HydrogenInsights2023Anupdateonthestateoftheglobalhydrogeneconomy,withadeepdiveintoNorthAmericaMay20232HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyPublishedinMay2023bytheHydrogenCouncil.Copiesofthisdocumentareavailableuponrequestorcanbedownloadedfromourwebsite:www.hydrogencouncil.comThisreportwasauthoredbytheHydrogenCouncilincollaborationwithMcKinsey&Company.Theauthorsofthereportconfirmthat:1.Therearenorecommendationsand/oranymeasuresand/ortrajectorieswithinthereportthatcouldbeinterpretedasstandardsorasanyotherformof(suggested)coordinationbetweentheparticipantsofthestudyreferredtowithinthereportthatwouldinfringetheEUcompetitionlaw;and2.Itisnottheirintentionthatanysuchformofcoordinationwillbeadopted.Whilstthecontentsofthereportanditsabstractimplicationsfortheindustrygenerallycanbediscussedoncetheyhavebeenprepared,individualstrategiesremainproprietary,confidential,andtheresponsibilityofeachparticipant.Participantsareremindedthat,aspartoftheinvariablepracticeoftheHydrogenCouncilandtheEUcompetitionlawobligationstowhichmembershipactivitiesaresubject,suchstrategicandconfidentialinformationmustnotbesharedorcoordinated–includingaspartofthisreport.3HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyTheHydrogenCouncilhas145membersandisaglobalCEO-ledinitiativewithaunitedvisionandlong-termambitionforhydrogentofosterthecleanenergytransitionHydrogenInsightsistheHydrogenCouncil’sperspectiveonthehydrogenindustry’sevolution.Itsummarizesthecurrentstateoftheglobalhydrogensectorandactualhydrogendeployment.TheHydrogenCouncilandMcKinsey&Companyco-authorthispublication.Itrepresentsacollaborativeefforttoshareanobjective,holistic,andquantitativeperspectiveonthestatusoftheglobalhydrogenecosystem.11DetailedmethodologydescribedinHydrogenInsights2021SteeringmembersSupportingmembersInvestors14HydrogenInsightsMay2023HydrogenCouncil,McKinsey&Company01Hydrogenmomentumcontinuestoaccelerate,butinvestmentdecisionsarelagging>1,000hydrogenprojectproposalsannouncedglobally,795ofwhichplanfullorpartialdeploymentby2030USD320billiondirectinvestmentsintohydrogenprojectsannouncedthrough2030,ofwhichUSD29billionhavepassedthefinalinvestmentdecision(FID)38Mtp.a.cleanhydrogensupplyannouncedglobally2030,lessthan1Mtp.a.deployedtoday5HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit1Hydrogenmomentumisstrong:morethan1,000projectproposalshavebeenannouncedgloballyGlobally,theindustryhasannouncedmorethan1,000large-scaleprojectproposalsasoftheendofJanuary2023.Sincethepreviouspublication,2morethan350newproposalshavebeenannounced.Ofthetotal,795aimtobefullyorpartiallycommissionedthrough2030andrepresenttotalinvestmentsofUSD320billionofdirectinvestmentsintohydrogenvaluechainsthrough2030(upfromUSD240billion).Europeremainsthegloballeaderinhydrogenprojectproposals,withthehighesttotalinvestments(USD117billion,35%ofglobalinvestments)andhighestabsolutegrowth(USD40billion).LatinAmericaandNorthAmericafollowEurope,eachrepresentingabout15%ofannouncedinvestments.GrowthinNorthAmericaincreasedfollowingtheannouncementoftheIRA(seeSection03ofthispublication).Giga-scaleprojectproposals(over1GWofelectrolysisforrenewablehydrogensupplyormorethan200,000ktp.a.oflow-carbonhydrogen)accountfor112projectproposals(requiringaboutUSD150billioninvestmentuntil2030),nearlydoublingfrom61eightmonthsago.Ofthese112proposals,91arerenewableand21arelow-carbonhydrogen.Momentumisstrong,andtheindustryisplanninginvestmentsintocleanhydrogen,yetmuchmoreneedstobedone.Tobeontracktonetzeroin2050,morethanadoublingofannouncedinvestmentsisneededby2030–andtheseneedtobematuredanddeployed.2HydrogenInsights2022withdatafromMay2022;comparisonsinthisreportarerelativetothispublicationunlessstatedotherwiseSource:Project&Investmenttracker,asofJan31,20231.Focusonprojectsof>1MW553Large-scaleindustrialuse94IntegratedH2economy96Infrastructureprojects191Mobility112Giga-scaleproductioninvestmentsrequiredtodevelopprojectsannouncedthrough2030Europe20222023AfricaChinaOceaniaLatinAmericaJapan,SouthKorea,restofAsiaMiddleEastNorthAmerica684inMay2022$320B1,046projects1117484634211918176HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit2Theprojectfunnelisgrowingacrossprojectstages,yetremainsskewedtowardannouncementsTotalannouncedinvestmentsuntil2030haveincreasedby35%inthepasteightmonths–fromUSD240billiontoUSD320billion.Allprojectmaturitystageshavegrownby30%to40%yetremainheavilyskewedtowardearly-stageprojects:almosthalfoftheprojectsareannouncedbuthavenotyetenteredtheplanningstage,receivedgovernmentfunding,areinadvancedplanning,orhavetakenFID.Overall,investmentsinthecommittedcategoryhaveaccelerated.Theygrewonly10%fromSeptember2021toMay2022and30%fromMay2022untilJanuary2023,andthefirstlarge-scaleprojectshaveachievedFIDinthelastmonths.WhileEuropeleadsonannouncements,NorthAmericaleadswithcommittedinvestments(USD10billion).Europe(USD7billion),theMiddleEast(USD5billion),andChina(USD5billion)follow,withgrowthinChinabeingthehighestatmorethan200%.3ImportantprojectsofcommonEuropeaninterestFordeveloperstotakeFID,securingofftakeandpotentiallygovernmentfundingiskey.MostprojectsatorpastFIDhaveeithercaptiveofftake,i.e.,developedbycompanieswithinternaldemandforhydrogen,orlong-termofftakecontracts.Intermsofgovernmentfunding,thelargestschemesareIPCEI3inEurope(EUR10.6billiongrantedinthefirsttworounds),theproductiontaxcredits(45V),andcreditsforcarboncaptureandstorage(45Q)intheUS.InJapanandSouthKorea,fundinghassupportedinfrastructurebuildout(e.g.,refuelingstations,liquidhydrogenvaluechaininJapan),whereashydrogenclustershavereceivedgovernmentfundinginChina.Despiteapositivetrend,lessthan10%oftheUSD320billionannouncedinvestmentsthrough2030arerealcommittedcapital.Theindustryismaturinginstrainedsupplychains,laborshortage(e.g.,EPC),increasinginflationandinterestrates,andlackofpublicsupportinmanymarkets,allofwhichmayslowdeployment.By2030,committedcapitalmustincreasemorethantwentyfoldtotrackanet-zeroscenario.Forthistoresultincleanhydrogendeployment,theresourcesandequipmentmustbeavailabletoensuredeploymentofcleanhydrogensupplyprojects,preventinfrastructurebottlenecks,andenablehydrogen-readyend-userplants.1.Front-endengineeringdesignDirecthydrogeninvestmentsuntil2030,$BSource:Project&Investmenttracker,asofJan31,2023MayAnnouncedPlanningstageAdvancedplanningCommittedFeasibilitystudiesFEED1studiesFID,underconstruction,operationalJan20222023MayJan20222023MayJan20222023MayJan1081518010329372920222023investmentgrowthin8months+35%ofinvestmentsfocusonsupply65%22$320Btotalannouncedinvestments$170BmatureinvestmentsEnduseandofftakeInfrastructureProductionandsupply7HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit3Europe,NorthAmerica,andtheFarEasthavethelargestnumberofprojectswithcommittedcapitalThegeographicperspectiveontheprojectfunnelindicatesthatregionswithhighenergydemandandearlyfocusonhydrogenasadecarbonizationvector(e.g.,Europe,China,andNorthAmerica)haveadvancedmoreprojectstoFID.Inregionsexpectedtoexportcleanhydrogenanditsderivatives(e.g.,LatinAmerica,Australia,MiddleEast,Africa)withlimitedlocaldemand,projectstendtobelargerandinearlierstagesofdevelopment(feasibilityorFEEDstudies).FewoftheseprojectshavepassedFID,andmanyaredevelopedinphases,potentiallyduetothelowerriskofdeployingasmallerprojectorlimitedcurrentmarketsizeforcleanhydrogenandhydrogenderivatives(e.g.,ammonia,methanol).TheaverageinvestmentsizeofaprojectthathaspassedFIDisaboutUSD100milliononaverage,whereasprojectsintheearlystage(i.e.,announced)requireaboutUSD600millioninvestmentonaverage,4showcasingthegrowingscaleofhydrogenprojects.4Totalannouncedinvestmentvolumesdividedbynumberofprojectsineachinvestmentstage(projectcountedbyearliestmaturitystage,e.g.,aprojectwithphase1inFEEDandphase2inAnnouncedwillbecountedasFEED)1.Formultiphaseprojects,phase1decidestheprojectmaturitySource:Project&Investmenttracker,asofJan31,2023260projectsannouncedPreliminarystudiesorpressannouncementstage172projectsinfeasibilitystudies83projectsinFEEDstudies280projectscommittedFIDtaken,underconstructionoroperationalprojectswithoutspecifiedCODorCODpost-2030(notshown)projectswithfullorpartialcommissioning(COD)by2030+251795151132147281406714161901082242113236287861Large-scaleindustrialuseIntegratedH2economyInfrastructureprojectsMobilityGiga-scaleproduction8HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit4Announcedproductionvolumesincreasedbymorethan40%to38Mtp.a.,reachinghalfthevolumeneededin2030tobeontracktonetzeroCompanieshaveannounced38Mtp.a.cleanhydrogenproductionplansgloballyfor2030acrosslow-carbonandrenewablehydrogen(upfrom26Mtp.a.),ofwhichabouthalfisintheplanningstageorhascommittedcapital.Morethantwo-thirdsofthe38Mtp.a.arerenewablehydrogen(about25Mtp.a.),andtheremainderislow-carbon(about13Mtp.a.).Ofthe12Mtp.a.supplyprojectsaddedinthepasteightmonths,about10Mtp.a.arerenewablehydrogendrivenbythehighgrowthinannouncementsinrenewables-richregions(e.g.,Africa,MiddleEast).Thedataalsorevealsthatdevelopinganddeployingprojectscantakelongerthaninitiallyestimatedbydevelopers.Forinstance,asofOctober2021,theindustryhadannouncedacumulativedeploymentofnearly6GWelectrolysisbytheendof2022(equivalenttoabout0.7Mtp.a.5renewablehydrogensupply),whileactualdeploymentasofJanuary2023standsatonly700MW.Thenextthreetofiveyearsrepresentasignificantscale-upchallenge:nearly3Mtp.a.ofcapacityhaspassedFID(ofwhichonly0.8Mtp.a.isoperational)andshouldbedeployedinthecomingyears,predominantlyinNorthAmerica(about70%ofvolumes),followedbyAsia-Pacific(about15%,mostofwhichisinChina)andtheMiddleEast(8%).In2030,38Mtp.a.isroughlyhalfwhatisneededtobeontracktoanet-zeroscenario6(75Mtp.a.in2030).Closingthisgapischallenging,asrenewablehydrogenprojectsarestrugglingwithslowpermitting,supplyofelectrolyzers,solarpanels,windturbines,andEPCcapacityconstraints.Low-carbonhydrogenprojectsalsofacechallenges;large-scaleinfrastructureforcarboncapture,transportation,andstoragemustbebuilt,whichrequirespermitting(oftencomplexandlengthy)aswellassignificantcapitalandlabor.5Assuming70%loadfactorand67%efficiency(lowerheatingvalue)6DetailedintheHydrogenforNetZeropublication(November2021)Cumulativeproductioncapacityannounced,Mtp.a.1.Preliminarystudiesoratpressannouncementstage2.Feasibilitystudiesoratfront-endengineeringanddesignstage3.Finalinvestmentdecisionhasbeenmade,underconstruction,commissionedoroperationalSource:Project&Investmenttracker,asofJan31,2023AnnouncedasofJan2023May2022EoY2021EoY2020EoY2019Announced1Low-carbonhydrogenRenewablehydrogenPlanning2Committed3Announced1Planning2Committed33820202122232425262728292030shareofcapacityintop3markets(Europe,NorthAmerica,LatinAmerica)>70%additionalcapacity(low-carbonandrenewable)announcedforpost-2030+16Mt9HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit5Europeisthelargestintermsofannouncedsupply,followedbytheAmericasandOceaniaAnnouncedsupplyofcleanhydrogenisaglobalphenomenon,andeachregionshowsgrowthinannouncedsupply.ParticularlytheAfricancontinenthasannouncedsignificantnewcapacity(morethan200%),ashastheMiddleEast,whereannouncedvolumesmorethandoubled.Yet,EuropeandNorthAmericaremainthelargestmarketsforannouncedhydrogensupply,with13Mtp.a.and9Mtp.a.,respectively.Notably,NorthAmericahasthelargestvolumesin2025,with2.8Mtp.a.announced,ofwhich70%islow-carbonhydrogen.DespiteEurope’sclearpositionasleadingonannouncedvolumes,thisisnotreflectedinthematurityoftheprojectfunnel,ofwhichonly5%arecommittedvolumes.Otherregionshaveasignificantlyhighershareofmaturevolumes.OfthetotalannouncedsupplyinChina,about40%iscommitted,whileinNorthAmerica,theshareis20%.ThelowannouncedvolumesinChinaparticularlycouldbeduetofewercompaniesannouncingtheirplansordifferentpublicsupportschemes.InNorthAmerica,morethan70%ofthecapacityannouncedislow-carbonhydrogen,which,inmanycases,islowercostfortheenduser.DevelopersintheUShavereceivedtaxcreditstocaptureandstoreCO2(45QcreditinplacebeforetheIRA).Further,low-carbonhydrogenislesscapitalintenseataboutUSD2.5toUSD3