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Hydrogen Insights

A perspective on hydrogen investment,

market development and cost

competitiveness

February 2021

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Hydrogen Insights Report 2021

Hydrogen Council, McKinsey & Company

Published in January 2021 by the Hydrogen Council. Copies of this document are available upon

request or can be downloaded from our website:

www.hydrogencouncil.com.

„This report was authored by the Hydrogen Council in collaboration with McKinsey & Company.“

The authors of the report conﬁrm that:

1. There are no recommendations and/or any measures and/or trajectories within the report that

could be interpreted as standards or as any other form of (suggested) coordination between

the participants of the study referred to within the report that would infringe EU competition law;

and

2. It is not their intention that any such form of coordination will be adopted.

Whilst the contents of the Report and its abstract implications for the industry generally can be

discussed once they have been prepared, individual strategies remain proprietary, conﬁdential and

the responsibility of each participant. Participants are reminded that, as part of the invariable

practice of the Hydrogen Council and the EU competition law obligations to which membership

activities are subject, such strategic and conﬁdential information must not be shared or

coordinated – including as part of this Report.

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HydrogenInsightsAperspectiveonhydrogeninvestment,marketdevelopmentandcostcompetitivenessFebruary2021每日免费获取报告1、每日微信群内分享7+最新重磅报告；2、每日分享当日华尔街日报、金融时报；3、每周分享经济学人4、行研报告均为公开版，权利归原作者所有，起点财经仅分发做内部学习。扫一扫二维码关注公号回复：研究报告加入“起点财经”微信群。。HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyPublishedinJanuary2021bytheHydrogenCouncil.Copiesofthisdocumentareavailableuponrequestorcanbedownloadedfromourwebsite:www.hydrogencouncil.com.„ThisreportwasauthoredbytheHydrogenCouncilincollaborationwithMcKinsey&Company.“Theauthorsofthereportconfirmthat:1.Therearenorecommendationsand/oranymeasuresand/ortrajectorieswithinthereportthatcouldbeinterpretedasstandardsorasanyotherformof(suggested)coordinationbetweentheparticipantsofthestudyreferredtowithinthereportthatwouldinfringeEUcompetitionlaw;and2.Itisnottheirintentionthatanysuchformofcoordinationwillbeadopted.WhilstthecontentsoftheReportanditsabstractimplicationsfortheindustrygenerallycanbediscussedoncetheyhavebeenprepared,individualstrategiesremainproprietary,confidentialandtheresponsibilityofeachparticipant.Participantsareremindedthat,aspartoftheinvariablepracticeoftheHydrogenCouncilandtheEUcompetitionlawobligationstowhichmembershipactivitiesaresubject,suchstrategicandconfidentialinformationmustnotbesharedorcoordinated–includingaspartofthisReport.ContentsExecutivesummaryiiiI.Introductionandmethodology2—HydrogenInsightsisaleadingglobalperspectiveonhydrogen2—TheHydrogenInsightsreportmethodology3II.Deploymentandinvestment6—Tremendousmomentumexists,withover200H2projectsannouncedworldwide6—MorethanUSD300billioninH2investmentsthrough20307—Regulationandgovernmentsupportdrivethismomentum8III.Hydrogensupply12—RenewablehydrogencouldbreakevenwithgrayH2before2030inoptimalregions12—Electrolyzercapexsavingscanreducecostsquicklyinarapidglobalscale-up15—Expectedelectrolyzerlearningcurvescouldbetooconservative15IV.Hydrogendistributionandglobalsupplychains18—TheoptimalH2transportmodewillvarybydistance,terrainandend-use:nouniversalsolutionexists18—Hydrogenpipelines20—Hydrogencarriers21—HydrogenglobaltransportcancostlessthanUSD2-3/kg24V.Endapplications26—Thecostcompetitivenessofhydrogenapplications26—Hydrogenproductioncostbreakeven27A.Roadtransportandminingequipment28B.Ammonia31C.Steel32D.Sustainableshippingfuels34E.Aviation37VI.Implementation:bringingitalltogethertocapturethepromiseofhydrogen42iiiHydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyExecutivesummaryHydrogenisgatheringstrongmomentumasakeyenergytransitionpillarUnderpinnedbyaglobalshiftofregulators,investors,andconsumerstowarddecarbonization,hydrogen(H2)isreceivingunprecedentedinterestandinvestments.Atthebeginningof2021,over30countrieshavereleasedhydrogenroadmaps,theindustryhasannouncedmorethan200hydrogenprojectsandambitiousinvestmentplans,andgovernmentsworldwidehavecommittedmorethanUSD70billioninpublicfunding.Thismomentumexistsalongtheentirevaluechainandisacceleratingcostreductionsforhydrogenproduction,transmission,distribution,retail,andendapplications.Similarly,havinggrownfrom60toover100memberssince2020,theHydrogenCouncilnowrepresentsmorethan6.6trillioninmarketcapitalizationandmorethan6.5millionemployeesglobally.Thisreportprovidesanoverviewofthesedevelopmentsinthehydrogenecosystem.Ittracksdeploymentsofhydrogensolutions,associatedinvestmentsandthecostcompetitivenessofhydrogentechnologiesandendapplications.DevelopedcollaborativelybytheHydrogenCouncilandMcKinsey&Company,itoffersafact-based,holistic,quantitativeperspectivebasedonrealindustrydata.Alongwiththereport,theHydrogenCouncilislaunchingHydrogenInsights-asubscriptionservicethatprovidesgranularinsightsanddataaboutthehydrogenecosystemanditsdevelopment.Deploymentandinvestments:AnnouncedhydrogeninvestmentshaveacceleratedrapidlyinresponsetogovernmentcommitmentstodeepdecarbonizationMorethan200hydrogenprojectsnowexistacrossthevaluechain,with85%ofglobalprojectsoriginatinginEurope,Asia,andAustralia,andactivityintheAmericas,theMiddleEastandNorthAfricaacceleratingaswell.Ifallprojectscometofruition,totalinvestmentswillexceedUSD300billioninhydrogenspendingthrough2030–theequivalentof1.4%ofglobalenergyfunding.However,onlyUSD80billionofthisinvestmentcancurrentlybeconsidered“mature,”meaningthattheinvestmentiseitherinaplanningstage,haspassedafinalinvestmentdecision(FID),orisassociatedwithaprojectunderconstruction,alreadycommissionedoroperational.Onacompanylevel,membersintheHydrogenCouncilareplanningasixfoldincreaseintheirtotalhydrogeninvestmentsthrough2025anda16-foldincreasethrough2030.Theyplantodirectmostofthisinvestmenttowardcapitalexpenditures(capex),followedbyspendingonmergerandacquisition(M&A)andresearchanddevelopment(R&D)activities.Theglobalshifttowarddecarbonizationbackedbygovernmentfinancialsupportandregulationissupportingthismomentum.Forinstance,75countriesrepresentingoverhalftheworld’sGDPhavenetzerocarbonambitionsandmorethan30havehydrogen-specificstrategies.GovernmentshavealreadypledgedmorethanUSD70billionandincludednewcapacitytargetsandsectorlevelregulationtosupportthesehydrogeninitiatives.Forexample,theEUhasannounceda40-gigawatt(GW)electrolyzercapacitytargetfor2030(upfromlessthan0.1GWtoday)andmorethan20countrieshaveannouncedsalesbansoninternalcombustionengine(ICE)vehiclesbefore2035.IntheUS,wherefederalemissionstandardsfornewvehicleshavelaggedbehindthoseintheEU,state-levelinitiativesinCaliforniaand15otherstateshavesetambitioustargetstotransitionnotonlypassengercarsbutalsotruckstozero-emissionstatusby2035.InChina,the2021-24fuelcellsupportprogramwillseetheequivalentofUSD5billionspentonfuelcellvehicledeployment,withastrongemphasisonthedevelopmentoflocalsupplychains.ivHydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanySupply:Ifscaledupwiththerightregulatoryframework,cleanhydrogencostscanfallfasterthanexpected1Thesecostsreflectpureproductioncostsandassumeadedicatedrenewableandelectrolysissystemforrenewablehydrogen.Theydonotincludecostsrequiredforbaseloadsupplyofhydrogen(e.g.,storageandbuffers),costsforredundancies,servicesandmargins;theyalsodonotincludeanycostforhydrogentransportationanddistribution.Withtheadventofhydrogengiga-scaleprojects,hydrogenproductioncostscancontinuetofall.Forrenewablehydrogen,thebiggestdriverisaquickerdeclineinrenewablescoststhanpreviouslyexpected,drivenbyat-scaledeploymentandlowfinancingcosts.2030renewablecostscouldbeasmuchas15%lowerthanestimatedjustayearago.ThestrongestreductionsareexpectedinlocationswithoptimalresourcessuchasAustralia,Chile,NorthAfricaandtheMiddleEast.Butlowerrenewablecostsarenotenough:forlow-costcleanhydrogenproduction,valuechainsforelectrolysisandcarbonmanagementneedtobescaledup.Thiswillnothappenonitsown:afurtherstep-upofpublicsupportisrequiredtobridgethecostgap,developlow-costrenewablecapacitiesandscale-upcarbontransportationandstoragesites.Forthecostprojectionsinthisreport,weassumeanambitiousdevelopmentoftheuseofhydrogeninlinewiththeHydrogenCouncilvision.Forelectrolysis,forexample,weassume90GWdeploymentby2030.Suchascale-upwillleadtoarapidindustrializationoftheelectrolyzervaluechain.Theindustryhasalreadyannouncedelectrolyzercapacityincreasestooverapproximately3GWperyear,andwillneedtoscalerapidlybeyondthat.Thisscalingcantranslateintosystemcostsfallingfasterthanpreviouslyestimated,hittingUSD480-620perkilowatt(kW)by2025andUSD230-380perKWby2030.Systemcostsincludestackandbalanceofplantbutexcludetransportation,installationandassembly,costsofbuildingandanyindirectcosts.At-scaledeploymentofrenewablehydrogenwillrequirethedevelopmentofgiga-scalehydrogenproductionprojects.Suchprojectswithpurpose-builtrenewablescanboostutilizationbymergingmultiplerenewablesources,suchasacombinedsupplyfromonshorewindandsolarphotovoltaics(PV),andbyoverbuildingrenewablessupplyversuselectrolyzercapacity.Incombination,projectionsshowthatrenewablehydrogenproductioncostscoulddeclinetoUSD1.4to2.3perkilogram(kg)by2030(therangeresultsfromdifferencesbetweenoptimalandaverageregions).1Thismeansnewrenewableandgrayhydrogensupplycouldhitcostparityinthebestregionsby2028,andbetween2032and2034inaverageregions.Inparalleltorenewablehydrogenproduction,low-carbonhydrogenproductionfromnaturalgashascontinuedtoevolvetechnologically.WithhigherCO2captureratesandlowercapexrequirements,low-carbonhydrogenproductionisastrongcomplementaryproductionpathway.Ifcarbontransportationandstoragesitesaredevelopedatscale,low-carbonhydrogencouldbreakevenwithgrayhydrogenbytheendofthedecadeatacostofaboutUSD35-50perton(t)ofcarbondioxideequivalent(CO2e)1.Distribution:Cost-efficienttransmissionanddistributionrequiredtounlockhydrogenapplicationsWithhydrogenproductioncostsfalling,transmissionanddistributioncostsarethenextfrontierwhenitcomestoreducingdeliveredhydrogencosts.Longer-term,ahydrogenpipelinenetworkoffersthemostcost-efficientmeansofdistribution.Forexample,pipelinescantransmit10timestheenergyatone-eighththecostsassociatedwithelectricitytransmissionlinesandhavecapexcostssimilartothosefornaturalgas.Theindustrycanpartiallyreuseexistinggasinfrastructure,butevennewlyconstructedpipelineswouldnotbecostprohibitive(assumingleakageandothersafetyrisksareproperlyaddressed).Forexample,weestimatethecosttotransporthydrogenfromNorthAfricavHydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanytocentralGermanyviapipelinecouldamounttoaboutUSD0.5perkgofH2–lessthanthecostdifferenceofdomesticrenewablehydrogenproductioninthesetworegions.Intheshort-tomedium-term,themostcompetitivesetupforlarge-scalecleanhydrogenapplicationsinvolvesco-locatinghydrogenproductionon-ornear-site.Theindustrycanthenusethisscaledproductiontosupplythefueltootherhydrogenusersinthevicinity,suchasrefuelingstationsfortrucksandtrains,andsmallerindustrialusers.Truckingthefueltosuchuserstypicallyoffersthemostcompetitiveformofdistribution,withcostsbelowUSD1perkgofH2.Forlonger-distancetransportbyship,hydrogenneedstobeconvertedtoincreaseitsenergydensity.Whileseveralpotentialhydrogencarrierapproachesexist,threecarbon-neutralcarriers–liquidhydrogen(LH2),liquidorganichydrogencarriers(LOHC)andammonia(NH3)–aregainingmosttraction.2Thecost-optimalsolutiondependsonthetargetedend-use,withdecidingfactorsincludingcentralversusdistributedfueling,theneedforreconversion,andpurityrequirements.At-scale,internationaldistributioncouldarriveby2030attotalcostsofUSD2-3/kg(excludingcostofproduction),withthelion´sshareofcostsneededforconversionandreconversion.Forexample,ifthetargetedendapplicationisammonia,shippingcostsaddonlyUSD0.3-0.5/kgtothetotalcost.Ifthetargetedendapplicationisforliquidhydrogenorhydrogenwithahighpurityrequirement,shippingasliquidhydrogenmightaddonlyUSD1.0-1.2/kg,withadditionalbenefitsforfurtherdistributionfromport.Thesecostlevelswouldenableglobaltradeinhydrogen,connectingfuturemajordemandcenterssuchasJapan,SouthKorea,andtheEUtoregionsofabundantlow-costhydrogenproductionmeansliketheMiddleEastandNorthAfrica(MENA),SouthAmericaorAustralia.Likehydrogenproduction,carriersneedsubstantialinitialinvestments,andtherightregulatoryframeworktobridgethecostdeltainthefirstdecade.Endapplications:Fallingcleanhydrogencostsandapplication-specificcostdriversimprovethecostcompetitivenessofhydrogenapplicationsFromatotalcostofownership(TCO)perspective(includinghydrogenproduction,distributionandretailcosts)hydrogencanbethemostcompetitivelow-carbonsolutionfor22endapplications,includinglonghaultrucking,shippingandsteel.However,pureTCOisnottheonlydriverofapplicationadoption:futureexpectationsonenvironmentalregulations,demandsfromcustomersandassociated“greenpremiums,”aswellasthelowercostofcapitalforESG-compliantinvestmentswillallinfluenceinvestmentandpurchasedecisions.Inindustry,lowerhydrogenproductionanddistributioncostsareparticularlyimportantforcostcompetitivenessastheyrepresentalargeshareoftotalcosts.Refiningisexpectedtoswitchtolow-carbonhydrogenoverthenextdecade.Forfertilizerproduction,greenammoniaproducedwithoptimizedrenewablesshouldbecostcompetitiveby2030againstgrayammoniaproducedinEuropeatacostoflessthanUSD50pertonofCO2e.Steel,oneofthelargestindustrialCO2emitters,couldbecomeoneoftheleast-costdecarbonizationapplications.Withanoptimizedsetupusingscrapandhydrogen-baseddirectreducediron(DRI),greensteelcouldcostaslittleasUSD515tonofcrudesteel,orapremiumofUSD45pertonofCO2eby2030.Intransport,lowerhydrogensupplycostswillmakemostroadtransportationsegmentscompetitivewithconventionaloptionsby2030withoutacarboncost.Whilebatterytechnologyhasadvancedrapidly,fuelcellelectricvehicles(FCEVs)areemergingasacomplementarysolution,inparticularforheavy-dutytrucksandlong-rangesegments.Inheavy-dutylong-haultransport,theFCEVoptioncanachievebreakevenwithdieselin2028ifhydrogencanbemadeavailableforUSD4.5perkgatthe2Syntheticmethaneproducedfrombiogenicorair-capturedCO2representsapotentialfourthcandidatetobestudiedfurther.viHydrogenInsightsReport2021HydrogenCouncil,McKinsey&Companypump(includinghydrogenproduction,distributionandrefuelingstationcosts).Furthermore,hydrogencombustion(H2ICE)offersaviablealternativeinsegmentswithveryhighpoweranduptimerequirements,includingheavyminingtrucks.Hydrogenislikewiseadvancingintrains,shipping,andaviation.Cleanammoniaasashippingfuelwillbethemostcost-efficientwaytodecarbonizecontainershippingby2030,breakingevenwithheavyfueloil(HFO)atacostofaboutUSD85pertonofCO2e.3Aviationcanachievecompetitivedecarbonizationviahydrogenandhydrogen-basedfuels.Theaviationindustrycandecarbonizeshort-tomedium-rangeaircraftsmostcompetitivelythroughLH2directly,atacostofUSD90-150pertonofCO2e.Long-rangeaircraftscanbedecarbonizedmostcompetitivelyusingsynfuels,atacostofaboutUSD200-250pertonofCO2e,dependingontheCO2feedstockchosen.Otherend-applicationssuchasbuildingsandpowerwillrequireahighercarboncosttobecomecostcompetitive.However,aslarge-scaleandlong-termsolutionstodecarbonizethegasgrid,theywillstillseestrongmomentum.IntheUnitedKingdom,forexample,multiplelandmarkprojectsarepilotingtheblendingofhydrogenintonaturalgasgridsforresidentialheating.Hydrogenasabackuppowersolution,especiallyforhighpowerapplicationslikedatacenters,isalsogainingtraction.3Alternativessuchassyntheticmethanefrombiogenicorair-capturedCO2incurrentliquefiednaturalgas(LNG)vesselswerenotinthescopeofthisreportandrequirefurtherstudy.Implementation:CapturingthepromiseofhydrogenStronggovernmentcommitmenttodeepdecarbonization,backedbyfinancialsupport,regulationandclearhydrogenstrategiesandtargets,hastriggeredunprecedentedmomentuminthehydrogenindustry.Thismomentumnowneedstobesustainedandthelong-termregulatoryframeworkset.Theseambitiousstrategiesmustnowbetranslatedintoconcretemeasures.Governments,withinputfrombusinessesandinvestors,shouldsetsector-levelstrategies(e.g.,forthedecarbonizationofsteel)withlong-termtargets,short-termmilestones,andthenecessaryregulatoryframeworktoenablethetransition.Theindustrymustsetupvaluechainsforequipment,scaleupmanufacturing,attracttalent,buildcapabilities,andaccelerateproductandsolutiondevelopment.Thisscaleupwillrequirecapital,andinvestorswillplayanoutsizedroleindevelopingandpushingat-scaleoperations.Allthiswillrequirenewpartnershipsandecosystembuilding,withbothbusinessesandgovernmentsplayingimportantroles.Togetthingsstarted,strategiesshouldaimatthecritical“unlocks,”likereducingthecostofhydrogenproductionanddistribution.Weestimateroughly65GWofelectrolysisarerequiredtobringcostsdowntoabreak-evenwithgrayhydrogenunderidealconditions,whichimpliesafundinggapofaboutUSD50billionfortheseassets.Supportisalsorequiredtoscaleupcarbontransportandstorage;hydrogenshipping,distributionandretailinfrastructure;andthetakeupofendapplications.Oneplacetosupportdeploymentisthedevelopmentofclusterswithlarge-scalehydrogenofftakersattheircore.Thesewilldrivescalethroughtheequipmentvaluechainandreducethecostofhydrogenproduction.Bycombiningmultipleofftakers,supplierscansharebothinvestmentsandriskswhileestablishingpositivereinforcingloops.Othersmallerhydrogenofftakersinthevicinityofsuchclusterscanthenpiggy-backonthelower-costhydrogensupply,makingtheiroperationsbreakevenfaster.Weseeseveralclustertypesgainingtraction,including:—Portareasforfuelbunkering,portlogistics,andtransportation—Industrialcentersthatsupportrefining,powergeneration,andfertilizerandsteelproduction—Exporthubsinresource-richcountriesviiHydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanySuccessfulclusterswilllikelyinvolveplayersalongtheentirevaluechaintooptimizecosts,tapintomultiplerevenuestreamsandmaximizetheutilizationofsharedassets.Theyshouldbeopentoadditionalplayersandinfrastructureshouldallowforreadyaccesswherepossible.Thenextfewyearswillbedecisiveforthedevelopmentofthehydrogenecosystem,forachievingtheenergytransitionandforattainingthedecarbonizationobjective.Asthisreportshows,progressoverthepastyearhasbeenimpressive,withunprecedentedmomentum.Butmuchliesahead.ThecompaniesintheHydrogenCouncilarecommittedtodeployinghydrogenasacriticalpartofthesolutiontotheclimatechallengeandHydrogenInsightswillprovidearegularlyupdated,objectiveandglobalperspectiveontheprogressachievedandthechallengesahead.viiiHydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyixHydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyHydrogenInsightsdrawsuponthecollectiveknowledgeofHydrogenCouncilmembers109companies>6.8tmmarketcap>6.5mnemployees1HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyIIntroductionandmethodologyHydrogenInsightsisaleadingglobalperspectiveonhydrogenThe109membersoftheHydrogenCouncilrepresentoverUSD6.8trillioninmarketcapitalizationandmorethan6.5millionemployees.HydrogenInsightsrepresentsacollaborativeeffortbetweenHydrogenCouncilmembersandMcKinsey&Companytobringforthanobjective,holisticandquantitativeperspectiveontheuseofhydrogenasadecarbonizationoptionbasedonrealindustrydata.Assuch,HydrogenInsightsaspirestoofferthepre-eminentindustryperspectiveonmarketdeployment,investmentmomentumandcostcompetitivenesswithinthehydrogenindustry.Alongwiththereport,theHydrogenCouncilislaunchingHydrogenInsightsasasubscriptionservice,providinggranularinsightsanddataaboutthehydrogenecosystemanditsdevelopment.Exhibit1:HydrogenCouncilMembers2HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyTheHydrogenInsightsreportmethodologyBeforeexplainingtheresults,thefollowingprovidesadescriptionofthemethodologicalapproachusedinthisanalysis.Evaluatinghydrogeninvestment,deployment,andmarketmomentumThereportteamestimatedthetotalhydrogeninvestmentthrough2030basedonananalysisofthreemaininvestmentfundingcategories:directinvestmentintoprivatesectorprojects,governmentproductiontargetsandpublicfunding,andupstream/indirectinvestmentrequiredtosupportannouncedprojectinvestments.Directprivatesectorinvestment.Thereportteam’sestimatesofcompanyinvestmentsinhydrogenprojectscamefromadatabaseofpubliclyannouncedprojectsacrosstheglobe,validatedbythemembersoftheHydrogenCouncil.Usingpublicdeploymentinformationandinternalprojections,theteamestimatedrequiredfundingfortheseprojects.Italsoclassifiedprojectsbymaturitylevel,dependingonwhethertheywereatanearlystage,intheplanningphase,oralreadyhadcommittedfunding.BycombiningtheseinsightswithinvestmentdatafromHydrogenCouncilmembersthatanindependentthird-partycleanteamcollected,processed,andaggregated,thereportteamgainedinsightsintotherelevantinvestmenttrendsinthemarket.Governmentproductiontargetsandpublicfunding.Thereportteamreviewedannouncedgovernmenttargetsandcomparedthemwiththeprojectpipelinetoquantifytheadditionalcapacityrequiredtoreachthetargets.Thisadditionalcapacitywasthencostedandincludedintheinvestmenttotalas´announced´investment.CountriessuchasChina,JapanandKorea,whichrelymoreheavilyonannouncedpublicfundingtargetsinsteadofcapacitytargets,wereconsideredasaspecialcase.Inthesecountries,thereportteamreviewedannouncedgovernmentfundingandcompareditwithannouncedprivateinvestmentfromtheprojectpipeline.Byassumingthattheexistingprivateprojectsreceivedonaverageone-thirdoftheirtotalinvestmentfromthegovernment(inmostcasesthisinformationisnotmadepublic),theteamcouldquantifytheadditionalinvestmentexpectedfromthesegovernmentsandincludeitinthe´announced´investmentcategory.Upstreaminvestment.Lastly,theteamestimatedtheupstreaminvestmentrequiredtorealizedirectprivatesectorinvestmentsusingindustryrevenuemultipliers.Ittreatedfuelcellandon-roadvehicleplatformsseparately,withabottom-upestimationofR&Dandmanufacturingcosts.Evaluatinghydrogencost-competitiveness:production,distributionandapplicationThecostcompetitivenessanalysisinthereportbuiltontheHydrogenCouncilStudy2020report,“Pathtohydrogencompetitiveness:acostperspective”.Thisyear´sreportfocusedonaddingnewtechnologiesandapplications(suchasshippingandaviation)andrevisitedareaswheretechnology,costsandunderlyingassumptionshavechanged.DataforbothperspectiveswereprovidedbyHydrogenCouncilmembersthroughanindependentthirdparty“cleanteam”whocollected,aggregatedandprocessedthedatatopreserveanonymity.Inadditiontothesedata,thereportbuildsuponMcKinseyEnergyInsightsmodellingofrenewablescostsandcapacityfactors,McKinseyHydrogenSupplymodelling,otherproprietaryassets,andnumerousbenchmarksfromexternaldataprovidersanddatabases.Thereportteamalsotestedandvalidatedthefindingsfromtheseanalysesviaover25expertinterviewsbeforetheresultsandkeyfindingswerepresentedtotheHydrogenCouncilstudygroup.Thestudygroup,whichconsistedof20membersoftheHydrogenCouncil,thenvalidated,co-developedandtestedthesefindings.ThefullsteeringgroupoftheHydrogenCouncilsubsequentlyreviewedandapprovedthereport.Volumerampups.Thestudyassumedseveraldeploymentscenariosforhydrogentechnology.Whilenotforecasts,thesescenariosprovidedawaytoanalyzetheeffectofscaleoncost3HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Companycompetitiveness.Volumerampupassumptionsreflectedtherequiredlow-carbonandrenewablehydrogenproductionvolumescalesneededtomeet18%ofglobalfinalenergydemandby2050(inlinewiththe2°Cgoal).Hydrogenproductioncosts.Throughoutthisreport,“low-carbon”and“renewable”hydrogenareusedasshorthandtodescribetheproductionofhydrogenfromnaturalgasthroughareformingprocesswithcarboncapture(low-carbonhydrogen)and/ortheproductionofhydrogenviawaterelectrolysisfromrenewableelectricity(renewablehydrogen).Thefocusonthesetwomainpathwaysdoesnotexcludeotherproductionpathwaysthatcanformpartofahydrogeneconomy,suchasthereformingofbiogas,pyrolysis,coalgasification,andothers.Wherethereportmentionsthesealternativepathways,itdescribesthemassuch.Thereportteamanalyzedhydrogenproductioncostsusingaspecificproductionconfigurationthatreflectedthe“basecosts”ofcleanhydrogenproduction.Thisproductionconfigurationincludesadedicatedrenewableenergyandelectrolysissystem(excludinggridconnectionfeesoraddedtransmissionlineinfrastructure),andfullyflexibleproduction(zerominimumloadrequirementsthatrequirestorageandoversizingofthegenerationcapacity).Furthermore,itconsideredonlyrawproductioncosts(distinctfromsupplypricesthatincludeservices,redundanciesandmargins)forascaledindustrytosupportthecost-down(90GWinstalledby2030).Carriersandapplicationanalysis.Carriersandapplicationswithspecificlow-carbonandconventionalalternativesunderwenttotalcostofownership(TCO)comparisons.Forexample,oneanalysiscomparedfuel-cellelectricvehicleswithbatteryelectricvehicles(BEVs)withdieselvehicles.Likewise,fuelsforaviationcomparedhydrogenversussynfuelsversuskerosene(jetfuel).ThereportteamdevelopedTCOtrajectoriesforeachhydrogenapplicationandtechnologyanditscompetinglowcarbonandconventionalalternativestoidentifyrelevantcostcomponents.Moreover,theteampinpointedfactorsdrivingcostreductionsandbreak-evenpointsamongcompetingsolutions.Generally,itbasedhydrogencostestimationsontheaverageoflow-carbonhydrogen(producedfromnaturalgasreformingwithcarboncaptureandstorage)andrenewablehydrogen(producedviarenewablepowerandelectrolysis).Nevertheless,forsomespecificapplications,aparticularproductionmethodwasassumedtoreflectvariationsacrossregionsandtheirrespectivesettings.CO2analysis.Throughoutthereport,CO2playedtwodifferentroles.Ononehand,itcouldfunctionasfeedstockforapplicationssuchasmethanol(MeOH)shippingfuel.Ontheother,itrepresentedgreenhousegasemissionsthatharmtheenvironment.AlthoughvariouswaysexisttocaptureorobtainCO2feedstock(e.g.,industrialcaptureorbiogenicCO2),thisreportassumeditwasextractedfromtheatmosphereusingdirectaircapture(DAC)technology.Hence,thereportassumedtheresultingproductwasproducedinacarbon-neutralway.TheteamconductedallanalyseswithoutassumingthatimplicitCO2emissioncostspenalizedapplicationsandtechnologiesthatemitCO2.However,forsomespecificcasesitdidapplyCO2costs.Inthosecases,theanalysisclearlydescribestheimplicitCO2emissioncosts.Currency.AllfinancialfiguresareinUSdollars(USD)andrefertoglobalaveragesunlessotherwiseindicated.4HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyHydrogenInsightsdrawsuponthecollectiveknowledgeofHydrogenCouncilmembers109companies>6.8tmmarketcap>6.5mnemployees>200projectshavebeenannouncedgloballywith>80bninmaturehydrogeninvestmentInvestmentsintohydrogenaregatheringmomentum5HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company6HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyGiga-scaleproduction:renewableH2projects>1GWandlow-carbonH2projects>200ktp.a.17Large-scaleindustrialusage:refinery,ammonia,power,methanol,steel,andindustryfeedstock90IntegratedH2economy:cross-industry,andprojectswithdifferenttypesofend-uses45Infrastructureprojects:H2distribution,transportation,conversion,andstorage23Transport:trains,ships,trucks,carsandotherhydrogenmobilityapplications53228announcedprojectsProjectsperregion:126Europe24Oceania46Asia19NorthAmerica5LatinAmerica8MiddleEastandAfricaIIDeploymentandinvestmentTremendousmomentumexists,withover200H2projectsannouncedworldwideGlobally,thereare228hydrogenprojectsacrossthevaluechain(seeExhibit2).Ofthese,17arealready-announcedgiga-scaleproductionprojects(i.e.morethan1GW4forrenewableandover200thousandtonsayearforlow-carbonhydrogen),withthebiggestinEurope,Australia,theMiddleEastandChile.Europeleadsgloballyinthenumberofannouncedhydrogenprojects,withAustralia,Japan,Korea,ChinaandtheUSAfollowingasadditionalhubs.Ofallannouncedprojects,55%arelocatedinEurope.WhileEuropeishometo105productionprojects,theannouncedprojectscovertheentirehydrogenvaluechainincludingmidstreamanddownstream.InexpectedmajordemandcenterslikeKorea,JapanandEurope,thefocusisonindustrialusageandtransportapplicationprojects.WhileJapanandKoreaarestronginroadtransportapplications,greenammonia,LH2,andLOHCprojects,Europechampionsmultipleintegratedhydrogeneconomyprojects.Theselatterinitiativesoftenfeatureclosecross-industryandpolicycooperation(e.g.,theHydrogenValleyintheNorthernNetherlands).4Equivalentto175thousandtonsat100%loadfactor.Exhibit2:GlobalhydrogenprojectsacrossthevaluechainMorethanUSD300billioninH2investmentsthrough2030Atallyofprojectannouncements,investmentsrequiredtoreachgovernmentproductiontargetsandspendingprojectionsacrossthevaluechainaddsuptomorethanUSD300billionthrough2030.Giventheindustry’searlystage,thevastmajority(75%)oftheseinvestmentsinvolveannouncementsbutnotcommittedfunding.Todate,weestimateUSD80billionofmatureinvestmentsuntil2030.TheseincludeUSD45billionintheplanningphase,whichmeanscompaniesarespendingsizablebudgetsonprojectdevelopment.AnotherUSD38billioninvolveseithercommittedprojectsorthoseunderconstruction,commissionedoralreadyoperational(seeExhibit3).Projectedhydrogeninvestmentthrough2030USDbn~80bn‘mature’investmentProductionAnnouncedPlanningRealized45262End-useapplicationDistribution38Projectsinpressannouncementsorpreliminarystudystage.AlsoincludesrequiredinvestmenttoreachnationaltargetsandgovernmentfundingpledgesProjectsthatareatthefeasibilitystudyorfront-endengineeringanddesignstageProjectswhereafinalinvestmentdecision(FID)hasbeentaken,underconstruction,commissionedandoperationalExhibit3:BreakdownofannouncedinvestmentsbymaturityThelargestshareofinvestmentsisprojectedinEurope(about45%),followedbyAsia,whereChinaisleadingwitharoundhalfoftotalinvestments.Lookingatthehydrogenvaluechainsplit,theproductionofhydrogenaccountsforthelargestshareofinvestments.End-applicationinvestmentshaveahighershareinmatureprojectsduetofundingforfuelcellsandon-roadvehicleplatforms.InanalyzingprivateinvestmentsamongHydrogenCouncilmembers,weseeaclearlyacceleratingtrend.Membersexpecttoincreaseinvestmentssixtimesthrough2025and16timesthrough2030,comparedwith2019spending.Companiestendtotargettheirinvestmentsinthehydrogenspacetowardthreespecificareas:thecapexofannouncedorplannedprojects,R&D,orM&Aactivities.ThefutureinvestmentsofHydrogenCouncilmemberstrendheavilytowardcapexinvestments(80%)comparedwithspendingonR&DorM&Aactivities.7HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyShareofglobalGDPcoveredbyrespectiveregulatorysupportmechanism%,100%=USD88Trillion497531Numberofcountries805073205027GDPcoveredH2strategiesCO2pricinginitiatives100%GDPnotcoveredNetzerotargetsRegulationandgovernmentsupportdrivethismomentumGovernmentshaveplanstosupportstrategiestotransitiontohydrogen,withUSD70billioninplay.Theincreasinggovernmentalsupportstemsfromaglobalshifttodecarbonization:75countries,representinghalftheworld’sGDP,haveanetzeroambitionand80%ofglobalGDPiscoveredbysomelevelofCO2pricingmechanisms(seeExhibit4).Hydrogenisacrucialelementinmoststrategiestoachievenetzerostanding,andmorecountriesaredevelopinghydrogenplans.Infact,over30countrieshavecreatedsuchstrategiesonanationallevel,andsixaredraftingthem.Besidesthenationalhydrogenroadmaps,sector-levelregulationandtargetsunderpintheshifttohydrogen.Intransport,morethan20countrieshaveannouncedsalesbansonICEvehiclesbefore2035.Morethan35citiescoveringover100millioncarsaresettingnew,stricteremissionlimits,andover25citieshavepledgedtobuyonlyzero-emissionbusesfrom2025onwards.Globally,countriesanticipatehaving4.5millionFCEVsby2030,withChina,JapanandKorealeadingtheroll-out.Inparallel,stakeholdersaretargeting10,500hydrogenrefuelingstations(HRS)by2030tofuelthesevehicles.Forindustry,thegoalpostsarealsoshifting.Forexample,theEuropeanUnionhassuggestedthatMemberStatesincorporatelow-carbonhydrogenproductionrenewablefueltargets(REDIIDirective),whichcouldgiveasignificantboosttohydrogenadoptioninrefiningandbyfuelretailers.Inaddition,fourEuropeancountries(France,Germany,PortugalandSpain)haverecentlyannouncedindustry-Exhibit4:Regulationsupportingdecarbonizationandhydrogen8HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyCumulativeproductioncapacityMtp.a.1.Includesprojectsatpreliminarystudiesoratpressannouncementstage2.Includesprojectsthatareatthefeasibilitystudyorfront-endengineeringanddesignstageorwhereafinalinvestmentdecision(FID)hasbeentaken,underconstruction,commissionedoroperationalAnnounced1Mature2Announced1Mature2LowcarbonRenewable25202020302122292623242728Projectionsfrom2019Projectionsfrom20202.36.7specificcleanhydrogenconsumptiontargetsintheirnationalstrategies.Likewise,quotasforaviationandshippingfuelareinadvanceddiscussionsamongthesefourEUnations.Othercountrieshaveestablishedincentivesforlow-carbonhydrogenbymeansoftaxbenefits,asinthecaseofthe45QprogramintheUnitedStates.Similarly,inFrance,industrialuserscanavoidcarboncostsbyusingrenewablehydrogen,andintheNetherlands,investmentsintolarge-scaleelectrolyzercapacityconnectedtooffshorewindpowerandtheretrofittingofthenaturalgasgridarebeingmadetoreplacefossilfuelsbyhydrogen.Drivenbyagrowingfocusonhydrogenandincreasinggovernmentalsupport,theannouncedproductioncapacityforcleanhydrogenfor2030increasedto6.7milliontonsayearfrom2.3milliontonspreviously.Inotherwords,playershaveannouncedtwo-thirdsofthecleanhydrogenproductioncapacityoverthecourseofthepastyear(seeExhibit5).Exhibit5:Announcedcleanhydrogencapacitythrough20309HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company10HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company60%productioncostreductionprojectedforrenewablehydrogenby2030vs.2020baselineHydrogenproductioncostsaredecliningfasterthanpreviouslythought11HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyIIIHydrogensupplyKeyassumptions•Gasprice2.6–6.8USD/Mmbtu•LCOEUSD/MWh25–73(2020),13–37(2030)and7–25(2050)ProductioncostofhydrogenUSD/kgAveragelocationOptimallocation4.01.020502020203020402.03.05.06.020202019averagelocationRenewableLow-carbonGrayBreakevenbetweengrayandrenewablerequires…~65GWofelectrolyzercapacity~50bngaptobebridged-62%Renewablehydrogen•Dedicatedrenewable/electrolyzersystem•Fullyflexibleproduction•Scaleupofrenewablehydrogenproduction•AdditionalcoststoreachendsupplypriceLow-carbonhydrogen•DevelopmentofCO2pipelinesandat-scalesites•Scale-upoflow-carbonhydrogenproduction•Scale-upofCCSoutsideofhydrogenproductionRenewablehydrogencouldbreakevenwithgrayH2before2030inoptimalregionsRenewablehydrogenproductioncostscontinuetofallmoreswiftlythanpreviouslyexpected.ComparedwiththeHydrogenCouncilStudy2020report,“Pathtohydrogencompetitiveness:acostperspective”,thisyear’supdateresultedinevenmoreaggressivecost-downexpectationsforrenewablehydrogenproduction.Threefactorsaredrivingthisacceleration.First,capexrequirementsaredropping.Weexpectasignificantelectrolyzercapexdeclineby2030–toaboutUSD200-250/kWatthesystem-level(includingelectrolyzerstack,voltagesupplyandrectifier,drying/purificationandcompressionto30bar).Thatis30-50%lowerthanweanticipatedlastyear,duetoacceleratedcostroadmapsandafasterscale-upofelectrolyzersupplychains.Forexample,severalelectrolyzermanufacturershaveannouncednear-termcapacityscale-upsforacombinedtotalofoverapproximately3GWperyear.Second,thelevelizedcostofenergy(LCOE)isdeclining.Ongoingreductionsinrenewablescosttolevelsasmuchas15%lowerthanpreviouslyexpectedresultfromthedeploymentofat-scalerenewables,especiallyinregionswithhighsolarirradiation(whererenewablesauctionscontinuetobreakrecordlows).Thestrongestreductionsareexpectedinlocationswithoptimalresources,includingSpain,Chile,andtheMiddleEast.Third,utilizationlevelscontinuetoincrease.Large-scale,integratedrenewablehydrogenprojectsareachievinghigherelectrolyzerutilizationlevels.Thisperformanceisdrivenlargelybythecentralizationofproduction,abettermixofrenewables(e.g.,onshorewindandsolarPV)andintegrateddesignoptimization(e.g.,oversizingrenewablescapacityversuselectrolyzercapacityforoptimizedutilization)(seeExhibit6).Exhibit6:Hydrogenproductioncostsbyproductionpathway12HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyKeyassumptions•Gasprice2.6–6.8USD/Mmbtu•CostUSD/TonCO230(2020),50(2030),150(2040)and300(2050)•LCOEUSD/MWh25–73(2020),13–37(2030)and7–25(2050)ProductioncostofhydrogenUSD/kgAveragelocationOptimallocation2.02.5NetimporterNetexporter?Gray1,2Low-carbonRenew-able20502020203020404.01.02.03.05.06.01.5Stronglow-carbonhydrogenproductionmomentumandmorecostreductionsTheproductionoflow-carbonH2alsocontinuestogainmomentum.ImprovementsincludeincreasedCO2captureratesforautothermalreforming(ATR)from95%inlastyear’sreportto98%,coupledwithpotentialcapexreductionsfromsmallercaptureinstallationsandlowercompressionrequirements.ConductingATRathighertemperaturescanalsoincreasemethane-to-hydrogenconversionrates,resultinginlowermethanecontentintheproductgas,furtherreducingemissions(seeExhibit6).IntroducingCO2costscanbringtheearliestbreakevenforcleanhydrogento2028-2034Includingcarboncostsforemissionsrelatedtograyandlow-carbonhydrogenproductiongreatlyinfluencesthebreakevendynamicsbetweengrayandrenewablehydrogen.AssumingacarboncostofaboutUSD50pertonofCO2eby2030,USD150pertonCO2eby2040,andUSD300pertonCO2eby2050,canbringtheearliestbreakevenforrenewablehydrogenforwardtoa2028to2034timeframe.Theexactyearwilldependontheavailabilityoflocalresources.Incountrieswithoptimalrenewablesbutaveragecostnaturalgas(e.g.,Chile)breakevencouldoccurassoonas2028.Inlocationswithaverageresourcesforbothpathways(e.g.,Germany),breakevencouldcomeby2032.Atthesametime,locationswithabundantandoptimalresourcesforbothpathways(e.g.,selectedregionsintheUS)couldseethebreakevenofgrayandrenewablehydrogenby2034.Low-carbonhydrogencouldbreakevenwithgrayby2025-2030,subjecttoat-scaleCO2storageandtransportinfrastructure,andanexpectedcostofaboutUSD35-50pertonCO2e(seeExhibit7).Exhibit7:Hydrogenproductionpathways,includingcarboncosts13HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company1.2020Projectionfrom2020HydrogenCostRoadmapReport2.IncludeslearningrateonCAPEXandimpactoflargerelectrolyzersizeclass(from~2MWto~80MW)USD/kghydrogenAverageregionexampleOptimalregionexamplePrevious12020OtherO&MEnergycost0.6CAPEX220301.45.43.91.60.35.46.02.31.01.90.2Together,thesedriversarepushingdownthecostcurveforrenewablehydrogenbyasmuchas20%foraveragelocationsandpotentially30%foroptimallocationscomparedwiththeHydrogenCouncilStudy2020report,“Pathtohydrogencompetitiveness:acostperspective”.Foraverageprojectssuchasoffshore,wind-basedelectrolysisinCentralEurope,renewablehydrogenproductioncostscoulddeclinefromUSD5.4/kgin2020toUSD2.3/kgin2030,withLCOEdeclineshavingthegreatestcost-downimpact.Duetothehigherrelevanceofelectricitycost,efficiencygainsalsohaveaslightlyhigherimpactcomparedwithlocationsusinglower-costrenewables.Forprojectsusinglow-costrenewableslikesolarPV-basedelectrolysisintheMiddleEast,thecostofrenewables-basedhydrogenproductioncoulddeclinetoUSD1.5/kgin2030.Inthiscase,decliningcapexcostswillhavethemostimpactindrivingcost-downeffectsduetolowerelectrolyzerutilizationratescomparedwithoffshorewindsetups.BoththeCentralEuropesetupandtheMiddleEastsetupconfigurationscanalsobenefitfromintegrateddesignoptimization,strikingabalancebetweenhigherutilizationduetorenewablescapacityoversizingandaLCOEpenaltyduetocurtailedelectricity.Trulyoptimallocationswilllikelyincludeacombinationofwindandsolarresourcesforanadditionalupside.CountrieslikeAustralia,ChileorSaudiArabiahavethepotentialtobenefitfromsuchcombinedresources(seeExhibit8).Exhibit8:Breakdownofrenewablehydrogenproductioncosttrajectory14HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyHydrogenInsightsLearningrateElectrolyzersystemcapex1fordifferentlearningratesUSD/kW1.Onlyincludesstackandbalanceofplant.Noinstallationandassembly,building,indirectcostortransportationsite2.Rangebasedondifferentelectrolyzersizeclassesof2–20MW202022030(12%learningrate)~230–3802030(15%learningrate)2030(20%learningrate)~660–1,050~200–310~130–1902010–20learningratesofcomparativetechnologies39%forbatteries35%forsolarPV19%forwindonshoreElectrolyzercapexsavingscanreducecostsquicklyinarapidglobalscale-upElectrolyzersystemcostscoulddropfromaboutUSD1,120/kWin2020toanestimatedUSD230/kWin2030.Thiscalculationincludesthestackaswellasthebalanceofplant(e.g.,transformerandrectifier,drying/purificationto99.9%purity,compressionto30bar).Itexcludestransportationoftheelectrolyzertothesite,installation,andassembly(includinggridconnection),thecostofthebuilding(forindoorinstallations),andindirectcostssuchasprojectdevelopment,fieldservicesand“firstfills.”Dependingonprojectspecifics,thesecoulddoubletotalcostsby2030.Becauseelectrolyzersystemcapexshoulddeclinesharply,othercostelements(includinginstallation,assembly,andindirectcosts)willtakealargershareofcostsovertime.That’sbecauselearningcurveeffectsregardingtheengineering,procurementandconstruction(EPC)partofthevaluechainwillbelimitedafterthedeploymentofthefirstfewlarge-scaleprojects.Thetotalcostofanelectrolyzerprojectalsoincludesfinancingcosts.Acontributionmargininlinewiththeproject’sweightedaveragecostofcapital(WACC)requirementsshouldscalewithothercapexelements.Financingthusbecomesanimportantwaytoreducehydrogenproductioncosts.Forinstance,reducingWACCfrom7%to5%wouldreduceaproject’soverallcapexcommitmentbyalmost20%.ExpectedelectrolyzerlearningcurvescouldbetooconservativeCurrentlearningcurveexpectationsforelectrolyzerscale-upsrangefrom11-12%between2020and2030forpolymerelectrolytemembrane(PEM)andalkalinetechnologies.However,theselearningcurvesappearconservativecomparedwiththeearlydevelopmentofotherlow-carbontechnologieslikebatteries,solarPVoronshorewind,whichsawlearningratesofapproximately20-40%between2010and2020.Potentiallyhigherlearningratesof15%,20%or25%woulddriveadditionalcostreductionsof10-20%,40-50%or60-70%,respectively,by2030(seeExhibit9).Exhibit9:Electrolyzercapexlearningratescenarios15HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company16HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company2-3/kgtotalshippingcostsassumingat-scaleproductionandtransportationinfrastructure1717HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyUSDLowshippingcostsfrommajorhydrogensupplycenterscouldunlockdemandH2valuechainExampleenduser(Europe,2030)Cost,USD/kgDistributionRegionalH2refuelingstations(HRS)Renewable/low-carbonproductionConversiontoLH2andstorageforaverageof1dayorStorageasGH2foraverageof1dayandcompressionto700barTruckingasLH2for300km+operatingof1,000kgLH2HRSorPipingasGH2for300kmandoperatingof1,000kgGH2HRS1InternationalIndustrial,largescaleofftakerRenewable/low-carbonproductionInternationalpipelinefor~9,000kmandstorageatportforaverageof2weeksorCarrierconversion/reconversion,shippingfor~9,000kmandstorageatportforaverageof2weeksTruckingasLH2/GH2for300kmandonsitestorageforaverageof1dayorPipingasGH2for300kmandonsitestorageforaverageof1day~2–30.5USD/kg1.6–2.3USD/kg~3–51.6–2.3USD/kg0.7–1.0USD/kg1.0–2.0USD/kg~2–71.0–1.4USD/kg0.6–3.5USD/kg0.1–2.0USD/kgConversion/transmissionProductionOnsiteIndustrial,largescaleofftakerOn-sitestorageforaverageof1dayRenewable/low-carbonproduction1ReferstousageofexistingpipelinetoindustrialhubExamplevaluechainstepsWithhydrogenproductioncostsfalling,costsforhydrogendistributionarebecomingincreasinglymoreimportant.Forproductionanddistribution,threetypesofvaluechainsareemerging.Large-scalehydrogenofftakersthatareincloseproximitytofavorablerenewablesorgasandcarbonstoragesiteswilluseonsiteproduction.Smallerofftakers,forexamplerefuelingstationsorhouseholds,willrequireregionaldistribution.Inregionswithoutoptimalresources,bothlarge-andsmallofftakersmayrelyonhydrogenimports(seeExhibit10).Theemergenceofinternationaldistributionisdrivenbycostdifferencesforhydrogenproductionstemmingfromrenewablesendowment,theavailabilityofnaturalgasandcarbonstoragesites,existinginfrastructureandtheeaseandtimerequirementsforitsbuild-out,landuseconstraints,andtheassignmentoflocalrenewablescapacityfordirectelectrification.Manyexpectedhydrogendemandcenters,includingEurope,Korea,Japan,andpartsofChina,experiencesuchconstraints.Insomeofthesecases,H2supplierswillmeetthisdemandmoreeffectivelybyimportinghydrogenratherthanproducingitlocally(seeExhibit11).IVHydrogendistributionandglobalsupplychainsExhibit10:Emerginghydrogendistributionchains18HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyTheoptimalH2transportmodewillvarybydistance,terrainandend-use:nouniversalsolutionexistsHydrogencanbetransportedgloballyusingthreeformsoftransportation–trucks,pipelinesorships–usingarangeofdifferentcarriers.5Currently,liquidhydrogen,liquidorganichydrogencarriers6andammoniaarethecarbon-neutralsolutionswiththemosttraction.7Whiletheoptimalchoiceoftransportationdependsheavilyonthetargetedend-useandtheterraintobecovered,somegeneralrulesonpreferablesolutionsfordifferentdistancesapply.Forshortandmediumrangedistances,retrofittedpipelinescanachieveverylowH2transportationcosts(lessthanorequaltoUSD0.1/kgforupto500km).However,thesecostsarerealizableonlyifexistingpipelinenetworksareavailableandsuitableforretrofitting(e.g.,ensuringleakageprevention),andhighvolumesofH2aretransported,guaranteeinghighutilizationrates.Forlowerorhighlyfluctuatingdemand,ortobridgethedevelopmenttoafullpipelinenetworkroll-out,truckinghydrogen–ingaseousorliquidform–isthemostattractiveoption.ItcanachievecostsofaroundUSD1.2/kgper300km.Endapplicationsaswellasdemandsizearedecisiveforchoosingbetweenliquidorgaseoushydrogentruckingoptions.5Gaseoushydrogen,liquidhydrogenLH2,liquidorganichydrogencarriers(LOHC),ammonia(NH3),methanol,LNG/LCO2(dual-usevesselscarryingliquefiednaturalgasononetripandliquidCO2onthereturntrip)andsolidhydrogenstorage.6Variousliquidorganichydrogencarriermaterialsareavailable,e.g.n-ethylcarbazole,methyl-cyclohexane,benzyltoluene–benzyltolueneusedforanalysisinthisreport7Syntheticmethaneproducedfrombiogenicorair-capturedCO2beingapossiblefourthcandidatetobestudiedmorein-depthPV/windresourcesforrenewablehydrogenproductionMostLeastDemandcentersNaturalgasresourcesforlow-carbonhydrogenproductionMostLeastExhibit11:Distributionofglobalhydrogenresourcesanddemandcenters19HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyForlongerdistances,bothnewandretrofittedsubseatransmissionpipelinesprovidecheaperatscaletransportationthanshipping,butarenotrelevantforallregions.Wherepipelinesarenotavailable,thetransportationchoiceinvolvesarangeofdifferentcarriers.Thethreemodeledhere–LH2,LOHCandNH3–arethemostdiscussed.Sinceallthreecarriersfallintoacomparablecostrange,theoptimalchoicedependsonthetargetedend-useandrequirementsconcerninghydrogenpurificationandpressurelevels,asdiscussedingreaterdetailbelow(seeExhibit12).1.Assuminghighutilization2.IncludingreconversiontoH2;LOHCcostdependentonbenefitsforlastmiledistributionandstorage3.Compressedgaseoushydrogen51–100km>1,000km101–500km0–50km>5,000kmDistributionCostsTransmissionGaseoustruckingN/AN/ADistributiontruckCH23DistributiontruckCH23DistributiontruckCH23CitygridRegionaldistributionpipelinesOnshoretransmissionpipelinesOnshore/SubseatransmissionpipelinesN/ARetrofittedLH2N/ALH2shipN/AN/ALH2shipNewCitygridRegionaldistributionpipelinesOnshoretransmissionpipelinesOnshore/SubseatransmissionpipelinesN/ANH32N/AN/AN/ANH3shipNH3shipLOHC2N/AN/AN/ALOHCshipLOHCshipPipelines1ShippingTruckingLH2truckingN/AN/ADistributiontruckLH2DistributiontruckLH2DistributiontruckLH2>2USD/kg1–2USD/kg0.1–1USD/kg<0.1USD/kgExhibit12:OverviewofdistributionoptionsHydrogenpipelinesHydrogenpipelinesarecheaperthanelectricitytransmissionlinesHydrogenpipelinescaneffectivelytransportrenewablehydrogenacrosslongdistances.Theycantransport10timestheenergyatone-eighththecostassociatedwithelectricitytransmissionlines.Furthermore,hydrogenpipelineshavealongerlifespanthanelectricitytransmissionlinesandofferdualfunctionality,servingasbothatransmissionandstoragemediumforgreenenergy.Pipelinesenablebothinternationalandregional/last-miletransport,movingH2upto5,000kmatlowcost…Whiledistributionnetworkscoverregionalandlast-miletransport,onshoreandsubseatransmissionpipelinescouldmovehydrogenacrossdistancesthatrangefrom500to5,000ormorekilometers.Pipelinescanachieveextremelylow-costH2transportcomparedwithalternativetransportationmodes,especiallywhereretrofitsofexistinginfrastructurearepossible.8Forexample,retrofittingpipelinescansave60-90%ofthecostofgreenfieldpipelinedevelopment.8Theoptiontoretrofitdependsontheexistingpipeline(material,age,location),operatingconditions,andavailability,whichmightbelimitedduetolong-termnaturalgastransmissionagreements.20HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company…butnotallhydrogenpipelinesareequalWhilehydrogenpipelinesprovidecheapertransportationcomparedwithmanyalternatives,theactualcostsofhydrogennetworksvarybytype,lengthofnetwork,andtheconditionoftheretrofittedpipelineitself.TypicalcapexcostsforonshoretransmissionnetworksincludingcompressionwillrangebetweenUSD0.6and1.2millionperkmforretrofitandUSD2.2and4.5millionperkmfornewlybuiltH2pipelines,resultinginH2transportcostsofUSD0.13-0.23/kg/1000km(seeExhibit13).0.6–1.2RetrofitNew2.2–4.5CostestimationCapexinMillionUSD/kmSubseatransmissionpipelinesOnshoretransmissionpipelinesDescriptionSmaller,lowerpressurepipelinesforlast-milegasdeliverytoendusersLarge,highpressuretransmissionpipelinestransportinggasthroughoceansLarge,highpressuretransmissionpipelinestransportinggasonland~15%ofcostsofonshoretransmissionpipelinesNew4.7–7.11.3–3.1Retrofit0.3–0.70.1–0.2RetrofitNew~1