Can a viable industry emerge from the hydrogen shakeout?
HYDROGEN IS THE most abundant element in the universe and a vast source of clean fuel. For investors, it is an equally rich source of hype. As parts of the world get a bit more serious about tackling climate change, hydrogen has emerged as an important part of global decarbonisation efforts. Over 1,000 hydrogen projects are under way worldwide, more than 350 of which have been announced in the past year. They are expected to result in some $320bn-worth of investments by 2030. Venture capitalists and buy-out barons poured $8bn into hydrogen ventures last year, up from just over $2bn in 2020 (see chart 1). On July 7th Thyssenkrupp Nucera, a pioneering manufacturer of electrolysers, giant machines used to make hydrogen by stripping it from oxygen in water, is expected to list in an initial public offering that could value the firm at nearly $3bn. The IPO is backed by a Saudi sovereign-wealth fund and BNP Paribas, a French bank.
Cleaning things up is, however, expensive—and getting more so as rising interest rates raise capital-intensive hydrogen projects’ costs. The difficulties in sourcing critical minerals and other vital components have led many firms to fall behind on expanding capacity. Getting enough renewable power is another bottleneck. Benoît Potier, chairman of Air Liquide, a French industrial-gas giant, says his firm’s planned 200 megawatt (MW) mega-project for making green hydrogen in Normandy is all set to go but cannot secure a large-enough power-purchase agreement for renewables (though a pink version may go ahead by tapping into France’s plentiful nuclear power).
Bernd Heid, a hydrogen consultant at McKinsey, reckons that “optimism bias” had led promoters to issue over-enthusiastic production targets based on a cost of capital of 8-10%, which now looks rosy. Rising capital costs have prompted Mr Heid to revise the unsubsidised production costs for making hydrogen from renewables up…
2023-07-03 15:01:15
Link from www.economist.com
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