.5billionperMtcapacityversusUSD4.5toUSD7billionperMtcapacityforrenewablehydrogen.ThiscouldexplainthehighermaturityoftheprojectpipelineinNorthAmerica.Source:US45QfederaltaxcreditCleanhydrogenvolumesannounced,Mtp.a.Source:Project&Investmenttracker,asofJan31,20234.53.925.612.3654510201052005535<1Totalannounced,MtRenewableLow-carbonChangein2030announcementsfromMay2022toJan2023%20302025RegionEuropeNorthAmericaLatAmOceaniaMiddleEastAfricaChinaRestofAsiaJapanandSouthKorea2.22.80.80.60.90.10.60.10.213.09.35.24.72.01.51.10.80.310HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit6Morethan230GWelectrolysiscapacityannouncedtobeoperationalby2030,implyingamorethan300timesgrowthindeploymentisneededoverthenextsevenyearstorealizethisMorethan230GWofelectrolysisdeploymenthasbeenannouncedthrough2030,nearly60GWmorethanpreviously.Morethanhalfofthiscapacity(about120GW)isconsideredmature,i.e.,undergoingfeasibilityorFEEDstudies(nearly111GW)orhaspassedFID(about9GW).ThevolumesofelectrolysiscapacityatorpastFIDnearlydoubledfrom5GWtomorethan9GW,withthemajorityinChina(about40%ofthe9GW)followedbyNorthAmericaandEurope(about15%each).ThehighshareofmaturerenewablehydrogenprojectsinChinamaybeduetofewercompaniesannouncingcompaniesorstrongerormorefocusedgovernmentsupport.Geographically,Europeisthelargestmarket,withoverathirdoftheglobalannouncedcapacity(about80GW),with40%ofvolumesattheplanningstageorbeyond.However,lessthan1.5GWhaspassedFID.LatinAmericaandOceaniafollowEuropeasthelargestmarketsforannouncedvolumes,with20%and15%ofannouncedvolumes,respectively.Despitethevolumeofannouncementsinthesethreemarkets,thematurityoftherenewablehydrogenprojectpipelineislow,withlessthan2%ofannouncedvolumescommitted.Cumulativeelectrolysiscapacity,1GWannounced(incl.allprojectmaturitystages)~232GWJan2023~175GWMay2022~115GWDec2021~54GWDec2020~18GWDec20191.Forprojectswithoutknowndeploymenttimeline,capacityadditionswereinterpolatedbetweenknownmilestonesSource:Project&Investmenttracker,asofJan31,2023increaseinannouncedelectrolysiscapacityby2030inthepast8months+57GWcapacityannouncementsfoundin3regions,i.e.,Europe,LatinAmerica,andOceania>70%announcedelectrolysiscapacityby2030inEurope,thelargestglobalregion>80GW2322020212223242526272829203011HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit7MoreinvestmentsareneededalongthehydrogenvaluechaintocloseaninvestmentgapofUSD380billionby2030Growthintotalannouncedinvestments(fromUSD240billiontoUSD320billion)andprojectspassingFID(fromUSD22billiontoUSD29billion)ispositive.However,moreisneededregardingnewprojectproposalsandinensuringexistingproposalsarematuredtowardsFID.ThetotalinvestmentgapstandsatUSD380billionuntil2030tobeonanet-zerotrajectorybythen,assumingallannouncedprojectproposalsofUSD320billionaredeployeduntilthen.ThelargestgapiswithinhydrogeninfrastructureandenduseataboutUSD135billioneach,abouttwo-thirdsofneededinvestments,followedbysupply(USD110billion).Theinvestmentgap(about30%)incleanhydrogensupplyislowerthanthegapinannouncedhydrogenvolumes(about50%oftheneeded75Mtp.a.in2030),likelydrivenbyrelativelylessannouncedinvestmentsinlow-carbonhydrogenthatrequirelesscapitalperMtp.a.capacity.TheinvestmentgapisnotablyhigherwhenconsideringinvestmentsatFIDorbeyondatmorethan95%acrossthevaluechain,asonlyUSD29billionoftheneededUSD700billioniscommittedcapital.Notallprojects,eveninadvancedplanningstages,willreachFIDandbebuilt.Forinstance,inearlyrenewableenergyprojectdevelopment,thetypicalsuccessrateofaprojectfunnelwasabout10%to20%frominitialdevelopmenttocommissioning.7Theimplicationisthattheindustryneedstodevelopsignificantlymoreprojectproposalstoenabletheneededdeployment.IfinvestmentsofUSD700billionaretobedeployeduntil2030,theylikelyneedtopassFIDbefore2027or2028,giventhetimeneededtobuildtheprojects.7Thefunnelsuccessratewillhavevariedbydeveloper,andtheestimatedfiguresarearesultofinterviewswithindustryexpertsinvestmentgapinsupply$110Binvestmentgapininfrastructure$135Binvestmentgapinenduseapplications$135BAnnouncedandrequireddirectinvestmentsintohydrogenuntil2030,$BSource:Project&Investmenttracker,asofJan31,2023,McKinseyEnduseandofftakeInfrastructureAnnounceddirectinvestmentsInvestmentgapTotalneedinlinewithanet-zerotrajectoryProductionandsupply70038032012HydrogenInsightsMay2023HydrogenCouncil,McKinsey&Company02Cleanhydrogendeploymentsteadilycontinues800ktp.a.operationalcleanhydrogensupplycapacitytoday,lessthan1%ofthegrayhydrogenmarkettoday700MWelectrolysiscapacitydeployedbytheendof2022,withabout9GWhavingpassedFIDglobally>1,070hydrogenrefuelingstationsdeployedglobally,withmorethan50%growthyear-on-year13HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit8Deploymentissteadilygrowingacrossthevaluechain;however,accelerationisneededtobeontracktonetzeroSupply:About800ktp.a.cleanhydrogensupplyisoperationalglobally,upfromabout700ktp.a.About740ktp.a.arelow-carbonhydrogen(primarilyinNorthAmerica),andtheremainderisrenewable.Inadditiontothisvolume,about2Mtp.a.haspassedFID,ofwhichmorethanhalfislow-carbonhydrogen.Infrastructure:Infrastructuredeploymentisprogressingandiscriticaltoensuring(low-cost)cleanhydrogensupplymatchesthedemand.CommittedinvestmentsinhydrogeninfrastructurehavegrownfromaboutUSD5billiontoaboutUSD7billion,ofwhichmorethanthree-quartersareinAsia.Hydrogenenduse:CommittedinvestmentsintohydrogenendusesincreasedbyaboutUSD0.5billion,withthemostgrowthinNorthAmerica.Withinmobility,cumulativeFCEVsalesnowstandatabout80,000vehicles,up30%,representingannualsalesofabout17,000vehiclesin2022–lessthan1%ofglobalvehiclesales.VehicleOEMshaveannouncedmorethan130FCEVmodelsexpectedtobeassembledin2023,ofwhichthemajorityconsistsofcommercialvehicles(trucks,buses)inChina.Manufacturingcapacity:Electrolyzersandfuelcellmanufacturersarereadyingforscalingup.AccordingtoOEMstatements,growthinelectrolyzermanufacturingcapacityhasreachednearly9GW,agrowthof150%.Forfuelcellmanufacturing,thetotalglobalcapacitystatedbyOEMsstandsat12GW,withJapanandSouthKoreaasthelargestsupplymarkets.electrolysiscapacityoperational2022EoY,equivalentto90ktp.a.H2.