.3–2.3xcostsofonshoretransmissionpipelines~3xEaseofretrofittingPotentialavailabilityconstraintsduetolong-termnaturalgascommitmentsandcapacitycontractsHighcompressionrequirementsandsubseatransmissionnetworkmaybechallengingDistributionnetworklocationindenselypopulatedareascouldbeproblematicLowMediumHighDistributionpipelinesExhibit13:ComparinghydrogenpipelinesForoffshore/subseatransmissionpipelines,costsareafactor1.3to2.3higher,giventhespecificchallengesandconditionsofsubseapipelineconstructionandoperationforbothnewprojectsandretrofits.Distributionpipelinesaresubstantiallycheaperthantransmissionpipelines(roughly15%oftransmissionpipelinecosts),giventheirsmallerdiameterandlowerpressures.However,distributionpipelineswilllikelybecomerelevantonlyintherunupto2040,whendemandforhydrogeninresidentialandcommercialbuildingsexceedsthethresholdthattheblendingofupto20%hydrogenintothenaturalgasgridcansupply.Thecostsofretrofittingversusbuildingnewpipelinesdependonavarietyoffactorsincludingdiameterandpressure,thequalityofthematerialsused,thepipeline’soverallcondition,theexistenceofcracks,thesocialcostsofconstruction,andotherconsiderations.Manyofthesefactorsarelocation-specificandthusgivesomeregionsandcountriesanadvantageforretrofittingthenaturalgasgrid.Forexample,intheNetherlands,parallelnaturalgasgridinfrastructureallowscompaniestoretrofitforhydrogenusagewhilegraduallyphasingoutnaturalgas.Thecostsofretrofittingcanchangebasedonpipelineupgradesandthepresenceofconnectedequipmentsuchasmeteringstations,valves,andcompressorstations.21HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyHydrogencarriersBeyondpipelines,threecarbonneutralH2carriersarecompetitiveforlongdistancehydrogentransportationAsgaseoushydrogenisnotsuitableforlong-distanceshipping,supplierscanliquefyhydrogen,convertittoammonia,orbindittoaliquidorganichydrogencarrier.Ifeverystepofthevaluechainusesgreenenergy(fueland/orelectricity)andthehydrogenisproducedfromlow-carbonsources,allthreecarrierscanbeconsideredlowcarbon.Theoptimalcarrierdependsontheintendedend-use,purityrequirementsandtheneedforlong-termstorageThelong-termoptimalchoiceofcarrierdependsonarangeoffactors.LH2ismostefficientifthedestinationrequiresliquidorhigh-purityhydrogen,andhasbenefitsifhydrogenneedstobedistributedwithtrucksafterlandingatport.Thisistypicallythecaseforhydrogenrefuelingstationsforcarsortrucks,forexample.IncontrasttoNH3andLOHC,LH2doesnotrequiredehydrogenationorcrackingtoconvertintogaseoushydrogen,whichnotonlysavescostsbutalsoavoidspurityPipelinefromAlgeriatoCentralEurope,2,800kmRuhrareaAlgeriaCostsforatscaleproductionandpipelinetransportation1in2030Subseapipeline1.5CostatdestinationCleanproductionOnshoretransmissionpipeline~0.1~0.4~1.9Ideallyretrofittedpipeline75%retrofit25%newCosts,USD/kgPipelines1.Assumingroutewillbebuiltoutby2030;fullrolloutofbackbone(2035–40)depictedhereExhibit14:LandedcostsofrenewableH2transportedfromAlgeriatoCentralEuropeusingapipelineCaseexample:Low-costH2pipelinetransportcanunlockhydrogendemandBy2030,ourprojectionsindicatethatcleanhydrogenfromNorthAfricacouldbepipedtodemandcentersinCentralEurope(e.g.,theRuhrareainGermany)atacostofaboutUSD2perkgofH2.Ofthat,transportcostswillconstituteroughlyUSD0.5perkgofH2.(seeExhibit14).22HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Companychallengescausedbycarrierresidues.LH2’smaindrawbackisitsrelativelylowvolumetricenergydensitycomparedwithammonia,whichlimitstheamountofhydrogenpership,andtheboil-offlossesthatoccurwitheverydayofstorage.Whileliquefactionisaprovenandcommercializedtechnology,liquidhydrogenshippingandlarge-scalestorage–whichrequiressupplierstomanagetheboil-offlosses–remainintheearlystagesofdeployment.Ammoniaisthestraightforwardanswerforend-usesthatneedammoniaasafeedstockandcanthereforeavoidtheneedtocrackNH3backintohydrogen(suchasforfertilizer,shippingfuel,co-firingorammoniacombustionforpowergeneration).However,suppliersarealsoconsideringthisapproachforotherhydrogenusecases.AmmoniabenefitsfromahighervolumetricenergydensitythandoesliquidhydrogenandthussupplierscanshipitmorecosteffectivelythanLH2usingcommerciallyavailableammoniaships.However,thetwodrawbacksofusingammoniaasahydrogencarrierarethehighcostsofcrackingitbackintohydrogenandtheachievablepuritylevels.Furthermore,becauseammoniaistoxic,itmayfacehandlingandstoringrestrictionsinresidentialareasaswellaslimitedoptionsforin-landdistribution.Liquidorganichydrogencarrierscanuseexistingdieselinfrastructureandsafelystorehydrogenoverlongperiodswithoutloss.Whenusingnon-flammableandnon-toxiccarriermaterialssuchasBT,9LOHCcanuseexistingindustry-scaledieselinfrastructurewithoutanyadditionalsafetyregulations.ThemaindrawbacksofLOHCarethenoveltyofthedehydrogenationprocess,whichrequireslargeamountsofheattoreleasethehydrogenfromthecarrier,andthelimitedhydrogencarryingcapacitycomparedwithLH2andNH3.Theabilitytousecheaperstoragetanksthanthoseneededforothercarrierspartlyoutweighstheseissues.9WhileBTincludestoluene,itisdoesnotfallundertoxicityregulationsgiventhelimitedtoluenecontentpertonofBT.RotterdamSaudiArabiaCostforatscaleproductionandshippingtransportationin2030ShippingroutefromSaudiaArabiatoEuropethroughSuezCanal,8,700kmCosts,USD/kgH21.Assumesliquid(forLH2)orgaseous(forammonia,LOHC)distributionwithtruckfor300km,alsoincludes:purificationtoFCEVstandardusingaPSAforLOHCandNH3,boil-offlossesforLH2,storagecostsatportandHRSoperatingcostsHighmaturityMediummaturityTode-centraluser(HRS)1Toport~0.4~1.5~0Ammonia0.8–0.91.0–1.4~1.50.7–1.0LH21.0–1.80.3–0.40.3–0.5~1.5LOHCDehydrogenationShippingincludingterminalsConversiontocarrier3.7–4.8Cleanproduction3.2–3.83.1–4.21.0–2.0(ifnecessary)+0.7+2.0+1.5Exhibit15:LandedcostsatportofrenewableH2shippedfromSaudiArabiatoEurope23HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company123COSTSFORATSCALEPRODUCTIONANDTRANSPORTATION(9,000–10,300TONSH2)COSTSACCOUNTINGFORLOSSESDURINGTRANSPORTATION123Shipping1.7HydrogenationCleanproduction0.3–0.50.3–0.41.2–1.81CostatportDehydrogenation1.8–2.71.73.5–4.4Illustrativeroutesmodeled,USD/kgH21.DependentonwhetherhydrogenfeedstockorheatfromgridisusedfordehydrogenationheatingrequirementLOHCLH2NH31.9–2.41.50.7–1.0ShippingCleanproductionLiquefaction1.0–1.20.2Importterminal1.5Costatport3.2–3.81.5Shipping0.8–0.9CleanproductionAmmonification1.9–2.40.3–0.41.5CrackingCostatport3.5–4.48,200km8,700km7,000km0.9-1.61Exhibit16:LandedcostsofhydrogenatportforselectedglobaltransportroutesExhibit15showsacomparisonofcarriersfortransportingrenewablehydrogenfromSaudiArabiatoWesternEuropeassumingat-scalehydrogenproductionandshippinginfrastructure.Iftheendapplicationrequiresammonia,transportinghydrogenasammoniacouldresultinlandedcostsaslowasUSD3perkgofhydrogen.Ifhydrogenisrequiredintheendapplication,landedcostsarebetween3and5.Theoptimalchoiceofacarrierforthisexamplewouldthusultimatelydependonthetargetedend-use,aresultingneedforfurtheroverlandtransportation,andtheprojectedstoragetime.HydrogenglobaltransportcancostlessthanUSD2-3/kgBy2030,assumingat-scaleproductionandtransportationinfrastructure,hydrogencouldbeshippedfromlocationssuchasAustralia,ChileorMiddleEasttoprojecteddemandcentersatcostsofUSD2-3/kgofhydrogen.Thiscost,coupledwithverylowhydrogenproductioncosts,unlocksdemandinmanykeysectors(e.g.,intransportation,industry,feedstockandothers)atthepointofusage(seeExhibit16).24HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company22hydrogenendapplicationsareprojectedtobethemostcompetitivelow-carbonsolutionby2030representing36%ofglobalemissionsFallingcleanhydrogenandapplicationspecificcostswilldrivegreatercost-competitivenessinhydrogenendapplications25HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyThecostcompetitivenessofhydrogenendapplicationsTheHydrogenInsightsreportanalyzesthecompetitivenessofhydrogenapplicationsacrosssectorsthrough2030comparedwithconventionalandlow-carbonalternatives.Lowerhydrogenproductionanddistributioncostsacrossallregionswillimprovethecostcompetitivenessofallendapplications,asreflectedintheshifttotherightinthecostcompetitivenessmatrixcomparedtoHydrogenCouncilStudy2020,“Pathtohydrogencompetitiveness:acostperspective”.Inadditiontohydrogen’sroleasanoverarchingcostdriver,theHydrogenInsightsreportidentifiesthreeadditionalcostdriverswithimplicationsforindividualendapplications.TheyincludeoptimizedroutesforgreensteelthroughthecombinationofDRIandscrap,whichhelpgreensteelachievecostcompetitiveness;improvementsinbatterytechnologythatinfluencehydrogenbreakevenwithlow-carbonalternativesinthetransportsector;andnewapplicationsforhydrogenorhydrogen-basedfuelusage(seeExhibit17).1.Cleanhydrogenistheonlyalternative2.Carbonbreakevencostrepresentsaveragecostoverlifetimeofasset3.Biofuelisacomplementarysolutiontohydrogen/synfuelsparticularlyusedinheavytodecarbonizesectorssuchasshippingandaviation;usagewillbesubjecttosupplyconstraintsSignificantimprovementvs.conventionalInregionswhereCCSisnotavailableBiofuel(transitionaryfuel)Significantimprovementvs.low-carbonalternativeComparedtoconventionalalternativesHighgradeheatingComparedtolow-carbonalternativesBack-upgeneratorRemotegeneratorCombinedcycleturbineCombinedcycleturbineBoilerwithnewnetworkHighgradeheatingBlendingofH2MidgradeheatingCompacturbancarSteelFertilizer1MidgradeheatingRoPaxRegionaltrainForkliftsHeavydutytruckMediumdutytruckLong-distancebus/coachShort-distanceurbanbusMid-sizelongrangevehicleMethanol1Long-rangeflights2Cruiseships2Short-rangeflights2Long-rangeflights2Cruiseship2Short-rangeflights2Largepassengercar/SUVContainership2SmallregionalferrySimplecycleturbineCHPforsmallbuildingsUrbandeliveryvanMiningtruckBoilerwithexistingnetworkRefinery1TaxifleetVEndapplicationsTheupdatedcostoutlookshowsthat22hydrogenapplicationscanbethemostcompetitivelow-carbonsolutionsfromatotalcostofownershipperspective(includinghydrogenproduction,distributionandretailcosts).Inadditiontotheapplicationsthatwerepreviouslycompetitive,includingcommercialvehicles,trains,long-rangetransportapplicationsandboilers,today´simprovedoutlookaddsfertilizer,refinery,steel,aviation,andshippingapplications.Whilethisanalysisfocusesonthecostcompetitivenessoftheend-useapplications,otherfactorsalsodrivethepurchasedecisionsofcompaniesandcustomers.Someoftheseincludegovernmenttargets,energysecurity,loweruncertaintyregardingfutureenergycosts,thepremiumplacedbyExhibit17:Hydrogencompetitivenessperendapplicationin203026HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Companycustomersoncarbon-freesolutions,andinvestorpreferencesforESG-compliantbusinessmodels.Forexample,aviation,cruiseships,containershippingandsteelareexperiencingapushtowardagreenerrestartpost-COVID-19frombothcustomersandgovernments.HydrogenproductioncostbreakevenAtahydrogenproductioncostofUSD1.6-2.3/kg,mostroadtransportationapplicationsandhydrogenfeedstockforindustryare“inthemoney”(seeExhibit18).Withhydrogencostsbetweentheblueandgreenhydrogencosttargetsfor2030andwithoutanycostsforcarbonemissions,hydrogenisonlycompetitiveinheavierroadtransportationapplications(notincludingpassengercars).AcostofcarbonatUSD100/tofCO2ecouldpushindustryfeedstocksforapplicationslikesteel,ammonia,andrefiningtobreakevenandbeyond.Otherformsoftransportationlikeshippingoraviationonlybreakevenathighercostsofcarbon(>USD70/tCo2e)butrequirehydrogen-basedfuelsastheonlyzero-carbonfuelpossibilitythatcanrealizedecarbonizationambitions.Whileendapplicationsinbuildingsandpowerrequireanevenhighercarbon(~200USD/tCO2e)pricetobecomecostcompetitive,webelievetheywillseestrongmomentum,nevertheless.Forexample,intheUnitedKingdommultiplelandmarkprojectsareblendinghydrogenintonaturalgasgridsforresidentialheating.Theyarealsoworkingwithhydrogenforbackuppowersolutions,especiallyforhighpowerapplicationslikedatacenters.Thereasonforthisisthatwhilehydrogenmaynotbeabletooutcompeteconventionalsolutions,itcanbethemostcost-effectivelow-carbonoptionformanystationaryusecases(seeExhibits18,19).0SUVMid-sizedvehicleBuildingheating2AmmoniaRefinerySteel(DRI)Powergeneration1Highgradeheat1.40.6ShipsRenewablehydrogen,averageregionBusesTrains3.8Low-carbonhydrogen,averageregionTrucksAirplanes(synfuel)4.4–4.62.2–3.02.20.61.4<0–0.60.80.30.50.6USD/kgin2030ReferencetechnologyNaturalgasShipfuelDiesel‘Inthemoney’CoalNaturalgas(SMR)Kerosene2.31.61.Averageofcombinedcycleandsinglecycleturbineapplications