiddleEast,manufacturing,thetotalglobalcapacitystandsat15GW(upfrom12GW),withSouthKorea,China,andJapanas~2GWintheUSthelargestsupplymarkets.andEuropeHydrogenenduse:Committedinvestmentsinhydrogen1.Low-carbonhydrogencapacitywasadjusteddownwardscomparedtotheMay2023reportduetoarestatementoftheunderlyingdataenduseshavereachedmorethanUSD7.5billion,with2.FCelectricbussalesinChinawereadjusteddownwardscomparedtotheMay2023reportduetoanerrorintheunderlyingdatathelargestinvestmentamountinEurope(totalcommittedSource:HydrogenCouncil;McKinseyinvestmentsofUSD4.5billion).Bysector,mobilityhasthehighestcommittedinvestments(USD4.5billion)followed14bythepowersector(USD1.2billion).Withinmobility,cumulativefuelcellelectricvehicle(FCEV)salesasofJune2023stoodatabout79,000vehicles,10up10%fromend-of-year2022.VehicleOEMshaveannouncedover130FCEVmodelsexpectedtobeassembledin2023,ofwhichthemajorityconsistofcommercialvehicles(trucksandbuses)inChina.8.Duetorestatementsofunderlyingdata,netgrowthappearssmallercomparedtopreviousreports9.IEA,GlobalHydrogenReview,202310.CumulativefuelcellelectricbussalesinChinawereadjusteddownwardcomparedtothepreviousreportduetoanerrorintheunderlyingdata.HydrogenInsightsDecember2023HydrogenCouncil,McKinsey&CompanyExhibit9Globalcumulativeinstalledelectrolysiscapacity,MW1,100700400MWelectrolysishasbeendeployedTechnologysinceJanuary,bringingthetotalto1.1AlkalineGW,withmostcapacityaddedinChinaPEMOther/unknownThedeploymentofelectrolysiscapacitygrewbyaround60%in2023versus2022,reaching5301.1GW,upfrom700MW.Theinstalledcapacityequalsabout150ktp.a.ofrenewablehydrogen240300supply,meaningrenewablehydrogenaccountsforabout15%ofinstalledcleanhydrogenproduction20192021¹22Oct2023capacityglobally.Growthratehasalmostdoubledoverthelasttwoyears.Muchofthegrowthinthe150pastyearhasbeendrivenbyasinglelargeprojectof260MWinChina,whichaccountedfor65%120ofthegrowth.ChinaToday,thelargestdeployedelectrolyzercapacityisinChina(610MW),wheretheworld’stwolargestEuropeoperationalprojectswithcapacitiesof260MWand150MWarelocated.ChinaisfollowedbytheUnitedNorth610StatesandGermany(60MWeach),aswellasSpain,AmericaTaiwan,Sweden,andCanada(eachwithabout25MW).Inthepastyear,thelargestvolumesaddedRestofoutsideChinawereintheUnitedStatesandSwedenworld(about50MWand20MW,respectively).220Ofthe12GWofelectrolyzervolumesthatpassedFIDglobally,about40%haveastatedtechnology-1.Growthfrom2020to2021drivenby150MWNingxiaProjectaround80%isalkalineand20%proton-exchangeSource:IEAGlobalHydrogenReview2021and2022;Project&Investmenttracker,asofOct2023membrane(PEM);implyingthattheshareofPEMremainsstable.WithinChina,90%ofthedeployed15electrolysiscapacityisbasedonalkalinetechnology,whereasPEMtechnologyismoreprevalentinEuropeandNorthAmerica,accountingfor80%ofthetotalinstalledcapacity.HydrogenInsightsDecember2023HydrogenCouncil,McKinsey&CompanyExhibit10Committed¹productioncapacityuntil2030,%Currently,over3Mtp.a.ofclean2%2%NorthAmericahydrogencapacityhaspassedFID,Low-carbonhydrogenaccountsforwithNorthAmericaandChinaleading8%around90%ofcommittedproduction1%capacityinNorthAmerica(ofwhichInadditiontothe860ktp.a.ofoperationalcapacity,~670ktonisalreadyoperational),withabout2.2Mtp.a.ofcleanhydrogenhaspassed8%demanddrivenbyhydrogenforammo-FID.Mostcommittedandoperationalcapacityisniaproductionandrefininglow-carbonhydrogen(1.7Mtp.a.),andtherestis3MtOverp.a.renewable.NetcommittedcapacityhasgrownbyChinaabout0.1Mtp.a.sincethepreviouspublicationcleanhydrogenproductionSeverallarge-scalerenewablehydrogendrivenbyanincreaseincommittedrenewablecapacitycommitteduntil2030projects(>100MW)alreadyoperationalhydrogencapacity,butheldbackbyareductionincapacityduetodelayedprojects.58%EuropeRenewablehydrogenaccountsforcloseNorthAmericaisthelargestmarketinterms22%toallcommittedproductioncapacityofcommittedcleanhydrogencapacitywithvolumes(>75%)inEurope,withindustryfeed-ofabout1.8Mtp.a.Abouttwo-thirdsofthiscapacitystocksectors(e.g.,refining)drivingisintheUnitedStates,andone-thirdinCanada.demandAround90%ofthesevolumesarelow-carbonhydrogen,potentiallyduetohighermaturityandMiddleEastdrivenbytheearlydeploymentofcarboncaptureCommittedproductioncapacitydrivenandstorage(CCS)technologyingreyhydrogenbygiga-scalerenewablehydrogenproj-production.OftheNorthAmericanlow-carbonectinSaudiArabiahydrogenvolumespastFID,about65%havestatedtechnology.About40%ofthisisautothermalAfricareforming(ATR),andabout30%eachofsteammethanereforming(SMR)andcoalgasificationIndiacoupledwithCCS.Renewablehydrogencapacity(about1.3Mtp.a.)isconcentratedinChinaOther(about0.6Mtp.a.),followedbytheMiddleEastJapan,SouthKorea,Oceania(0.25Mtp.a.,ofwhichalargemajoritycomesfromaandLatinAmericasinglegiga-scaleproject).1.Finalinvestmentdecisionhasbeenmade,underconstruction,oroperationalByregion,ChinahasthelargestshareofcommittedSource:Project&Investmenttracker,asofOct2023cleanhydrogenvolumesatabout40%ofitsannouncedhydrogensupply.NorthAmericafollows,16withabout20%ofitsannounced10Mtp.a.havingpassedFID.TheMiddleEasthascommitted7%ofitsannouncedsupplyvolumesof3.3Mtp.a.,followedbyAfrica(4%)andEurope(2%).Lessthan1%oftheannouncedcapacitiesinLatinAmericaandOceaniahavepassedFID.HydrogenInsightsDecember2023HydrogenCouncil,McKinsey&CompanyExhibit11HydrogenrefuelingstationsHydrogenrefuelinginfrastructureAmericasEuropeandMiddleEastAsia-PacificTotalnumberofdeploymentcontinuestoaccelerateHRS¹inoperationinChinaandSouthKoreawithslowergrowthinEuropeandNorthAmerica246787Morethan1,100hydrogenrefuelingstationsarenowstationsinEuropeandMiddleEastoperationalglobally,withdeploymentgrowingby60%from2021toOctober2023.MostofthesestationsarestationsinAsia-PacificinAsia.China,Japan,andSouthKoreaarethelargestmarketswithnearly800stationsintotal,followedbySwedenEuropewitharound250stations.Norway694GermanyThenumberofhydrogenrefuelingstationscouldNetherlands4growsignificantlyifambitiousgovernmenttargetsarerealized.SouthKoreaandJapanplantoexpandtheirLuxemburg20networkstomorethan600stationseachby2030,whichcoulddoublethenumberofstationsinAsia.Inthe8Iceland211LatviaJapanEU,therecentlyadoptedAlternativeFuelsInfrastructureCanada2PolandRegulation(AFIR)willrequirethedeploymentofaBelgium8351167hydrogenrefuelingstationevery200kmalongtheTrans-EuropeanTransportNetwork(TEN-T).Inaddition,UnitedKingdom143CzechRepublicoverthelastsixmonths,morethan10countries(mostly2SlovakiainEurope)haveinstalledorhaveannouncedplanstoinstalltheirfirsthydrogenrefuelingstations.70France471Hungary1SloveniaSalesofhydrogen-poweredvehiclescorrelateUSA1CroatiaChinageographicallywiththeroll-outofhydrogenrefuelinginfrastructure.SouthKoreacontinuestoleadinlightPortugal1101Israelhydrogen-fueledvehicles(about50%ofcurrentlight7vehiclefleet),andChinaintheglobalhydrogentruck2258SouthKoreaandbusmarket(about80%and90%ofeachrespectiveSpain172market).Heavyhydrogen-fueledvehicles,especiallyItalyAustria1trucks,aregainingmomentum.Thisisreflectedinthe80Indianumberofhydrogen-fueledbusandtruckmodels1SwitzerlandSaudiArabiaexceedingonehundred.Asthehydrogen-fueledvehicleparkcouldpotentiallytransitiontowardheaviervehicles,CostaRica111requiringhigherrefuelingstationcapacities,existingstationsmightrequireexpansionandadaptation.ColombiaMalaysiaAdditionalhydrogenrefuelinginfrastructuremightbeneededforoff-roadmobilitysuchasrailandstationsintheAmericas1inlandshipping.7NewCaledoniaWhilemosthydrogen-fueledvehiclescontinuetobeFCEVs,somedevelopersarealsoworkingonAustraliahydrogencombustionpowertrainsfornewandexistingvehiclemodels.2021+60%691HydrogenInsightsDecember20232023HydrogenCouncil,McKinsey&Company1,1131.350and700barHRSincludedaswellaspublicandnon-openHRSSource:h2stations.org17HydrogenInsightsDecember202303CleanhydrogenproductionHydrogenCouncil,McKinsey&Companycostshaveincreased30–65%increaseinLCOHdrivenbycapitalexpenditure,financing,andcostofrenewablepower2.5–4.0USD/kgcostestimateforLCOHby2030,downfromcurrentcostsofabout4.5–6.5USD/kg30–45%capitalexpendituredecreaseby2030comparedwithcurrentlevels18Exhibit12DevelopmentoflevelizedcostofhydrogenNear-termlevelizedcostsforrenewablehydrogen+30–65%$2.5–4.0haveincreasedby30%to65%increase¹inLCOHdrivenbycapex,costtargetby2030Renewablelevelizedcostsofhydrogenarefacingglobalheadwindsthatfinancingandrenewablescostsaredrivingupnear-termrenewableLCOHestimatesby30%to65%,to4.5to6.5USD/kg.AsrenewablehydrogenproductiontechnologyUSD/kgH2Electrolyzercost100%andthesupportingrenewablepowersupplyishighlycapitalintensive,92023=100%75renewableLCOHissensitivetotheglobalhikeininterestrateswhich850havesignificantlyincreasedthecostofcapital.Otherfactorsdrivingup7RenewableH225costsincludeaglobalsupplyconstrainedbyrenewablepowerandpain6Low-carbonH22050pointssuchasrareearthmetalsaswellas(insomejurisdictions)skilled5laborshortagesandinterruptedsupplychains.Thehydrogensectoris4notuniqueinthis,withcostincreasesseeninothersectors.3WhilethesecostdriversmayincreaseLCOHupinthenear-term,2unsubsidizedrenewableLCOHcouldstilldeclineto2.5-4.0USD/kg111PriorrenewableHbytheendofthedecade,dependingontheregion,12decliningfurtherto1to2USD/kgby2050.Near-termdeclineinrenewableLCOHwould2requirethenormalizationofrenewablepowercapitalexpenditure(capex),loweredfinancingcosts,andtherapidscale-upofglobal202020252030203520402045electrolyzermanufacturingcapacity.Despitetherecenthikeincosts,electrolyzercostscouldfallasmuch1.Midpointtomidpointincreaseas45%by2030and70%by2050comparedwithtoday.Whilehyper-Low-carbonhydrogenproductioncostspriorto2023havebeenexcludedduetostrongnaturalgaspricevolatilitiesimpedingmeaningfulcomparison.scalingglobalelectrolyzerproductioncouldresultinasteepersystemNaturalgaspricescontinuetodriveupcostsoflow-carbonhydrogencostdeclinebefore2030,continuedlearningcoulddrivefurthercostCoreassumptions:Yearlyproductionof1Mtofhydrogen;DedicatedsolarPVandwindcapacity“behindthemeter”feedingintotheelectrolyzerdeclinesthrough2050.Source:McKinseyCapitalAnalytics;SurveyofHydrogenCouncilMemberFEEDstudiesTheLCOHoflow-carbonhydrogenproducedviaSMRorATRtechnologycoupledwithCCScouldbelowerthanrenewablehydrogen19near-term,andcouldbecompetitivewithgreyhydrogeninjurisdictionswithadequatecarbonprices.Low-carbonhydrogencostswilllikelyliebelowrenewablehydrogencoststhrough2030,exceptinafewselectregionswithveryattractiverenewablepowerresources.11.DisplayingasnominalUSDof202312.ActualLCOHforrenewablehydrogenwilldependonindividualgeographies‘specificphysical,economicandregulatoryconditions.HydrogenInsightsDecember2023HydrogenCouncil,McKinsey&CompanyExhibit13Levelizedcostofhydrogen(USGulfCoastexample),2023,USD/kgHigherplant,financingandelectricitycosts0.75.0aredrivingincreasedrenewableLCOH0.7TheimpactofrecentcostincreasesisillustratedwithanexamplefromtheUSGulfCoast,whererenewableLCOH0.1todayincreasedbyabout2USD/kgversuspreviouscostestimates.Increasednear-termcapitalexpenditureshad0.5increaseincost0.3thelargestabsoluteimpactontheriseintherenewableLCOH(about40%),followedbyhigherfinancingcosts(aboutincreaseinO&Mofcapitaldrivenby30%)andthecostofrenewableelectricity(about25%).Higheroperationandmaintenancecostshaveonlyaminor0.8drivenbycapex3-5percentageimpactontherenewableLCOH(about5%).Absolutecostincreasesandtheimpactofthecontributingfactorsmayvaryandlaborcostspointincreaseinsignificantlyacrossregionsase.g.,financingcostandsupplychainconstraintsdynamicsdiffer.RenewablepowercostsincreaseinriskfreerateremainthelargestcontributortooverallrenewableLCOHacrossregions.renewableelec-Asrisk-freerateshaveincreasedbyupto5percentagepoints,thecostoffinancinghasgrowninkind.Whilethetricitypricescostofcapitalhasrisenglobally,ratesvarysignificantlyacrossregionswithcountryriskpremiumsrangingfrom2.9nonetoabout25%.Differencesinthematurityofregulatoryframeworksaswellascountry-specificpoliticaland0.2increaseincapex2.2macroeconomicconditionsdrivevariationsincostofcapitalforrenewablehydrogenprojectsbetweendifferentcountries.drivenbyfinanc-Costincreasesapplylargelyindependentlyfromthequalityofavailablerenewablepowerresources.In‘behind-ing,labor,andthe-meter’setupswherenetnewrenewablecapacityispurpose-builtaspartofanintegratedproject,renewablematerialspowercapexcarriesthesamecostofcapitalastheoverallrenewablehydrogenproject.‘Behind-the-meter’renewable1.7powercapexisthereforeoftenhigherthanwhatindependentpowerproducersmightbeabletoattainforgrid-connected1.7renewablepowerassets.0.9HydrogenInsightsDecember2023PriorH2plantElectricityH2plantAdditionalH2UpdatedHydrogenCouncil,McKinsey&CompanyestimatecapexcostO&MfinancingcostestimateCoreassumptions:Yearlyproductionof1Mtofhydrogen;DedicatedsolarPVandwindcapacity“behindthemeter”feedingintotheelectrolyzer20Source:McKinseyExhibit14RenewableH2capex(USGulfCoast1GWalkalinefacilityexample),USD/kW,forfullyinstalledsystemElectrolyzerplantcapitalexpenditureElectrolyzerBalanceofplantOwner’scostsandcontractorfeesFreightcostscoulddeclinebyabout45%through20301,600–2,3001,800–2,200Near-termrenewablehydrogencapexishigherthanpriorpublicconsensusestimateshavesuggested.1,100–1,2001,200–1,500Indepthanalysisbreakingdowntheelectrolyzer,1,000–1,200900–1,200materialcomponents,andinstallationcostssuggeststhatcostscouldstillfallbyasmuchas35%to45%20232023202320302040Capitalcostdecreasesthrough2030.Multiplefactorshaveincreasednear-Reducedfootprintdrivesbalancetermcapexestimates:inflationratesonmaterials,PreviousUpdatedengineering-basedofplantquantityreductions(e.g.,equipment,andlabor,togetherwithamoreperspectiveperspectiveconcrete,piping,electrical)sophisticatedunderstandingofthedevelopercosts.Balanceofplantandindirectcosts(e.g.,contractorfees,TotalcostestimateElectrolyzercosts,powerdensi-owner’scosts)accountforthelargestdifferentialversusfrommembersurveyty,andefficiencyimproveoverpriorestimates.time,reducingsystemfootprintSource:McKinseyCapitalAnalytics;SurveyofHydrogenCouncilMemberFEEDstudiesLowerelectrolyzersystemcostsarelikelytheprimary2050driversforcost-downeffortsthrough2030.Achievingthisprojectedsystemcost-downwouldbecontingent21onsuccessfullyrampingupelectrolyzermanufacturingcapacitytomeetgiga-scalemidtolate-decadedemand.Electrolyzercostreductionscouldalsoresultfromdesigning-to-cost,includingminimizingpreciousmetalcontentincorecomponentsandstreamliningsystemdesigns.Inparallel,increasesinelectrolyzerpowerdensityandefficiencycouldservebothtoreduceoverallsystemfootprintanddecreasethenominalelectrolyzercapacityneededtoachievesimilarhydrogenoutput.Technologicaladvancementsinelectrolyzersystemscouldhaveknock-oneffectsthatreduceboththebalanceofplantandindirectcosts.Moreefficientandstreamlinedplantdesignwithsmallerfootprintrequirelessmaterials(e.g.,concrete,steel,piping,electricalconduits)andfewerconstructionlaborhours,aswellasmarginallylowerunitshippingcosts.Indirectcostslikeoverhead,contractorfees,andowner’scoststhatarecalculatedasafactorofdirectcostsdecreasecommensuratelywithtotaldirectcapex.HydrogenInsightsDecember2023HydrogenCouncil,McKinsey&CompanyExhibit15RenewableH2capex(USGulfCoast1GWalkalinefacilityexample),USD/kW,forfullyinstalledsystemFullyoptimizedsystemscouldreduceAverageFullyoptimizedcapitalexpenditurebyasmuchas25%1,800–2,200Advancesinelectrolyzertechnologyandmanufacturing,improvementsinthebalanceofplant,andknock-on1,200–1,500-30–45%effectswilllikelydrivedownelectrolyzerplantcapex900–1,200formostprojects.AdditionalactionscouldfurtherPotentialcostreductiondriversthrough2030acceleratethecost-downtrajectory,ifprojectdelivery•Electrolyzertechnologyandmanufacturingissubstantiallyredesigned.Threesuchmeasurestofullyoptimizeandacceleratethecost-downtrajectoryadvancementsofprojectsinclude:•Balanceofplantimprovements•Knock-oneffectstoindirectcosts—Buildingsuccessiveprojectstomaximizelearningrates-10–25%—ProcuringatscaleacrossmultipleprojectstoachieveAdditionalactionsthatcouldbetakentofullyvolumediscountsoptimizeprojectstoreducecostsfurther•Buildsuccessiveprojectstomaximize—Implementingrigorousdesignsimplificationandstandardizationlearningrates•ProcureatscaleacrossprojectsImplementingallthesemeasurestoreduceelectrolyzerplantcapexcouldfurtherreducerenewableLCOHbytoachievevolumediscountsanadditional0.2-0.4USD/kgby2030.However–only•Implementdesignstandardizationthebest-in-classdeveloperswhowillradicallychallengebaseassumptionsindesign,installation,andscale-upandsimplificationwillbeabletoattainthesefullyoptimizedcosts.20232030Source:McKinseyCapitalAnalytics;SurveyofHydrogenCouncilMemberFEEDstudiesHydrogenInsightsDecember202322HydrogenCouncil,McKinsey&Company
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