Green Hydrogen Market

Among the factors pushing the green hydrogen market with the greatest strength, decarbonization targets and net-zero obligations rank highest, because they foster regulatory pressure, long-term demand certainty, and clean energy solutions investment momentum that is quite strong. More than 90 countries, which account for over 80% of the world’s economic output, have already set or are in the process of setting net-zero targets for the years 2050 to 2070, and a lot of them point to green hydrogen as being crucial for the decarbonization of those areas that cannot be electrified. The most challenging sectors, such as steel, oil refining, ammonia production, maritime transport, and heavy-duty vehicles, which are responsible for approximately 30% of the world's CO2 emissions, can be replaced by green hydrogen, considered one of the few viable alternatives to fossil-based feedstocks and fuels. Meanwhile, the growing carbon pricing, such as the EU ETS, where carbon prices are generally between USD 65-90/ton, has made grey hydrogen more expensive and is closing the cost gap with renewable hydrogen. Furthermore, corporate climate pledges have created a demand pull, which is even more pronounced in the case of over 4,000 companies that have either net-zero or science-based targets in place. Consequently, their operations, particularly with regard to industrial processes and supply chains, will require the use of low-carbon hydrogen. Along with that, various governments offer tax credits, such as the U.S. IRA 45V tax credit, the EU Hydrogen Bank, and India’s National Green Hydrogen Mission, which are among the most notable examples aimed at supporting this transition. All in all, these factors and policies make green hydrogen a pillar of the world’s decarbonization efforts.

The high production costs of renewable hydrogen are a major factor that is limiting the market for its green variety. The most important cost factor is the electricity price, which alone represents in the range of 50% to 70% of the total cost of green hydrogen production. While the prices of renewable energy are declining, they are still not low enough in many places to challenge grey hydrogen, which is produced very cheaply from natural gas with no carbon capture involved. Consequently, the price of green hydrogen is typically between USD 4 and USD 7 per kilogram, while grey hydrogen costs between USD 1 and USD 2 per kilogram. Additionally, the electrolyzer systems required for water splitting into hydrogen and oxygen remain costly, with a capital cost ranging from USD 900 to USD 1,500 per kilowatt for PEM systems and from USD 700 to USD 1,000 per kilowatt for alkaline systems. The factors that lead to more expensive electrolyzer production include limited production capacity and reliance on essential minerals, such as iridium and platinum, for PEM electrolyzer manufacture. In addition, the low utilization rates resulting from the unreliability of solar and wind power cause a drop in total efficiencies, so the electrolyzers are only used at a fraction of their capacity, which in turn increases the cost of hydrogen per unit output. The expensive methods of producing hydrogen act as a barrier to the investment decision-making process, making it difficult for companies to compete with fossil fuels, and the slow growth of green hydrogen is hindered by infrastructure development across various sectors.

The rise of hydrogen hubs and industrial clusters has a significant impact on the green hydrogen market; these ecosystems, which work together, lower production costs, unite demand, and fast-track the marketing of hydrogen technologies on a large scale. Hydrogen hubs connect producers, consumers, and infrastructure developers in one area, thereby sharing pipelines, storage, renewable-energy supply, and offtake agreements, which will considerably enhance the project’s economics. In place of independent factories, hubs allow for the utilization of scale, which results in the price of green hydrogen being reduced to the range of USD 4-7/kg, a typical rate, and moving towards more competitive rates as production increases to hundreds of megawatts or gigawatts. The governments are backing this model very strongly. To illustrate, the United States Hydrogen Hubs Program has allocated USD 7 billion to establish seven regional hydrogen hubs, each of which is expected to produce up to 1 million tons of clean hydrogen annually. Likewise, the European Hydrogen Backbone initiative aims to establish hydrogen pipelines with a length of 28,000 km by 2030, thereby directly linking industrial clusters across Europe. In the Middle East, Saudi Arabia’s NEOM megaproject, among others, will combine megawatt-scale electrolysis plants with solar/wind and downstream ammonia production, making the region a potential major exporter worldwide. Such hubs will also group the demand originating from steel, chemical, refining, shipping, and mobility industries, and thus indirectly increase the financial viability through long-term offtake agreements. The spread of the hub model in various nations will lead to the global green hydrogen scenario changing quickly due to the fact that the risk of investment will be shared and the infra structure developed in a coordinated manner.

The intricacies associated with hydrogen storage and transport emerge as the most significant barrier to the market of green hydrogen, as, due to the nature of its physical and chemical properties, hydrogen is very challenging and expensive to manage compared to traditional fuels. Hydrogen possesses a very low volumetric energy density, which is about one-third as much as natural gas and nearly 1/10th as much as gasoline, and this makes it necessary to either store it at very high pressures (350–700 bar), liquefy it at -253°C, or turn it into derivatives like ammonia or methanol. Technically, all of these processes are very demanding and add significantly to the cost of the hydrogen market. The reason behind this is that, for instance, compressing hydrogen to 700 bar consumes a huge amount of energy, and the tanks specially designed for that pressure are costly and heavy. Hydrogen that has been liquefied faces even more serious hurdles: besides the cryogenic cooling, which is very energy-intensive and accounts for 30–40% of the total energy content of hydrogen, boil-off losses occur because hydrogen's boiling point is extremely low. The same applies to transporting hydrogen via pipelines; boiling off existing natural gas pipelines cannot be done at such a high mixing level, as hydrogen causes the metal to lose its toughness, which in turn leads to the formation of cracks and leaks, thereby increasing the risk. The cost of laying down the pipelines specifically for hydrogen is 2-3 times that of natural gas pipelines. Moreover, the hydrogen atoms are the smallest among all the gases, thus more likely to escape and necessitate advanced detection and safety systems. The combination of these difficulties pushes up the overall cost of infrastructure, hampers the advancement of large-scale deployment, and undermines the competitiveness of green hydrogen against other low-carbon alternatives.