2.BoilerwithexistingnetworkExhibit18:Requiredhydrogenproductioncostforbreakevenwithconventionalsolutions,withoutcarboncosts27HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyA.RoadtransportandminingequipmentGlobaltransportationgenerates24%ofglobaldirectCO2emissionsfromgasolineanddieselcombustionprocesses,withroadvehicleslikecars,trucks,buses,andmotorcyclescontributingroughlythree-quartersofglobaltransportationemissions.BEVsandFCEVsarebothviablealternativestodecarbonizeglobaltransport.Usecase-specificrequirementssuchasrange,payloadandpowerrequirementscandeterminetheapplicabilityandcompetitivenessofbattery-orhydrogen-poweredsolutions.On-road.Inon-roadtrucking,BEVsremainthemostcompetitivedecarbonizationoptionforlower-andmid-rangeusecases.FCEVsarebestpositionedtocoverlong-haulusecases,especiallytheupperspectrumcaseswithhigherdailyranges.Whilemostfreighttransportsegmentsarenotweight-constrained,FCEVsaretheonlyalternativeforweight-sensitiveusecasesofanydrivingrange,includingpulpandpaperorironandsteeltransport.Thatisbecauseheavybatterieswouldreducethepotentialpayloadoftruckstoalargerextentthanwouldfuelcellsandhydrogentanks.Forpassengercars,intendeduseandcustomerpreferenceswilldeterminethechoiceofafuelcellversusbattery-electricpowertrain.BEVsclearlyoutcompeteFCEVsinlower-rangeusecasessuchasurbancarsormid-sizevehicles(fewerthan500km).However,fuelcellvehiclesareanoptiontopowerlargerpassengercars,SUVsandvanswithlonger-rangerequirementsandheavierusecycles,especiallythoseusedincommercialoperationssuchastaxisorridesharing.Off-road.Whilezero-carbonpowertrainsforoff-roadsegmentssuchasminingtrucksarelessadvancedthanthoseforon-roadusecases,fuelcellpowertrainsorevenhydrogencombustionenginesmightrepresenttheonlyalternativefordecarbonizingveryheavyequipmentlikedumptrucksforminingoperations.ThehighpeakpowerrequirementsandharshvibrationandheatUSD/kgin2030NaturalgasShipfuelDieselCoalNaturalgas(SMR)Kerosene01.0-1.61.0-2.4RefinerySteel(DRI)Mid-sizedvehicleTrainsBuses2.3Airplanes(synfuel)ShipsBuildingheating2Powergeneration1Low-carbonhydrogen,averageregion4.4Renewablehydrogen,averageregion4.6Highgradeheat5.1TrucksSUVAmmonia5.4-5.72.8-4.12.22.21.41.51.22.31.6‘Inthemoney’Referencetechnology1.Averageofcombinedcycleandsinglecycleturbineapplications2.BoilerwithexistingnetworkExhibit19:Requiredhydrogenproductioncostforbreakevenwithconventionalsolutions,with100USD/tCO2e28HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company352020253020400.91.11.31.51.70.70.5DieselICEFuelcell(FCEV)1BEV1.Assumingrenewablehydrogen,EuropeUSD/kmUsecase:Flexibleanddemandinglong-haultransportunderidealefficiencyconditionsconditionsexperiencedintheoff-roadenvironmentmakehydrogencombustionattractiveasanalternativetofuelcellsinoff-roadapplications.TCOuse-caseperspective:On-demandheavy-dutytruckingfordemandinglong-haultransportWemodeledalong-haulheavy-dutyclass8truckforflexibleanddemandinglong-haultransportwithavehiclelifetimeof10yearsandayearlydistanceof150,000km.Ouron-demandtruckingusecaserequiresahighfuelrangeof800km.WeassumedahydrogenpriceatthedispenserofaboutUSD4/kgin2030andanunderlyingcostofroughlyUSD50/tofCO2e.Inthemodel,wecomparedaheavy-dutytruck(HDT)fuelcellelectricvehicle(FCEV)withabattery-electrictruckandadieseltruck.Weexpecttheon-demandHDTFCEVtobecomethecheapestoptionintermsofTCOby2030.Itshouldachievebreak-evenwithbattery-electricvehicles(BEVs)byaround2025,andwithinternalcombustionengine(ICE)HDTsby2028.Overall,thedecreaseinfuelcost(weexpectH2costtodeclineabout60%between2020and2030)willdriveanestimated80%oftheTCOchange.Theremaining20%comesfromfallingequipmentcosts(powertraincostsareexpectedtodecreaseabout70%between2020and2030).Intheshort-term,fuelcostsmakeupabouthalfoftheTCOinthisusecase,whilefuelcellpowertraincostsaccountforapproximately12%,whichbreaksdownas45%fuelcellsystemcosts,40%tankcostand15%othercomponents.Inthemid-term,fuelcostswillaccountfor30%andthepowertrainfor7%oftotalcost(seeExhibit20).Inspecificsettings–e.g.,wheresubsidiesorothersupportmechanismsexist–thebreakevenpointcanbeshiftedforward.Switzerland’stollexemptionsorCalifornia’slowcarbonfuelstandard(LCFS)creditsarebutexamplesforsuchpolicies.Exhibit20:Totalcostofownershipofon-demandheavy-dutytruck29HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company1.AssumingproductioncostsofrenewablehydrogeninChileUSD/h40020202040352530300500600700800200Fuelcell(FCEV)1DieselICEH2ICETechnicalfeasibilitynotyetdemonstratedUsecase:OpenpitdumptruckusedinminingoperationsTCOuse-caseperspective:Open-pitdumptruckforminingoperationsTheTCOanalysismodeleda300topen-pitdumptruckusedinminingoperationsinChilewith6,200operationalhoursperyearandalifetimeof12years.Highpowerrequirements(about2,000kW)madetheminingtruckaninterestingapplicationforhydrogeninternalcombustionengines,asfuelcelltruckswithsuchhighpowerrequirementsremainuntested.WeassumedahydrogenpriceatthedispenserofUSD1.4/kgin2030(withhydrogenproductionon-site)andanunderlyingcostofUSD50/tofCO2e.Wedidnotmodelabattery-electricminingtruck,sinceitsfeasibilityischallenging,especiallyintermsofcharging.Becauseuptimeiscriticalinminingoperations,high-speedchargingwouldberequiredtomeettherequiredbatterycapacities.Moreover,manyminesareoffgridandbatteryswappingbecomesdifficultandexpensive,giventheextremelylargebatteriesinvolved.BothH2ICEvehiclesandFCEVsshouldbreakevenwithconventionaldieseltrucksbefore2030.WeexpectH2ICEtruckstobreakevenbeforeFCEVsdo,becausetheyneedonlyminoradjustmentscomparedwithconventionaldieselengines(withexpectedcapexrunningatmost15-20%abovedieselenginecapex).Furthermore,localhydrogenproductionshouldenablerelativelylowhydrogencoststhatoffsettheefficiencygapbetweenfuelcellsandinternalcombustionengines,whichis50-55%forFCsversus40-45%forICEsonatank-to-wheelsbasis.10FortheFCEVtruck,around20%oftheTCOchangeresultfromdecliningfuelcellpowertraincosts,andanother60%becauseoflowerhydrogenproductioncosts.TheH2ICEtruckbenefitsfromadecreaseinhydrogencost.Morethan90%ofthisvehicle’sTCOchangeresultsfromthedeclineinfuelcosts(76%by2030),sincepowertraintechnologyisalreadymature(e.g.,itcontributesonly4%totheexpectedTCOdeclinethough2030)(seeExhibit21).10Withincreasingloads,theefficiencygapbetweenFCandICEshrinks,leadingtoanalmostcomparableefficiencyforveryhighloadsExhibit21:Totalcostofownershipofa300tonopen-pitdumptruck30HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyTCOuse-caseperspective:SUVforfamilyusageWealsomodeledanSUVforfamilyusagewitharequiredfuelrangeof600km,alifetimeof15yearsandayearlydistancecoveredof20,000km.Wecomparedafuel-cellSUV,abattery-electricSUVandadiesel-poweredone.WeexpecttheFCEVtobreak-evenwiththeBEVintermsofTCOby2028,whilecompetitivenessversusdiesel-poweredSUVstakesonetotwoyearslonger.WeassumedahydrogenpriceatthedispenserofaboutUSD4/kgin2030andanunderlyingcostofUSD50/tofCO2e.ThemaindriversofFCEVTCOreductionsareequipmentcosts(fuelcellsystemandhydrogentankoutlays)anddecreasingcostofhydrogenatthepump.Hydrogenfuelcostsaccountfor40%oftheTCOthrough2030,whilealmost60%resultfromdecliningpowertraincosts.B.AmmoniaTodate,industryproduces180milliontonsofammoniaglobally,with80%usedasfeedstockforfertilizerandtheremaining20%forindustrialchemicalsproduction.Ammoniarepresentsabout45%ofglobalhydrogenofftake,makingitthelargestconsumerofhydrogentoday.Grayammoniaproductioncontributesroughly2%ofglobalemissions,withapproximately0.5gigatons(Gt)ofCO2emittedbecauseofitsproduction.Withanincreasingpushtowarddecarbonizationacrosssectors,newapplicationfieldswillemergeforammonia.Recognizedasaneffectivesustainableshippingfuelinthefreightshippingindustry(asdiscussedinmoredetailinthechapteronsustainableshippingfuels),ammoniacanalsoserveasatransportvectorforhydrogen(especiallyforexportprojectsinnewgeographies)anddecarbonizepowerproductionwhenusedforco-firinginexistingthermalpowerplants.DecarbonizationalternativesAmmoniaisproducedviatheHaber-Boschprocess,whichcombineshydrogenandnitrogen.Asahighlyfeedstock-intensiveprocess,asignificantshareofammonia’scarbonemissionsresultfromthecarbonintensityofthefeedstock(30-40%ofcradle-to-plant-gategreenhousegas(GHG)emissionspertonofammonia).Consequently,apartfromusinggreenelectricityasaninputfortheconversionprocess,theonlyoptionfordecarbonizingammoniaproductioninvolvesthesubstitutionofgrayhydrogenfromnaturalgaswithrenewableorlow-carbonhydrogen.TCOPerspectiveGiventhefeedstockintensityintheoverallTCO(65-80%),ammoniaproductionishighlysensitivetotheproductioncostsofcleanhydrogen.Asthecostofhydrogenproductionisregion-specificandlargelydrivenbyrenewableenergysources(RES)andcarboncaptureandstorage(CCS)costs,thecompetitivenessofcleanammoniaversusgrayammoniafromnaturalgasvariesbylocation.Today,theproductionofcleanammoniainNorthernEuropewouldcostatleastUSD650-800/tandrequireacarbonpriceofUSD140-220/tofCO2etoreachbreakeven.AsillustratedinExhibit22,thecompetitivenessofcleanammoniawillchangedrasticallyby2030.InEurope,thehydrogenpriceneededforcleanammoniatoreachbreakevenwithitsconventionalcounterpartby2030wouldbeaboutUSD1.4/kg.WithanoptimaldeliveredcostofhydrogenofaboutUSD1.7/kginEurope(from,forexample,PVbasedelectrolysisinSpain),greenammoniawouldrequireacarbonpriceoflessthanUSD50/tofCO2etobreakeven.WithaveragerenewablesinNorthernEurope,breakevenwouldrequireacarbonpriceofapproximatelyUSD100/tofCO2e(seeExhibit22).Inregionswithlower-costfeedstock,suchasNorthAmericaandtheMiddleEast,thebreakevencostwouldbeevenlower.InlocationswithconstrainedrenewablesandCCS,importedcleanammoniafromoptimalproductionlocationscouldbeanalternativetodomesticallyproducedammonia.31HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company1.Naturalgascost6.9USD/MMBtu,hydrogen2030cost1.7/2.1/1.8foroptimalrenewables(Spainsolar)/averagerenewables(Germanoffshorewind)/SMRwithCCSAmmoniaproductioncostsUSD/tonNH3inEurope1,2030~470CapexOptimalrenewables~480AveragerenewablesAverageSMR+CCSOpex~5801.8GreenammoniaBlueammoniaGrayammoniaBreakevencostofhydrogenrequiredvs.conventionalUSD/kgLow-carbonhydrogenbasedConventionalSMR+0USD/tCO2~400SMR+50USD/tCO2SMR+200USD/tCO2~730CapexOpex~480vs.1.43xC.SteelThesteelindustryisoneofthethreebiggestproducersofCO2.Everytonofsteelproducedin2018emittedonaverage1.85tonsofCO2,amountingtoabout8%ofglobalemissionsaccordingtotheWorldSteelAssociation.Increasingdemandforlowcarbonsteelproducts,changingcustomerrequirementsaswellastighteningcarbonemissionregulationsareonlyafewofthereasonsdecarbonizationisatoppriorityforthesteelindustry.Consequently,theindustryneedsadrasticdecreaseinemissionstoremaineconomicallycompetitive(andinoperation).DecarbonizationalternativesTwomainroutesforsteelproductiondecarbonizationexist:anintegratedblastfurnace(BF)andbasicoxygenfurnace(BOF)combination,oranelectricarcfurnace(EAF).TheBF-BOFrouteproducessteelfromironoreusingcoalasareductant,whilethemaininputsfortheEAFroutearedirectreducediron(DRI)orsteelscrap.Whilebothproductionroutescausecarbonemissions,theconventionalBF-BOFrouteis14timesmorecarbonintensiveduetoitsdependencyoncoal.WhiletherearestrategiestodecreaseemissionsontheBF/BOFroute,includingthereductionofproductionlosses,efficiencyincreases,andCCU,thesedonoteliminateemissionsfully,andhavenotbeenabletodemonstratecost-effectiveness.TheDRI-EAFrouteincontrastcanbefullydecarbonized.11ThisrequiressteelmakerstouserenewableelectricitytopowertheEAF,andthenaddclean11Smallamountsofnaturalgasarerequiredthatcauseemissionsofabout4kgCO2pertoncrudesteel–forfulldecarbonizationtheseemissionswouldrequireabatement.Exhibit22:TotalcostofownershipofgrayH2versusgreenandlow-carbonforammoniainEurope32HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyhydrogenorbiomassasareductanttoproducetheDRI.Sincebiomasswilllikelyseeconstrainedavailability,wefocushereondecarbonizationusinghydrogen.TheuseofscrapintheEAFisanimportantdriverofthetotalcostofproduction.Theavailabilityandqualityofscraplargelydependsontheregion.Highersharesofscraptypicallytranslateintolowercosts,asDRIisusuallymoreexpensive.Higheramountsofscrapalsotypicallyreducethequalityofthesteel,whichimpliesatradeoffbetweenthequalityofthesteelproducedandcostoptimizationfromahighershareofscrapmetalemployed(seeExhibit23).TCOPerspectiveInanoptimizedsetupwith40%scrapand60%DRIandaccountingforarealisticexpectedcostofcarbon,cleansteelcouldbecomecostcompetitivewithsteelproducedviatheBF-BOFrouteby2030.Forexample,cleansteelproductioninEuropecouldcostaslittleasroughlyUSD515pertonofcrudesteel.ThisexceedstheestimatedUSD450/tonofcrudesteelfromtheBF-BOFroutewithoutcarboncosts,as–whilecapexcostsareabout30%lower-H2feedstockcostsandincreasedelectricityrequirementsdriveitsoperationalcostssignificantlyhigher.ThiscostdifferencecouldbeoffsetbyacarboncostofaboutUSD45/tonCO2e,bringingBF-BOFproducedsteeltothesamelevelasH2-DRIandscrapsteel.Usinga“pureDRI”setupwouldincreasecostssignificantlyfortheDRI-EAFrouteduetohighercapex,higherelectricityrequirements,and,ofcourse,higherDRIcosts.InregionswithmoreaffordablerenewablesandH2costs,cleansteelproductioncostscouldbeevenlowerthantheaforementionedUSD515/tonofcrudesteelfromH2-DRI+scrapinEurope.1.Endproductiscrudesteel2.60%DRI,40%scrapScrapBFEUH2DRIEUH2DRI+scrapEU2H2DRI+scrapMiddleEast2~450CapexElectricityH2Otheropex~515~570~445H2DRI+scrapsteel2canbecostcompetitivein2030wherehydrogenisaffordableorinaveragelocationswithacostofcarbonof<50USD/tCO2Costofsteelmaking1USD/ton~80CO2costofbreakevenwithBF,USD/tCO2~450BlastFurnace(BF)H2DirectReduction(DRI)CasterOxygenconverterRawsteelScrapBlastfurnace(BF)ElectricarcfurnaceO2RawsteelH2DirectreductionplantDRICokeIronore(DRIpellets)SinteredironorePigIronHDRIExhibit23:Totalcostofownershipofgreensteelversusalternativelow-carbonandconventionalpathways33HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyForexample,foranoptimizedplantintheMiddleEastthataccessesrenewableelectricityataboutUSD25/MWhandhydrogenatanestimatedUSD1.4/kg,thecostofcleansteelcouldbeaslowasapproximatelyUSD445/ton.InterestfromcustomerssuchasautomotiveOEMstosourcegreensteelatasmallpremiumcreatesadditionalmomentumforcleansteelalongsidethefavorablecostoutlookinthefuture.D.SustainableshippingfuelsTodate,internationalcommercialshippingaccountsfor0.9GtofCO2e,equivalentto2.6%ofglobalGHGemissions.Assumingabusiness-as-usualscenario,commercialshippingemissionscouldincreaseupto1.7GtofCO2eby2050.Tocombatclimatechange,theInternationalMaritimeOrganization(IMO)aimsnotonlytoreduceGHGemissionsfromshippingbyatleast50%by2050(to0.5GtofCO2e)comparedwitha2008baseline,buttodecarbonizethesectorfullyassoonaspossibleinthecentury.Decreasedenergydemandresultingfromtechnologicaladvancementsandtargetedenergyefficiencymeasurescouldsaveupto0.5to0.9GtofCO2e.However,alternativelow-carbonshippingfuelsarerequiredtobridgetheremaininggapof0.3to0.7GtofCO2efortheindustrytomeettheIMO2050targetof0.5GtofCO2e.DecarbonizationalternativesToshifttowardlow-orzerocarbonshipping,twoinnovationsmusthappeninparallel:theproductionofdecarbonizedfuelsandthedevelopmentofnewpropulsionsystemsthatenabletheefficientuseoftheselow-carbonfuels.Phasesofpropulsionsystemsroll-outThedevelopmentofthepropulsionsystemswilllikelyhappeninoverlappingphases:Inatransitionalperiod,dual-fuelenginesrunningonacombinationofconventionalheavyfueloil(HFO)andalternativefuelswillallowagradualshifttowardsdecarbonizedfuelswithminimizedretrofittingimplicationsforestablishedpropulsionsystems.ICEpropulsionsystemsrunningonloworzerocarbonfuelsrepresentthenextsteptowarddecarbonizationasthey–dependingonthetypeoffuel–achievevastemissionreductionsorevenzeroemissionsatrelativelylowcostscomparedwiththoseofalternativepropulsionsystemsintheupcomingyears.Thefinalphasewillseethebroaderapplicationofalternativepropulsionsystemssuchaselectricorfuelcellsystemsthatguaranteehighfuelefficiencyforhydrogen-basedfuels.AssessingdifferentfuelchoicesIndustryplayersarediscussingvariousfuelalternatives12toconventionalliquidfossilfuelsthatdifferintermsoffeedstockavailabilityandtechnologymaturity.Moreover,dependingonregulation-inducedconstraints,routes,anddrivingmodes,theapplicabilityofthealternativefuelsfordifferentshiptypeswillalsovary.Liquifiednaturalgasproduces30%lowerCO2emissionscomparedwithHFO.However,methaneslippageinproductionprocessesandenginesrepresentsarealdanger,asmethaneis25xmorepotentthanCO2asaGHGmeasuredovera100-yearperiodandthusdetrimentaltotheclimate.Forthisreason,theapplicabilityofLNGasalow-carbonfuelisincreasinglyquestioned.However,bio-methaneandsyntheticmethanecouldbepracticalfutureoptionsforthelongerterm.12Liquefiednaturalgas,biofuels(e.g.,hydratedvegetableoil),syntheticmethane(notinthescopeofthisreport),liquidcleanhydrogen,greenammonia,andgreenmethanol.34HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyLiquidbiofuelcouldserveasatransitionaryfuelgivenitsusabilitywithconventionalICEpropulsionsystemswithoutrequiringsignificantretrofittinginvestments.However,feedstockavailabilityconstraintsandgrowingdemandfromotherdecarbonizingsectorscouldresultinrisingpricesandsupplylimitations.Moreover,dependingonthefeedstock,biofuelsdifferinCO2emissionreductionpotential,varyingbetween70%and90%comparedwithHFOonalifecyclebasis.Liquidcleanhydrogenisproducibleinacarbonneutralwayand–asafuel–preferredovergaseouscleanhydrogenduetoitshigherenergydensity.LH2reducestheclimateimpactsubstantiallybecauseiteliminatesCO2andallnon-CO2emissions(e.g.,nitrogenoxide(NOx)andsulfuroxide(SOx)).Hence,LH2isalikelyoptionforshiptypesthatundergostringentemissionregulationssuchassmallpassengershipssailingthroughnaturalreserves.However,thelargevolumesrequiredforstoragecomparedwithotherhighdensityshippingfuelsmakeLH2alesspreferableoptionforlong-haulshipping.Ammoniaisacompoundofnitrogenandhydrogenfeaturingahighenergydensity(50%higherthanLH2).Companiescanproduceitcarbon-neutrallyviarenewablehydrogenfromelectrolysis.NH3iseasytostoreandcanuseexistingammoniasupplychainsandinfrastructure.Duetoitstoxicity,ammoniamayprovechallengingforsomeshiptypes(e.g.,shipswithpassengers)duetosafetyconcernsandpotentialfutureregulationarounditsstorageonboardandinbunkeringlocationsclosetohighlypopulatedregions.Tomaximizetheimpactofammoniaasasustainableshippingfuel,measuresforstrictcontrolofNOxandothernon-CO2emissionsmustbeinplace.MethanolresultsfromcombiningCO2andhydrogen.Supplierscanproduceitcarbon-neutrallyfromrenewablehydrogenandCO2fromDAC,biogenicCO2orwithreducedcarbonemissionsifCO2fromindustrialemissionsservesasafeedstock.Regardlessoftheproductionroute,fuelingpropulsionsystemswithmethanolcausesCO2emissions,partiallyoffsettingtheCO2savingsfromproduction.Likeammonia,methanolbenefitsfromanexistingglobalinfrastructureandlimitedconversioncostsforexistingvessels.TCOperspectiveThemostcost-effectivedecarbonizationpathdifferspersub-segmentofcommercialshippingaseachhasdistinctoperatingcharacteristicsandeconomics.Toaccountforsuchdifferencesandinvestigatetherolehydrogen-basedfuelsmightplay,wechosecontainershipsandcruiseshipsformodeling.Bothchosensub-segmentsplayakeyroleintheglobalshippingindustry:containershipsaccountforthelargestshareofglobalfleetemissionswith23%,andcruiseshipsrepresentedthefastestgrowingsegmentbeforetheCOVID-19pandemic.Inaddition,bothsegmentsareamongthelikelyearly-adoptersofdecarbonizationstrategies,giventheirproximitytoendconsumersthatexhibithigherwillingnesstopayandfaceexternalregulatorypressures.ContainershipsInthelong-term,greenammoniawillbethecheapestzerocarbonfuelforcontainerships,requiringUSD85/tofCO2tobreakevenwithHFOasillustratedinExhibit24.Dual-fuelICEengineswillacceleratedecarbonizationinthetransitionalperiodofthenext10to15yearsbeforealternativefuelsandpropulsionsystemsreachscale.Inthelong-run,ammoniafuelcellsshouldbecomethepreferredpropulsionsystemgiventheirhigherfuelefficiencycomparedwithcombustionenginesandexpectedsignificantdecreaseinCAPEXovertime.Containershipoperatorsshouldbeabletoallocatetheadditionalcostsassociatedwithalternativefuelsentirelytoendcustomersasthecostincreaseonlyaccountsforafractionoftheshippedproduct’sfinalprice.Forexample,apairofjeansthatretailsatUSD60andistransportedfromSoutheastAsiatotheUSwouldbecomelessthan1%(USD0.13)moreexpensiveiftransportedonashippoweredbyanammoniaICEenginecomparedwithashiprunningonheavyfueloil(seeExhibit24).35HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyMnUSD/yearforcontainership1andbunkeringlocationinMiddleEast203026HeavyfueloilICEFuelCapex2O&MIncumbentfuelDualfuelAmmoniaICE3LNGICE36BiodieselICE4263052AmmoniaICE33MethanolICE42LH2ICEAmmoniaFC56Low-carbonshippingfuelZero-carbonshippingfuel~10~90~310CO2costrequiredtobreakevenwithHeavyFuelOil,USD/tonxxAdditionalpriceperjeans,USDxx<0.010.070.17~85~335~3850.130.490.56~1950.29Breakevencarbontaxhigherforbiodieselthanammonia,giveninherentcarbonemissionsinbiodiesel(0.6xemissionsofHFO)1.67MWship,TEU=13,000–15,000,sailingdistanceof84,200sm/year2.IncludingopportunitycostsfromincreasedspacerequirementscomparedtoHFOICEengine3.Dualfuelenginepoweredby50%HFOand50%ammonia4.2ndgenerationbiodieselbasedonusedcookingoilCruiseshipsComparedwithcontainerships,cruiseshipsexhibitadifferentrouteprofilewithshortertriplengths,frequentstops,andmorestringentsafetyregulationsandriskconsiderations,allofwhichwilllikelyruleouttheuseofammoniaduetoitstoxicity.Giventhisprobability,carbon-neutralmethanolandliquidhydrogenbecomethemostviablefueloptions,requiringaboutUSD300/tofCO2tobreakevenwithHFO,asillustratedinExhibit25.Aswithcontainerships,dual-fuelICEenginesoffercruiseshipsatransitionaltechnologyuntilthefullroll-outofmethanolICEandLH2fuelcellstakesplace.Intheshortrun,thishybridsolutionoffersupto25%lowercostscomparedwiththefullydecarbonizeddrivetypes.BiodieselandLNG–bothdiscussedastransitionalfuels–reducebutdonoteliminateGHGemissions.LNGhastheadditionaldisadvantageofmethaneslippage,whichhasastrongernegativeclimateimpactthanCO2.Thus,potentialzeroemissionregulationwilllikelyruleouttheuseofeitherfuelinsomeships.Comparabletocontainerships,cruiseshipoperatorscouldalsopotentiallypasstheresultingcostincreasesofswitchingtogreenmethanolorLH2toendconsumers,ascertaincruiseshippassengersmayhaveboththemeansandthewillingnesstopayfordecarbonization.Forexample,atypical10-dayBalticseacruiseofUSD1,400wouldaddaboutUSD660totheaverageticketpriceformethanolifallincrementalcostswereallocatedentirelytocustomers(seeExhibit25).Exhibit24:Competitivenessofalternativefuelsincontainershippingin203036HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyMnUSD/yearcruiseship1andbunkeringlocationinEurope2030Capex2HeavyfueloilICEFuelO&M25Incumbentfuel1.18MWship,GT>10,000,sailingdistanceof138,200sm/year2.IncludingopportunitycostsfromincreasedspacerequirementscomparedtoHFOICEengine3.2ndgenerationbiodieselbasedonusedcookingoil4.Dualfuelenginepoweredby50%HFOand50%methanol32DualfuelMethanolICE4LNGICEBiodieselICE33228MethanolICE7LH2ICE39MethanolFCLH2FC475449Low-carbonshippingfuelZero-carbonshippingfuel~415~400~315CO2costrequiredtobreakevenwithHeavyFuelOil,USD/tonxxAdditionalpriceperticket,USDxx~150~325~365~310~540~630~660~1,145~1.340~480~1,020E.AviationTheaviationsectoremitsmorethan0.9GtofCO2peryear,theequivalentofapproximately2%oftheworld’scarbonemissions.Inthepastdecade,theindustryhasshownanincreasedfocusondecarbonization,leadingtotheInternationalAirTransportAssociation’s(IATA)targetofhalvingCO2emissionsby2050comparedwitha2005baseline.Theindustryhasastrongrecordonfuelefficiencyimprovement,cuttingfuelburnperpassenger-kilometerinhalfsince1990.However,operationalefficiencyimprovementswillnotbeenoughtorealizethedecarbonizationtargetscommunicatedbyIATA.DecarbonizationoptionsAsoneofthehardest-to-abatesectorswithhighdailyrangerequirementsandweightconstraints,aviationdecarbonizationoptionsremainlimited.Sincebatteriesandelectrificationarecurrentlyimpracticalinaviation,thefocusshiftstoalternativefuelsassubstitutesforhighlyrefined,fossilfuel-intensivejetfuel.Arangeofalternativefuelsthatvaryintechnologicalmaturityandfeedstockavailabilitycouldsubstitutefortraditionaljetfuel.Biofuelisthemostmatureandproventechnologyofthoseavailable.Asforexactcosts,theCO2reductionpotentialdependsonthefeedstocksourcechosenforbiofuelproduction.Acrossfeedstocks,a70-90%reductionofCO2emissionscomparedwithkerosene(jetfuel)ispossibleonalifecyclebasiswithbiofuels.Yet,contrarytootheralternativefuels,biofuelsemitparticulatematterandotherpollutants,whichdriveaviation’snegativeclimateimpact.AnotherchallengearisesExhibit25:Competitivenessofalternativefuelsincruiseshipsin203037HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Companyfrompotentialfeedstockshortagesduetohighdemandfromothersegments(asdiscussedintheshippingfuelschapter).Syntheticjetfuels(alsocalledsynfuels)