A wave of new projects shows the continued momentum for low-emissions H₂ despite challenges due to regulatory uncertainties, persistent cost pressures and a lack of incentives to accelerate demand from potential consumers, according to a new IEA report.

The IEA’s annual Global H₂ Review 2024 shows that the number of projects that have reached final investment decision has doubled in the past 12 months, which would increase today’s global production of low-emissions H₂ fivefold by 2030. The total electrolyzer capacity that has reached final investment decision now stands at 20 gigawatts (GW) globally.

If all announced projects are realized worldwide, total production could reach almost 50 MMtpy by the end of this decade. However, this would require the H₂ sector to grow at an unprecedented compound annual growth rate (CAGR) of over 90% between now and 2030, well above the growth experienced by solar PV during its fastest expansion phases.

Of the more than 6 GW of electrolyzer capacity to reach final investment decision in the past year, China accounts for more than 40%. The country’s expertise in mass manufacturing of clean energy technologies, including electrolyzers, means it is home to 60% of global electrolyzer manufacturing capacity, which, at 25 GW per year, is well above the average deployment rate globally.

Despite new project announcements, installed capacity for electrolyzers and low-emissions H₂ volumes remain low as developers wait for clarity on government support before making investments. Uncertainty around demand and regulatory frameworks mean most potential production is still in planning or early-stage development, with some larger projects facing delays or cancellations due to these barriers along with permitting challenges or operational issues.

“The growth in new projects suggests strong investor interest in developing low-emissions H₂ production, which could play a critical role in reducing emissions from industrial sectors such as steel, refining and chemicals,” said IEA Executive Director Fatih Birol. “But for these projects to be a success, low-emissions H₂ producers need buyers. Policymakers and developers must look carefully at the tools for supporting demand creation while also reducing costs and ensuring clear regulations are in place that will support further investment in the sector.”

The report highlights a gap between government goals for production and demand. Production targets set by governments worldwide add up to as much as 43 MMtpy by 2030, but demand targets only total just over a quarter of this, at 11 MMtpy by 2030. Some government policies are already in place to stimulate demand for low-emissions H₂ and H₂-based fuels. Examples, such as carbon contracts for difference and sustainable fuel quotas for aviation and shipping, are triggering action on the industry side, leading to an increase in signed agreements between producers and commercial consumers. However, the progress made in the H₂ sector so far is not sufficient to meet climate goals, the report finds.

As a nascent sector, low-emissions H₂ still faces technology and production cost pressures, with electrolyzers in particular slipping back on some of their past progress due to higher prices and tight supply chains. A continuation of cost reductions relies on technology development, but also optimizing deployment processes and moving to mass manufacturing to achieve economies of scale.

Cost reductions will benefit all projects, but the impact on the competitiveness of individual projects will vary. For example, H₂ production via electrolysis in China could become cheaper than H₂ produced from unabated coal by 2030, assuming the entire global electrolyzer project pipeline of around 520 GW is realized. Industrial hubs – where low-emissions H₂ could replace the existing large demand for H₂ that is currently met by production from unabated fossil fuels – remain an important untapped opportunity by governments to stimulate demand.

This year’s Global H₂ Review shines a spotlight on Latin America as a potential hub for low-emissions H₂ production and use. Many Latin American countries already have H₂ strategies with a strong focus on export opportunities, but near-term opportunities lie mostly in refining and ammonia production for domestic use, which offer immediate large-scale applications. A phased approach to supply in the region, starting with smaller-scale projects, will help mitigate risks, reduce capital investment, and provide valuable experience for scaling up in the future.