‘Everywhere but China’ | IEA revises down forecast for hydrogen-linked renewables
The International Energy Agency (IEA) has drastically cut down its estimates for how much new wind and solar will be built to power hydrogen production over the next five years.
In its new report published today, Renewables 2023: Analysis and forecast to 2028, the IEA projects that 45GW of new renewable energy capacity for green H2 will be built by the end of 2028, or just 7% of what has been announced.
Last year’s edition had predicted 50GW of hydrogen-linked renewables would be installed by the end of 2027. The agency told Hydrogen Insight that it had originally estimated 48.8GW installed between 2023 and 2028, which has now fallen 35% to 31.7GW in its current analysis.
Even in an accelerated case — where further government support kicks in to bring projects to financial close — the IEA projects 85GW by the end of 2028, compared to 90GW in 2027 predicted in last year’s report.
“We have revised down our forecasts for all regions except China,” the IEA notes in its report, with the Asian nation expected to account for 70% of installations in the coming year.
It adds: “The main reason is the slow pace of bringing planned projects to final investment decisions due to a lack of off-takers and the impact of higher prices on production costs. The development of an international hydrogen market is a key uncertainty affecting the forecast, particularly for markets that have limited domestic demand for hydrogen.”
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IEA estimates 360GW of announced projects up to 2030, but only 12GW had reached a final investment decision or started construction.
The agency also notes that “project development in several markets has been affected by delays in electrolyser shipments due to backlogs in manufacturing plant orders and, in some cases, by malfunctioning equipment”.
However, this also means that almost every region that has set out H2 targets by 2030 is off track. The IEA’s figures suggest that even in its accelerated case, the EU, US, India, Chile, the UAE, and other potential exporters would all fail to install enough renewable energy to power their targeted hydrogen production.
“China is the only market where the pace of growth is likely to come within reach of announced goals,” the report notes.
It predicts that 24GW of renewable energy capacity will be installed for hydrogen production by 2028, “far above the estimated 1GW needed” to power the central government’s ambition for 100,000-200,000 tonnes/year of renewable H2 by 2025.
The agency also points out that this forecast would also be in line with the capacity needed to meet targets set out by China’s provinces for 2025 and 2030, which cumulatively exceed the national government’s goal.
“Early electrolyser deployment in this country will be mostly from state-owned enterprises developing projects to meet provincial and national hydrogen production targets, estimated to trigger 2GW of renewable electricity capacity growth in 2023 and 4GW in 2024,” according to the report.
However, while the IEA forecasts China will install 6GW of new wind and solar by 2028, it anticipates a slowdown due to “the risk of uncertainty over hydrogen demand”.
While the Asian nation will remain the largest single market up to 2028, the agency predicts that by that year, 50% of new renewable energy capacity installed for hydrogen will be built in the rest of the world, as export-focused projects such as Saudi Arabia’s Neom green ammonia complex start to be commissioned in the latter half of the decade.
However, the IEA notes that “the largest downward revision is for the Latin America region, due to slower than expected development of project pipelines in Chile and Brazil”.
It adds that “the forecast is also less optimistic for Asia-Pacific, mostly due to uncertainty in Australia over the future of stalled projects”, citing plans for projects in Tasmania’s Bell Bay — where energy companies Fortescue, Woodside and Iberdrola have all proposed building green hydrogen facilities — that have been shelved “due to high water and transmission congestion”.
Meanwhile, although the EU had passed the first end-use mandatory targets for renewable hydrogen, with 42% used in industry by 2030 and at least 1% of transport fuel, the IEA warns that there is still too much uncertainty around how each individual member state will set policies to meet these goals for developers to build out new capacity before 2028.
“In the United States, faster growth could happen if tax incentives under the IRA [Inflation Reduction Act] make renewable hydrogen more economically attractive than its alternatives for existing uses, and in Korea, additional projects could come online from its new auctions for clean-hydrogen electricity,” the report adds.
The Biden administration has recently released draft guidance for the 45V clean hydrogen production tax credit, which include principles around additionality, temporal matching, and geographical correlation with the power source in calculations for lifecycle greenhouse gas emissions.
These are expected to swing the balance for hydrogen to be made using renewable electricity — rather than power sourced off the grid or from nuclear reactors — particularly since upstream emissions from blue H2 made using fossil gas with carbon capture could prevent these producers from accessing the 45V.
South Korea meanwhile is due to open its power auctions for clean hydrogen from 2027, although it is unclear whether this will allow imported volumes or blue H2 — neither of which would incentivise new wind or solar to be installed within the country.