representanotherjetfuelalternativethatsupplierscanproduceinalow-carbonwaythroughthereactionofrenewablehydrogenandCO2.Unlikepurehydrogensolutions,synfuelscanuseexistingjetfuelinfrastructureandpropulsionsystems.TheCO2decarbonizationpotentialdependsontheCO2feedstocksource–directaircapture,incontrasttoindustryCO2emissions,createsazero-carbonfuel.EventhoughsynfuelsdonoteliminateemissionsbeyondCO2andthusreducetheoverallclimateimpacttoalesserextentthanpurehydrogen,theyareoneoftheonlyviableoptionsforthedecarbonizationoflong-rangeflightsfromacostperspective.Liquidcleanhydrogenisthemostnascenttechnologyinthisgroupgivenitsneedfornewpropulsionsystems(suchashydrogencombustionturbinesorfuelcells)aswellasstorageandstoragemanagementsystems.HydrogenistheonlyalternativefuelthatcutsallCO2emissionsfromflying.Furthermore,LH2canreduceasignificantshareofallnon-CO2emissionslikelikeNOxandSOx,leadingtoanoverallreductionof50-90%inclimateimpactwhichexceedsthereductionpotentialofallotheralternativefuels.Contrarytoothersustainableaviationfuels,LH2requiresanoverhaulofexistingfuelinfrastructure.TCOperspectiveInaviation,thechoiceoftheoptimallow-carbonfueldependsonthesizeoftheaircraftandthedistancetobecovered.Toprovideaperspectiveontheentireaviationindustry,wemodeledfivedifferentusecases:acommuterjet(19PAX,500km),aregionaljet(80PAX,1,000km),ashort-rangeaircraft(165PAX,2,000km),amediumrangeaircraft(250PAX,7,000km)andalong-rangeaircraft(325PAX,over10,000km).Thecostsmodeledrepresentalldirectandindirectcosts,includingCAPEXincreasesoftheaircraftaswellasinfrastructurerequirements.Overall,theresultsshowthathydrogenatscalecancost-effectivelydecarbonizeflightsuptotheshortandmediumrangecategories,whichaccountfor70%ofglobalaviationCO2eemissions.AshighlightedinExhibit26,forthefourusecasesinthisrange,liquidhydrogenisthemostcompetitiveabatementoptionatacostofUSD90-150/tofCO2eby2040.Italsooutperformssynfuelby15-85%intermscostperavailableseat-kilometer(CASK).Beyondthe10,000kmrange,thestoragespacerequirementsmakehydrogenunfeasibleintermsofcost.Thus,forlong-rangeflights,whichaccountfor30%ofglobalCO2eemissions,synfuelisthemostcost-competitivedecarbonizationoption,atacostofUSD200/tofCO2e.Notethat,unlikeintherestofthereport,wetakea2040perspectiveherebecauseanearlierentry-into-serviceandcommercializationassumptionforhydrogen-basedaircraftremainsunlikely(seeExhibit26).38HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyCostsperavailableseatkilometerUSDcents1.Hydrogenpropulsionassumedtobefuelcell-basedforCommuterandRegionalflights,andH2turbinesforShort/Medium/Long-rangeaircrafts.SynfuelproducedwithReverseWaterGasShiftreactionandDirectAirCapture(DAC).ProductionbasedinEuropeShort-range165PAX,2,000kmLong-range325PAX,10,000kmMedium-range250PAX,7,000kmCommuter19PAX,500kmRegional80PAX,1,000km13.113.715.3Jetfuel(fossil)Hydrogen1Synfuel(withdirectaircapturedCO2)1AbatementcostsUSD/tonCO2eq6.06.77.43.85.85.23.64.64.54.25.85.84025570255100200170200270200ShareofglobalaviationCO2,%<1%3%43%30%24%Zoom-inonshort-rangesegment.Hydrogenisamorecompetitivedecarbonizationalternativeforshort-rangeflightsthansynfuelasitoutperformssynfuelsinbothcostsandclimateimpact.Overtime,thecostadvantageofhydrogenoversynfuelswilldecreaseascostsforthedirectaircapturetechnologyrequiredtoproducecarbonneutralsynfuelsfall.SwitchingfromkerosenetohydrogenimpliesacostofaboutUSD100/tofCO2e.Ifthisadditionalcostwereallocatedentirelytotheendconsumer,itcouldraisethepriceofanairplaneticketby30-35%in2030orUSD25foraone-wayflightfromFrankfurttoLondon(seeExhibit27).Zoom-inonlong-rangesegment.Forthelong-rangeflightsegmentsynfuelisthemostcost-competitiveviabledecarbonizationoption,astherequiredtanksizewouldruleouthydrogenfordistancesofmorethan10,000km.Whilesynfuelinthenearfutureisstillexpensive,thecostsofsynfuelshoulddropsignificantly(byover50%between2020and2040),drivenbythedecreasingfeedstockpricesofhydrogenandCO2.However,ahighcarboncostofbetweenUSD200and250/tofCO2eisstillneededtobreakevenwithkerosene.InascenariowithaUSD50/tofCO2costofcarbonin2030andastrongaccelerationtoUSD200/tCO2by2040,synfuelcouldbreakevenwithconventionaljetfuelbetween2038and2043forlong-rangeflights,asshowninExhibit28.Fortheendcustomer,theticketpriceforalong-rangeflightfromLondontoSingapore(withanaverageticketpriceofUSD600)mightincreasebyuptoUSD300by2040ifairlinesallocatecostsentirelytotheendcustomer.Exhibit26:Totalcostofownershipofaviationfuelsfordifferentusecasesin204039HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyExhibit28:Totalcostofownershipofalong-rangeflightovertime205020202535405.0304.5453.54.05.56.08.56.57.07.58.09.0Kerosene(withrisingCO2costs)1H2directpropulsionKerosene(noCO2costs)Synfuel(withdirectaircapturedCO2)CostperavailableseatkilometerUSDcentsUsecase:Flightof2,000kmwith165pax1.CO2costgrowingfromapprox.30USD/tCO2ein2020to50USD/tCO2ein2030,200USD/tCO2ein2040and300USD/tCO2ein205010.03510.52020302545404.520503.54.05.05.56.06.57.07.58.08.59.09.511.0Kerosene(noCO2cost)Synfuel(withdirectaircapturedCO2)Kerosene(withrisingCO2costs)1Synfuel(withindustrialCO2)H2directpropulsionCostperavailableseatkilometerUSDcentsUsecase:Flightof10,000kmwith325pax1.CO2costgrowingfromapprox.30USD/tCO2ein2020to50USD/tCO2ein2030,200USD/tCO2ein2040and300USD/tCO2ein2050Exhibit27:Totalcostofownershipofashort-rangeflightovertime40HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company70bncommittedpublicfundsbygovernmentstosupporthydrogentransitionstrategiesHydrogenscaleupwillrequirecapitalandsector-levelstrategies41HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company41HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyVIImplementation:bringingitalltogethertocapturethepromiseofhydrogenThestrongcommitmenttodeepdecarbonizationbygovernmentsworldwidehastriggeredanunprecedentedwaveofmomentuminthehydrogenindustry.Financialsupport,regulationandclearhydrogenstrategiesandtargetsincombinationwiththeUSD70billioncommittedpublicfundsbygovernmentstosupportthehydrogentransitionhavecausedvaluechainstoscaleup,coststocomedownandinvestmentstoclimbtonewheights.Thenextchapterinthehydrogenstoryrequiresstakeholderstotranslatetheirambitiousstrategiesintoconcretemeasures.Governments,businessesandinvestorsshouldsetsector-levelstrategies(e.g.,forthedecarbonizationofsteel),withlong-termtargets,short-termmilestones,andthenecessaryregulatoryframeworks.Theymustdevelopvaluechainsforequipment,scaleupmanufacturing,attracttalent,buildcapabilities,andaccelerateproductandsolutiondevelopment.Thisscaleupwillrequirecapital,andinvestorshaveanoutsizedroletoplayindevelopingandpushingat-scaledeployments.Allthiswillrequirenewpartnershipsandecosystembuilding,withbothbusinessesandgovernmentsplayingimportantroles.Togetthingsstarted,strategiesshouldaimatthecriticalunlocks,likereducingthecostofhydrogenproductionanddistribution.Weestimatethatroughly65GWofelectrolysisarerequiredtobringcostsdowntoabreakevenwithgrayhydrogen.ThisequalsafundinggapofaboutUSD50billion.Oneplacetosupportdeploymentisthedevelopmentofclusterswithlarge-scalehydrogenofftakersattheircore.Thesewilldrivescalethroughtheequipmentvaluechainandreducethecostsofhydrogenproduction.Bycombiningmultipleofftakers,playerscanshareinvestmentsandrisksandbegintoestablishpositivelyreinforcingcollaborativeloops.Othersmallerhydrogenofftakersinthevicinityofsuchclusterscanthenpiggy-backonthelower-costhydrogensupply,makingtheiroperationsbreakevenfaster.Basedonthesecorecharacteristics,weseeseveralclustertypesgainingtraction,including:—Portareasforfuelbunkering,portlogistics,andtransportation—Industrialcentersthatsupportrefining,powergenerationandtheproductionoffertilizerorsteel—ExporthubsinresourcerichcountriesTomakeclusterssuccessful,theyshouldincludeplayersalongthewholevaluechaintooptimizecosts,tapintomultiplerevenuestreamsandmaximizetheutilizationofsharedassets.Theyshouldbeopentoadditionalplayersandinfrastructureshouldalloweasyaccesswherepossible.Thenextfewyearswillbedecisiveforthedevelopmentofthehydrogenecosystem,forachievingtheenergytransitionandforattainingthedecarbonizationobjective.Asthisreportshows,progressoverthepastyearhasbeenimpressive,withunprecedentedmomentum.Butmuchliesahead.ThecompaniesintheHydrogenCouncilarecommittedtodeployinghydrogenasacriticalpartofthesolutiontotheclimatechallengeandHydrogenInsightswillprovidearegularlyupdated,objectiveandglobalperspectiveontheprogressachievedandthechallengesahead.42HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company43HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyGlossaryATRAutothermalreformingBEVBatteryelectricvehicleBFBlastfurnaceBOFBlastoxygenfurnaceBTBenzyltolueneCAPEXCapitalexpenditureCASKCostperavailableseatkilometerCO2CarbondioxideCO2eCarbondioxideequivalentCCSCarboncaptureandstorageCCUCarboncaptureandutilizationDACDirectaircaptureDRIDirectreducedironEAFElectricarcfurnaceEPCEngineering,procurementandconstructionESGEnvironmentalandsocialgovernanceEUEuropeanUnionFCFuelcellFCEVFuelcellelectricvehicle,includinglight-andheavy-dutyvehicles,andmaterial-handlingvehiclesFIDFinalinvestmentdecisionGHGGreenhousegasGDPGrossdomesticproductGtGigatonHDTHeavydutytruckHFOHeavyfueloil44HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyHRSHydrogenrefuelingstationsH2HydrogenIATAInternationalairtransportassociationICEInternalcombustionengineIMOInternationalmaritimeorganizationkgKilogramkmKilometerLCFSLowcarbonfuelstandardLCO2LiquidcarbondioxideLCOELevelizedcostofelectricityLH2LiquidhydrogenLNGLiquefiednaturalgasLOHCLiquidorganichydrogencarrierMENAMiddleEastandNorthAfricaMeOHMethanolMMBTuMillionBritishthermalunits(unitofenergy,1MMBTU=1.06GJ)MtMilliontonsM&AMergerandacquisitionNH3AmmoniaNOxNitrogenoxides(typeoftailpipeemissionfromICEvehicles)PAXPersonsapproximately(numberofpassengerscarried)PEMPolymerelectrolytemembranePVPhotovoltaicsR&DResearchanddevelopmentRERenewableenergy45HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyRESRenewableenergysourcesSMRSteammethanereformingSOxSulfuroxides(typeoftailpipeemissionfromICEvehicles)SUVSportutilityvehicletTon(s)TCOTotalcostofownershipTW/GW/MW/kWTerawatt,gigawatt,megawatt,kilowatt(unitofpower,1Watt=1Jpers)TWh/MWh/kWhTerawatthour,megawatthour,kilowatthour(unitofenergy,1Watt-hour=3600J)USDUnitedStatesDollarsWACCWeightedaveragecostofcapital46HydrogenInsightsReport2021HydrogenCouncil,McKinsey&CompanyBibliographyBillCotton.2019).CleanHydrogen.Part1:HydrogenfromNaturalGasThroughCostEffectiveCO2Capture.Retrievedfrom:https://www.thechemicalengineer.com/features/clean-hydrogen-part-1-hydrogen-from-natural-gas-through-cost-effective-CO2-capture/EnergyandClimateIntelligenceUnit.(2020).Netzerotracker.Retrievedfrom:https://eciu.net/netzerotrackerEuropeanCommission.(2018).RecastoftheRenewableEnergyDirective(REDII)EuropeanCommission.(2020).TheEUsteelindustryEWI(InstituteofEnergyEconomicsattheUniversityofCologne).(2020).EstimatingLong-TermGlobalSupplyCostsforLow-CarbonHydrogenGasforclimate.(2020).EuropeanHydrogenBackboneH21.(2018)H21NorthofEngland(2018)HydrogenCouncil.(2020).Pathtohydrogencompetitiveness.AcostperspectiveIEA.(2020).Energyinvestmentbyscenario,2025-2030.Retrievedfrom:https://www.iea.org/data-and-statistics/charts/energy-investment-by-scenario-2025-2030IEA.(2019)TheFutureofHydrogen.Retrievedfrom:https://www.iea.org/reports/the-future-of-hydrogenIEA.(2020).TrackingTransport2020.Retrievedfrom:https://www.iea.org/reports/tracking-transport-2020Internationalmaritimeorganization.(2020).ReducinggreenhousegasemissionsfromshipsMcKinsey&Company.(2020).Decarbonizationchallengeforsteel–OurinsightsMcKinsey&Company.(2020).McKinseyCenterforFutureMobilityMcKinsey&Company.(2020).McKinseyEnergyInsightsSiemensEnergy,GascadeGastransportGmbH,NowegaGmbH(2020).WhitepaperHydrogenInfrastructure-thepillarofenergytransitionTheWorldBank.(2019).CountriesGrossDomesticProductTheWorldBank.(2016).CountriesCO2emissionsdataWorldSteelAssociation.(2020).SteelstatisticsU.S.DepartmentofEnergy.(2019).InternalRevenueCodeTaxFactSheet.Retrievedfrom:https://www.energy.gov/sites/prod/files/2019/10/f67/Internal%20Revenue%20Code%20Tax%20Fact%20Sheet.pdf47HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company48HydrogenInsightsReport2021HydrogenCouncil,McKinsey&Company起点财经，网罗天下报告StartYourFinance

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