>300MWinstalledinChinacleanhydrogencapacityhaspassedFID(incl.0.8Mtoperational),majorityofwhichisinNorthAmerica700MW3Mtp.a.low-carbonhydrogencapacityoperationalin2022(EoY),upfrom640ktp.a.inpreviouspublicationelectrolysiscapacityatFID~4GWinChina,~2GWintheMiddleEast,~1.5GWinUSandEurope740ktp.a.9GWfuelcellvehiclesontheroad,+30%in2022ammoniaterminalsalreadyinplace-38exportand88importterminalsglobally80,000120fuelcellmfg.capacitytodayaccordingtoOEMs.+1GWelectrolysismfg.capacityaccordingtoOEMannouncements.+5.3GW12GW9GWhydrogenrefuelingstationdeployment:300+inChina,>200inSouthKorea,>270inEurope,>160inJapanfuelcellvehiclemodelstobeassembledbyOEMsin20231,700>130SupplyTransmissionManufacturingcapacityEnduseSource:HydrogenCouncil;McKinsey14HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit9170MWelectrolysiswasdeployedin2022,bringingthetotalto700MW,withmajorityofthecapacityaddedinChinaDeploymentofelectrolysiscapacitygrew30%bytheendoftheyearin2022versus2021,reaching700MW(upfrom530MW).Theinstalledcapacityequalsabout90ktp.a.ofrenewablehydrogensupply8orabout10%ofinstalledcleanhydrogenproductioncapacityglobally.Deploymentislagging:morethan200GWelectrolysiscapacityisneededby2030totracknetzeroin2050–morethan200timesthecapacityinstalledtoday.Theslowdeploymentmaybeduetolackinggovernmentsupportandofftakecommitments(i.e.,willingnesstopayagreenpremium),constraintsinsupplychains,increasedcostofdeployingprojects,EPCcapacity,orpotentiallylengthypermittingprocessesforprojects.Today,thelargestdeployedcapacityisinChina(about300MW),followedbyEurope(about180MW).Notably,thegrowthappearstobeslowerfrom2021to2022.Growthin2021waslargelydrivenbyonelargeprojectinChina,accountingfor150MWoutofthe230MWgrowthfrom2020to2021.Theshareofalkaline,PEM,andotherelectrolyzertechnologieshasbeenrelativelystableinthepasttwoyears,withalkalineelectrolysistechnologyaccountingforabout60%,followedbyPEM(about30%).WithinChina,thelargestmarket,mostofthedeployedelectrolysiscapacityisalkalinetechnology,whereastheshareofPEMtechnologyishigherinEuropeandNorthAmerica.8Assumingrenewableenergysupply,70%loadfactor,and67%efficiency(lowerheatingvalue)AlkalineTechnologyPEMOther/unknownGlobalcumulativeinstalledelectrolysiscapacity,MW(EoY)Source:IEAGlobalHydrogenReview2021and2022;Project&Investmenttracker,asofJan31,20231.Growthfrom2020to2021drivenby150MWNingxiaProject;thecurrentlylargestoperationalelectrolyzer30080180140RestofworldEuropeChinaNorthAmerica201920212022240300530170015HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit103Mtp.a.cleanhydrogencapacityhaspassedFID,withNorthAmericaandChinaleadingAbout2.1Mtp.a.cleanhydrogenhaspassedFIDinadditiontothe800ktp.a.operationalcapacity,ofwhichabout1.1Mtp.a.islow-carbonhydrogen,andtheremaining1Mtp.a.isrenewable.Sincethepreviouspublication,thevolumesoflow-carbonandrenewablehydrogenhavegrownnotably,withabout0.4Mtp.a.ofeachtechnologyhavingpassedFID.Alllow-carbonhydrogenvolumesatorpastFIDareinNorthAmerica,whereasrenewablehydrogenismoregeographicallydispersed;Chinaisthelargestmarketat35%shareofvolumes,followedbytheMiddleEastandNorthAmericawithabout20%ofvolumeseach.Althoughbeingthelargestinannouncedsupply,with13Mtp.a.announceduntil2030,Europeaccountsforlessthan5%ofcommittedsupplycapacity.Thismaybedrivenbyalackoftransparencyonregulatoryframeworkandsubsidies,aswellashighenergypricesfollowingthewarinUkraine.Committed1productioncapacityuntil2030,%Source:Project&Investmenttracker,asofJan31,20231.Finalinvestmentdecisionhasbeenmade,underconstruction,oroperational5%8%17%70%<1%cleanhydrogenproductioncapacitycommitteduntil2030Nearlyp.a.3MtNorthAmericaLow-carbonhydrogenaccountsfor~90%ofcommittedproductioncapacityinNorthAmerica(ofwhich~740ktp.a.isalreadyoperational),withdemanddrivenbyhydrogenforammoniapro-ductionandrefiningAsia-PacificChinaaccountsforalmost90%ofcommittedproductioncapacityinAsia-Pacific,withseverallarge-scalerenewablehydrogenprojects(>100MW)alreadycommittedMiddleEastandAfricaCommittedproductioncapacitydrivenbygiga-scalerenewablehydrogenprojectinSaudiArabiaEuropeRenewablehydrogenaccountsforclosetoallcommittedproductioncapacity(>95%)inEurope,withindustryfeedstocksectors(e.g.,refining)drivingdemandLatinAmericaSignificantprojectpipeline,butyettocommittolarge-scaleprojects16HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit11Hydrogenrefuelinginfrastructuredeploymentisaccelerating,particularlyinAsianmarketsMorethan1,070hydrogenrefuelingstationsarenowoperationalglobally,withdeploymentgrowingmorethan50%fromtheendof2021to2022.MostofthesestationsarelocatedinAsia,i.e.,China,Japan,andSouthKoreaasthelargestmarkets(morethan650intotal),followedbyEurope(about280)andNorthAmerica(about120).ThemajorityofnewstationsinthepastyearhavebeendeployedinChinaandSouthKorea,withmorethan200stationsaddedinChinaandnearly100inSouthKorea.Incontrast,deploymentinEuropeandJapanappearstobeslowing,withlessthan50newstationsdeployedinEuropeandlessthan10inJapan.Japanhashadarelativelygoodstationcoverage,withabout160stationsdeployed.InEurope,thecoveragevariessignificantlybycountry(e.g.,Germanyhasthehighestnumberofstations).Currently,moststationsdeployedarerelativelysmall,withlessthan500kgperdaydispensingcapacitysufficienttorefuelupto100passengervehicleswitha5kgcapacitytank.Inthefuture,deploymentneedstoaccelerateoverall,andstationsneedtobelargertoenablegrowthinthedeploymentoflargecommercialvehicles,suchasheavy-dutytrucksthatcouldneedmorethan50kgofhydrogenperrefuelingortentimesmorethanacar.EuropeandMiddleEastAsia-PacificAmericaCostaRica1USACanadaIcelandUnitedKingdomLatviaNorwaySwedenItalySpainFranceAustriaGermanyBelgiumCzechRepublicSwitzerlandCroatiaNetherlandsDenmarkMalaysiaSaudiArabiaChinaIndiaTaiwanAustraliaSouthKoreaJapan1112137112745888105105163210>300567371125TotalnumberofHRSinoperationSource:h2stations.org,asofstationsinAsia-Pacific>650stationsinAmerica116stationsinEuropeandMiddleEast276690202020212022545>1,070+55%+25%17HydrogenInsightsMay2023HydrogenCouncil,McKinsey&Company03HydrogeninNorthAmerica:IndustrytailwindsandwhatitcouldtaketorealizetheopportunityUSD46billioninvestmentannouncedinhydrogenprojectsby2030UptoUSD3/kgH2incentivesforcleanhydrogenproduction18HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit12NorthAmericahashigh-qualityenergyresourcesforcleanhydrogenproductionTheUSandCanadacombinedarethesecond-largestconsumersofhydrogenintheworld,with15Mtp.a.demandtoday,accountingforapproximately17%oftotalglobalhydrogendemand.Today’shydrogendemandinNorthAmericaisdrivenalmostentirelybythechemicalandrefiningindustries,allofwhicharemetbygrayhydrogen.However,abundantwindandsolar,alongwithlow-costnaturalgasandsequestrationresources,positionNorthAmericaasaregionwithhighpotentialtoproducebothrenewableandlow-carbonhydrogenatlowcost.Withtheseresources,NorthAmericacouldbeamajorregionforcleanhydrogen,withsizeabledomesticdemandandthepotentialtoexporthydrogen.Potentialimplicationsfor20509areasfollows:—NorthAmericaisexpectedtobeamongthetopregionsgloballyforhydrogenproduction,achievingaveragerenewablehydrogenproductioncostsofUSD1.1perkg.—20%ofenergydemandinNorthAmericacouldbeprovidedbyhydrogen,morethanhalfofwhichcouldbeusedinsectorssuchasroadtransportation,syntheticfuelproduction,andchemicals.—20%ofglobalhydrogencouldbeproducedinNorthAmerica–almostallpurehydrogenproducedintheUScouldbeconsumedlocally;however,hydrogenderivativessuchasammoniaandmethanolcouldbeexportedglobally.—Withbothsequestrationresourcesandabundantrenewables,theNorthAmericanhydrogensupplymixisexpectedtoberoughlya50:50splitbetweenrenewableandlow-carbonhydrogenproduction.9BasedonGlobalHydrogenFlowsperspectivefromOctober2022,updatedtoincorporatetheimpactoftheIRASource:McKinseyHydrogenInsightsandPowerSolutions;EnergyInsightsGlobalEmissionandSubsurfaceDatabase;McKinseyCCSHubExplorerTool;EPAFLIGHTtotalconsumptionofgrayH2CurrentgrayH2demandlocationTotalH2consumptioninthearea,Mtp.a.15Mtp.a.ofH2isconsumedbyrefineries>60%oftotalglobalH2demand~17%3.59.50.61.2SolarandwindresourcesforrenewablehydrogenNaturalgasandcarbonsequestrationresourcesforlow-carbonhydrogenBoth19HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyCleanhydrogenmomentuminNorthAmericacontinues,with170cleanhydrogenprojectsannouncedacrossthecontinentTheindustryhasannouncedatotalof170hydrogenprojectsinNorthAmericaasoftheendofJanuary2023,accountingforapproximately15%oftotalannouncedprojectsglobally.Inthepasteightmonths,about70newprojectswereannounced.Ofthe170totalprojects,135aimtobefullyorpartiallycommissionedby2030,representingUSD46billionofannounceddirectinvestmentinhydrogenvaluechains.Ofthe135projectsproposedby2030,morethan40%havereachedafinalinvestmentdecision(FID),areunderconstruction,orareoperational,and25%areundergoingfeasibilityandFEEDstudies.Thenumberofannouncedprojectsthrough2030hasgrownby60%inthepasteightmonths,whiletheshareofprojectsateachlevelofprojectmaturityhasstayedconsistent,indicatinganevendistributionofgrowthacrosstheprojectfunnel.Large-scaleprojectsforindustrialofftakersaccountformorethanhalfoftheannouncedprojects.Outof106large-scaleindustrialprojectsannounced,86areplanningfullorpartialcommissioningby2030–19projectsareundergoingfeasibilityorFEEDstudies,and35projectshavepassedFID.Thereareeightgiga-scaleprojectsannounced.Oftheseeight,fiveareundergoingfeasibilityandFEEDstudiesandoneisattheFIDstage.Threeoutofeightgiga-scaleprojectsareonrenewablehydrogensupplywithintendeduseinsustainableaviationfuel(SAF)orforthetransportationsector.Outofatotalof175announcedprojects,134projectshavedisclosedtheirintendedofftakesector.Roadtransportistheofftakerfor40projects,followedbyammonia(34projects),andpower/blendingintogasgrid(25projects).Exhibit13oftotalannouncedprojectsgloballyGiga-scaleproductionIndustry(e.g.,refining,steel)TransportIntegratedH2economyInfrastructureprojects16%investmentrequiredtodevelopprojectsannounceduntil2030$46Bannouncedprojects17011106271511AnnouncedH2projectsinNorthAmericaNumberofprojectsannouncedSource:Project&Investmenttracker,asofJan31,202320HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyMorethanhalfofannouncedinvestmentsinNorthAmericaarestillinearlystagesAnnouncedhydrogenprojectsinNorthAmericathrough2030amounttototaldirectinvestmentsofUSD46billion,upfromUSD29billioninthepreviouspublication.Alongthevaluechain,mostinvestmentsarefocusedoncleanhydrogensupply,accountingformorethanthree-quartersofinvestments,followedbyenduse(about15%)andinfrastructure(about5%).TheinvestmentgapinmidstreamandendusehasincreasedaftertheInflationReductionAct(IRA)astheincentivesfocusonhydrogenproduction.Committedinvestments(projectsalreadyatFIDorbeyond)accountfor20%ofinvestmentsinNorthAmericacomparedtoonly7%fortherestoftheworld.Thiscouldbeduetothefactthatalmostthree-quartersofNorthAmericanprojectsarelow-carbonprojects,comparedto20%acrosstherestoftheworld.Thevaluechainforlow-carbonhydrogenproductionismorematurethanforrenewables,andtheprojectstendtobelarger.Additionally,thedeploymentprocessisfasterwhenretrofittingexistingsteammethanereforming(SMR)facilities.Thepasteightmonthshaveseenanincreaseofmorethan50%intotalannouncedinvestments.AlmosthalfoftheinvestmentsinNorthAmericaareconsideredmature(eitherintheplanningstageoralreadycommitted),havinggrownbyabout20%inthepasteightmonthstoUSD20billion.Estimatedinvestmentsinprojectsinanearlyannouncementstage(i.e.,beforethedetailedplanningandengineeringstage)havemorethandoubled,fromUSD12billiontoUSD25billion.ThisislikelydrivenbythepassageoftheIRAinAugust2022,spurringnewannouncementsthatarestillinrelativelyearlystages.Asmomentumaroundprojectannouncementsaccelerates,challengestodeployingatscaleremainfor–andinsomecasesareexacerbatedby–therapidlygrowinghydrogenindustry.Keypotentialchallengeswillbeexploredinthecomingpages.Exhibit14investmentgrowthinthepast8months+55%growthin“mature”investmentsinthepast8months+20%ofinvestmentsfocusonsupply80%981112259NorthAmericadirecthydrogeninvestmentsthrough2030,$BSource:Project&Investmenttracker,asofJan31,2023MayAnnouncedPlanningCommittedFeasibilityorFEEDstudiesFID,underconstruction,operationalJan20222023MayJan20222023MayJan20222023$20Bmatureinvestments$46BannouncedinvestmentsEnduseandofftakeInfrastructureProductionandsupply21HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyAnnouncedrenewablehydrogenmomentumhasacceleratedsincethepassageoftheIRACompanieshaveannouncedprojectsthatwouldproduceupto9.3Mtp.a.ofcleanhydrogencapacityby2030inNorthAmerica,anincreaseofabout3.8Mtoverthelasteightmonths.Thoughmorethan70%oftheannouncedcapacityisfromlow-carbonhydrogen,renewablehydrogencapacityhasgrownby2.5timessinceMay2022.Thiscould,inpart,beduetotheIRAproductiontaxcredit(PTC),whichscalesbasedonthecarbonintensityofthehydrogenproduced,favoringrenewablehydrogenproduction.Since2021,thetotalannouncedproductioncapacityhasgrown1.5timesfasterinNorthAmericacomparedtotherestoftheworld.FurtheraccelerationisexpectedinthecomingyearsasmanydevelopersawaittheannouncementoftheIRAimplementationregulationsbeforefinalizinginvestmentdecisions.3.7Mtp.a.ofannouncedcleanhydrogenproductioncapacityhasnotyetreacheddetailedplanningstages,whereas3.6Mtp.a.isinplanningstagesundergoingfeasibilityorFEEDstudies,and2Mtp.a.(about20%oftotalannouncedcapacity)haspassedFID,isunderconstruction,oroperational.NorthAmericaaccountsfor25%ofthetotalannouncedcleanhydrogensupplyvolumesglobally,withthehighestvolumeofannouncedproductioncapacityinEurope(about13Mtp.a.).NorthAmericaaccountsforthelargestvolumeofannouncedlow-carbonhydrogenproductioncapacityintheworld(about55%oftotallow-carbonhydrogencapacity),whileEuropehasthelargestvolumeofannouncedrenewablehydrogenproductioncapacity(8.7Mtp.a.,accountingfor35%).Exhibit15Planning2Committed3Announced1NorthAmericacleanhydrogenproductioncapacityannouncedby2030,Mtp.a.Source:Project&Investmenttracker,asofJan31,20231.Preliminarystudiesoratpressannouncementstage2.FeasibilitystudiesoratFEEDstage3.Finalinvestmentdecisionhasbeenmade,underconstruction,commissioned,oroperationalshareofannouncedlow-carbonH2capacityinNorthAmericacomparedto20%intherestoftheworldRenewableLow-carbonRenewableLow-carbonRenewableOctober2021May2022January2023Low-carbon>70%announcedrenewableH2capacitygrowthinthepast8months3.5x1.00.10.11.00.91.20.40.20.11.61.92.51.11.10.21.82.50.322HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyTheIRAcouldhelpsignificantlyacceleratecleanhydrogenintheUSTheIRAwassignedintolawinAugust2022,withthegoalofloweringUScarbonemissionsbytheendofthisdecade.OverUSD400billionoffundinginclimatespendinghasbeenbudgetedtowardtheenergyindustry,environmentaljustice,cleantechmanufacturing,landandagriculture,andtransportation,withtheenergyindustryreceivingthebiggestshare.TheIRAisexpectedtohavebroadandsignificantimpactsonexistingenergytransitionsectorssuchasrenewables,batteries,andexistingnuclearpower,aswellasonearlier-stagesectorssuchascarboncapture,cleanhydrogen,andotherlow-carbonfuels(e.g.,SAF).HydrogenandhydrogenderivativescouldbenefitfromtheIRAthroughamixofincentivessuchastheextensionandexpansionofsolarandwindpowerincentives,theintroductionofataxcreditforhydrogenproduction,theexpansionoftaxcreditsforcarboncapture,utilization,andstorage(CCUS),andincentivesforSAFandothercleanfuels.Asofthetimeofpublication,manykeydetailsonhowthelegislationwillbeimplementedhavenotyetbeenreleasedfromtheIRS.TheIRAhydrogenproductiontaxcreditiscalculatedbasedonthecarbonintensityofthehydrogen.TocapturethefullUSD3perkgcredit,thecarbonintensityofproducedhydrogenmustbelowerthan0.45tonsofCO2pertonofhydrogen.RenewablehydrogenpoweredbyrenewablepowercangetthefullUSD3.0perkg;low-carbonhydrogenwouldrequirecarbonsequestrationtobelow4tonsofCO2pertonofhydrogentoreceivetheminimumcreditofUSD0.6perkgwithvariationbasedonupstreamemissions.RenewablehydrogencouldbenefitfromtheIRA’srenewablePTCinadditiontothehydrogenPTC.Low-carbonhydrogencouldinsteadbenefitfromexpanded45QincentivesforCCUS;however,the45VhydrogenPTCand45Qarenotstackable,i.e.,alow-carbonhydrogenprojectcannotreceiveboth.Exhibit16KeyIRAprovisionsforhydrogenandhydrogenderivativesDetailsofthehydrogenPTC1,2HydrogenPTC/45V:Low-carbonhydrogencannotbeeligibleforbothcarboncapture45Qcreditandhydrogen45Vupto$3/kgH2Disclaimer:IntendedtoprovideinsightbasedoncurrentlyavailableinformationforconsiderationandnotspecificadviceWhowillqualify?•Projectsthatemit<4tCO2/tH2(withmax$3/kgcreditavailabletofacilities<0.45tCO2/tH2)•ProjectsthatarebasedintheUS•Greenfieldprojectsputintoservicebefore2033•Facilitiesthatdonotclaim45QorcleanfueltaxcreditsWhatquestionsremain?•CanproducerspowerwithgridelectricitywithRECstoreduceCI?•WhatisCIcalculationmethodologyandvalidationprocess?•Aretherefurtherdetailsonrulesrelatedtoprevailingwagerateandapprenticeshiprequirements?•CanCCUSandcleanfuelscreditsatseparatefacilitiesbestacked(e.g.,canH2Co.selltoSAFCo.andeachclaimH2andSAFcredits,respectively)?Howwillcreditswork?•Basedonthefulllifecycle,GHGemissionscalculatedwithGREETmodel3•Eligiblefor10yearsfromtheCODdate,with5yearsofdirectpay,5yearsoftaxcredits•CanbestackedwithrenewablePTC•NocaponthecreditprogramCCUS45Qcredit4:DAC:Pointsource:utilized-sequestered$130-180/tCO2$60-85/tCO2Cleanfuels:upto$1/galbaseupto$1.75/galforSAFRenewablePTC2:$26/MWhSource:USInflationReductionActof20221.DoEhasupto1yeartoestablishfinalrulemaking2.Projectsthatdonotpayprevailingwageandapprenticeshiplose80%ofcreditvalue3.<0.45tCO2/tH2=$3/kg;0.45–1.5=$1/kg;1.5–2.5=$0.75/kg;2.5–4=$0.6/kg4.Low-carbonhydrogencanreceivethe45Qcreditregardlessofcarbonintensityofthehydrogen23HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyWiththeIRA,renewablehydrogencouldbecomecostcompetitivesoonerTheIRAwillimproverenewableandlow-carbonhydrogeneconomicsinthecomingyears.TheIRA’shydrogenproductiontaxcreditofuptoUSD3perkghydrogenforthefirsttenyearsofaproject’soperationsreducesthelevelizedcostofhydrogenforcleanhydrogenbyUSD0.5to1.8perkgintheUSoverthelifetimeoftheproject.TherenewablePTCcouldpotentiallydecreasethecostfurtherbyuptoUSD0.80perkgofhydrogen.Asthemarketisrapidlyevolving,thesenumbersarelikelytoshiftquicklyinthecomingyears.ManyfactorsthatvarybyprojectwillimpactLCOH.Forexample,exactvaluecaptureislikelysituationallydependentbasedonvaluechaincontrolpoints.Forexample,ifelectrolyzerdemandfromannouncedprojectsoutstripsmanufacturingcapacity,therewouldbeashortageofelectrolyzersallowingOEMstoextracthighermargins,whichwoulddriveupthecostofhydrogenasproduced.RetrofittingexistingSMRplantswithcarboncaptureandsequestrationcouldmakelow-carbonhydrogencostcompetitivewithgrayhydrogentoday.Manylow-carbonhydrogenproducersarepursuingthe45Q,asopposedto45V,tocapturevaluefromIRAincentivesastheyawaitclarityonhowcarbonemissionswillbecalculatedforthe45VPTC.IRAincentivescouldmakecleanhydrogeneconomicformanyofftakersfivetotenyearsearlier:—Heavy-dutyhydrogenfuelcelltruckscouldreachbreakevenwithnewdieselvehiclesinthenextseveralyears.—Conventionalhydrogenusestoday(e.g.,ammoniaproduction,refineries)couldbecomecompetitivewithincomingyearsinmostpartsofthecountry.—IfIRAcreditscanbecombined(hydrogenPTC,carboncredits,andcleanfuelscredits),theIRAcouldhelptheUSgovernmentonitspathtowardsachievingatargetof3billiongallonsofSAF–equivalentto10%oftheUS’sjetfuelconsumption.However,beyondthepureeconomics,manyenduserscontinuetofacechallengesthatpreventthemfromtransitioningtocleanhydrogen–suchasalackofmidstreaminfrastructureforcost-effectivehydrogendeliveryandtheneedtoshifttheiroperations–forexample,forhydrogentrucking.Dependingonhowtheprovisionsareimplemented,theIRA’s45V,45D(renewable),and45QincentivescouldmaketheUSamongthemostcompetitiveproductionregionforcleanhydrogen.Globalhydrogentradedynamicscouldbesignificantlyaltered,thoughthiswilldependonevolvingpolicy.OthercountriesarelikelytopasspoliciesinresponsetotheIRA.CanadahasinstitutedpoliciesthatcouldaccelerateCanada’scompetitivenessasahydrogen-producingregion,includinganinvestmenttaxcredit(ITC)of15%to40%forhydrogenproduction–varyingbasedonthehydrogen’scarbonintensity,aCCUSITCof50%applicabletoCCSequipment–andcleantechITCof30%forcleanelectricitygenerationsystems(e.g.,solar,hydro,nuclear,andwind).Themajorityofthesecreditsbegintobephasedoutby2035.TheseincentiveswouldcomplementCanada’sexistingcarbonpricingandcreditsystems.Exhibit17Source:USInflationReductionActof2022;Canada,Budget202324HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit182022Totalrenewabledeployedtoday304020502022242620282309001,7002,9001.GlobalhydrogenflowmodeladjustedbasedonIRAimpact2.Assumingeachnewfactoryrequires3yearstoreachpeakperformanceformissingproduction;assumingelectrolyzerpurchasinghappens2yearsaheadofCOD3.Thiselectrolyzercapacityistomeetthedemandforoperationalelectrolysis2yearslaterAcceleraterenewabledeploymentScaleupelectrolyzermanufacturingcapacityEstimatedrequiredrenewablesdeploymentinUS,1GWUSelectrolyzermanufacturingcapacity2GW/yearRenewablesforH2productionAdditionalproductioncapacitylikelyrequiredtomeet2030renewableH2demandfornetzero20501PubliclyannouncedcapacityRenewablesfornetzero,excludingrenewablesneededforH2SupplyStandardizeandacceleratepermittingprocesses,e.g.,forrenewables,classVIwells,electrolyzersDevelopindustrystandards,e.g.,hydrogensafetystandardandtransferprotocolsCreateafinan-cingblueprintRetainandreskillworkforceToenableinfrastructurescale-up:150300650CumulativeUSelectrolyzertobeprocured,3GW12188614651525Significantproductionscale-upisrequiredtobringthecostdownandenabletheshifttocleanhydrogenproductionDespiteregulatorymomentum,producingcleanhydrogenismoreexpensivetodaythanitwastwoyearsagointheUS,whichispotentiallydrivenbyanincreaseinnationalaveragePPA(powerpurchaseagreements)pricesfromUSD27perMWhin2020toUSD45perMWhin2022,EPCcapacityshortagesandincreasinglaborcostsbyupto20%,aswellasatwo-tofourfoldincreaseingasprice.Forcoststodecreaseinthecomingyearsandasustainable,competitivecleanhydrogenecosystemtodevelop,furthervaluechainscale-upisrequired.Renewablehydrogenisprojectedtoaccountforaboutone-thirdofthetotalhydrogenproductionintheUSby2030andincreasetohalfoftheproductionby2050.10Enablingthiswouldrequireasignificantliftoffonbothrenewabledeploymentandelectrolyzermanufacturingcapacity,amongothers:—MeetingtheUSgoalofanet-zerogridby2035andanet-zeroeconomyby2050isestimatedtorequirereaching900GWofrenewablesin2030whichisonlyachievableatfourtimesthecurrentrenewableinstallationrate.Potentialchallengesforscalingtherenewableindustrywouldprevail,withorwithouthydrogen,sincetherenewablecapacityrequiredforhydrogenproductionaccountsfor15%to20%oftotalrenewablesneededin2030and2050,respectively.Nevertheless,hydrogenproducerscanstrategicallyplanfortheirrenewablepower.Forexample,theycouldbenefitfromco-locatingwithrenewableprojectsstrugglingtoconnecttotheelectricitygrid–makinguseofotherwisestrandedrenewables.Also,largehydrogenproducerscanunlockscalebenefits,potentiallyviapartnershipswithrenewableproducers,tosecurevolumes.—TotalelectrolyzermanufacturingcapacityannouncedintheUSin2028is8GWacross10FromGlobalHydrogenFlowsperspectivefromOctober2022,updatedtoincorporatetheimpactoftheIRA5OEMs.Tomeettherequiredrenewablehydrogendemandfornetzeroin2030,14GWofadditionalelectrolyzerproductioncapacityisestimatedtoberequiredby2028.Thegapbetweenthedemandandannouncedcapacityhasledtoashort-termsupplyshortagewhilethemanufacturingcapacityscalesup.SincetheIRAcurrentlydoesnotrequiredomesticallymanufacturedelectrolyzers,partofelectrolyzerdemandwilllikelybeimported.However,aglobalelectrolyzershortageisnotunlikelyifrenewablehydrogenprojectsaccelerate.Increasingelectrolysiscapacitynecessitatesscale-upofelectrolyzermanufacturing,maturityofsupplychains,anddevelopmentandenforcementofindustrystandardsforhydrogensafetyandtransportation.Inaddition,enablingproductionscale-uplikelyrequires:1.AskilledworkforceformanufacturingandEPCsthatcaninstallelectrolyzers,renewables,andlow-carbonhydrogenproductionequipment(e.g.,CCUS).Workforcedevelopmentcouldbeacceleratedbytargetedtrainingprogramsandfacilitatingjobtransitionsfromadjacentindustries(e.g.,fromfossil-fuel-basedsectors).2.Standardizationandaccelerationofpermittingprocesses,e.g.,forrenewables,electrolyzers,classVIwellsforCO2injections,facilityretrofits/modifications,andpipelines.Today,permittingprocesscantakemultipleyears.Adequatededicatedstaffforhandlingpermitrequestsandguidingthepermitprocesses,aswellasstandardizationofprocessesacrossagenciesandjurisdictionscouldhelpdecreasetheprocesstime.3.Afinancialblueprintforinvestorscoulddecreaseriskandacceleratedeployment.Thiscouldincludeeducationforinvestorsandlendersonhydrogenprojecteconomics,risks,regulations,andofftakedynamics,aswellasfinancialmodelsforhydrogenprojects–ideallysupportedbyassumptionsandproofpointsfromdeployedhydrogenprojects.25HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyExhibit19MidstreaminfrastructuretotransporthydrogendoesnotexistatscaletodayLarge-scale,cost-effectivetransportofhydrogencouldrequireahydrogenpipelinenetworkcomplementedbytrucking-basedtransportfordistributedenduses(e.g.,hydrogenrefuelingstations).Withonly1,600milesofhydrogenpipelinesinplacetoday,theUShydrogenindustrywouldrelyontruck-baseddeliverydespitehigherunitcostsfornewusesoutsideofindustrialclusterswherehydrogenpipelinescurrentlyexist.TruckingcouldaddmorethanUSD1perkgtothecostofdeliveredhydrogencomparedtopipelinedelivery(costrangewillvarybasedondistance,capacity,equipmentutilization,andhydrogenform,e.g.,gaseousversusliquid).Projectionsshow60%ofUShydrogenproductionwillflowthroughpipelinesin2050.11However,thereareonly1,600milesofhydrogenpipelinesintheUStoday(primarilyconcentratedinmajorindustrialclustersintheGulfCoastandCalifornia)–incontrastto500,000milesofnaturalgastransmissionpipelinestomovenaturalgasfromproducingregionstodemandcentersacrossthecountry.Buildingthelong-termnetworktoconnectpotentialhydrogenclusterswithapproximatelytennorth-southpipelinesandfiveeast-westpipelinescouldrequireanestimatedUSD100billion.InvestmentsofonlyUSD3billioninhydrogeninfrastructureprojectsuntil2030havebeenannouncedinNorthAmericasofar.Arapidramp-upisneededtoenableapipelinenetwork.Pipelinestodistributehydrogencouldbedevelopedfrom:1.Retrofittingtheexistingnaturalgas11FromGlobalHydrogenFlowsreportpipeline,whichcouldrequirebothinfrastructureupgradestoenabletheexistingnaturalgaspipelinetoaccommodatehydrogenmolecules,andthephasingoutofexistingnaturalgastransportinordertousethepipelinesforhydrogen.TheUS–unlikeEurope–doesnothavemanyplaceswithparallelnaturalgaspipelinesrunningthesameroutes,makingpipelineretrofitsalessviableoptionformostoftheUSascomparedtoEurope.2.BuildingnewpipelinesmaybemorefeasiblethanretrofitsintheUS.However,newpipelinesfacetheirownpotentialchallenges–primarilypermitting.Interstatepipelinescomplicatetheprocessofobtainingrightsofway,makingpermittingamulti-yearprocess.Inthemeantime,producersaredevelopingalternativessuchasco-locationofendusesandproductionfacilitiesandtruckingforhydrogendistribution,particularlytosmallerenduseslikerefuelingstationsandsmallindustrials:—Producers,offtakers,andtransporterscancoordinatetoaggregateandconnectregionalsupplyanddemand.TheUSDepartmentofEnergy’shydrogenhubfundingismobilizingtheseeffortsacrossthecountry.—Addingtwinpipelinestoexistingnaturalgaspipelinescouldacceleratetheprocessinsomecasesbyutilizingexistingpipelines’rightofway.—Interagencyandinterjurisdictioncoordinationtostreamlinethepermittingprocessandcreateconsistencyacrossregionscouldhelptoreducetimelines.Source:NationalRenewableEnergyLaboratory;EnergyInformationAdministrationInfraH2productionunitH2pipelineNaturalgaspipelinemilesofexistingtransmissionnaturalgaspipelines500,000milesofexistingH2pipelines1,600AggregateregionaldemandRetrofitnaturalgaspipelinesAddtwinlinestoexistingnaturalgaspipelinesStreamlinepermittingTohelpenableinfrastructurescale-up:26HydrogenInsightsMay2023HydrogenCouncil,McKinsey&CompanyTheIRAhelpskickstarttheUShydrogenecosystem,however,demanduptakeislikelyneededforasustainableecosystembeyondIRASecuringcommittedofftakeatscaleisessentialforasustainablehydrogenecosystem.Today,investmentsinproductionoutpaceofftake,andmanyofftakersarehesitanttosignlong-termcontracts.Inpart,thisisbecausecostscouldstillbeapotentialchallengeoncetheIRAsunsetsafter2032.Despitecontinuedtechnologyinnovation,scale-up,andmaturityofmanufacturingandsupplychains,withouttheIRAincentives,renewablehydrogenisstillexpectedtobemoreexpensivethangrayhydrogen.Inaddition,offtakershesitatetocommittocleanhydrogencontractswithoutcertaintyofreliable,long-termsupply.Toacceleratedemanduptake,theindustrylikelyneedsmechanismsthatgiveofftakerscertaintyabouttheavailabilityandaffordabilityofcleanhydrogenovertime.Forexample,contractscouldmitigaterisksforofftakers,andpoliciescouldsupportaliquidmarkettohelpcreatecertaintyforbothsuppliersandofftakers.AnexampleofthisisH2GlobalinGermany–asupportschemecreatedbythegovernmenttosupportproducersandofftakersbybridgingthedifferencebetweenthecostofcleanproductionandthemarketpricewithpublicfunding.Thoughthecostforcleanhydrogenwouldnotbecompetitivewithgray,tostayontrackfortheUS’sdecarbonizationgoals,ashifttowardcleanhydrogenanditsderivativesislikelyneeded.Codes,standards,andregulationsthatrequireemissionsreductionsandincentivesthatrewardlowercarbonintensityproductsandservicescouldcreatelong-termdemandforcleanhydrogen.Withlowercostachievedforrenewablehydrogeninthenexttenyears,stemmingfromthescale-upandmaturityofmanufacturingandsupplychains,cleanhydrogencouldbecomeaviabledecarbonizationoptionformanysectors.Exhibit20EnduseMotivatedecarbonizationpotentiallywithregulations,standards,orincentivesFacilitatecertaintyofavailableandaffordablesupplyTohelpacceleratedemand:Source:BundesministeriumfürWirtschaftundKlimaschutz
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