As the World Electrolysis Congress is in full swing for its third edition in Dusseldorf, Germany, bringing together industry players to discuss the production, scaling and operation of electrolysers, it is interesting to take stock of the latest trends around this key technology, especially in Europe.
According to the IEA, 2023 was a year of strong acceleration for electrolytic hydrogen since the installed capacity of electrolysers (dedicated to the production of hydrogen) reached 1.3 GW. The increase was significant compared to 2022 since the installed capacity of 600 MW in 2023 was multiplied by 2.5 in 2023 compared to the previous year, equivalent to the total installed capacity cumulatively in 2022.
Despite this positive dynamic, which could continue in the years to come, numerous obstacles are slowing down this increase in demand, especially in Europe.
While it represented 10% of the world's installed capacity in 2020, China now represents 50% thanks to the rapid scale-up of electrolysis projects. Today, it concentrates 6 of the largest operational projects. In other regions of the world, electrolyser installations are growing steadily; none have seen growth similar to China. Europe, although the leader in 2020 (1/3 of installed capacity) added only 70 MW in 2023 compared to 451 MW in China, thus coming second in terms of cumulative capacity.
In addition to regulatory obligations that take time to be put in place, the costs of electrolysis projects are one of the factors that explain this difference between Europe and China. According to BNEF, the costs of installing electrolysers are higher than initially expected, which puts a number of projects at risk. On average, the total estimated cost of building an alkaline electrolysis system has increased by 46 to 65% over the past two years. This increase is due to inflation and slower than expected market developments.
The cost difference between China and Europe for these systems has also increased. The most expensive alkaline electrolysis systems cost between 2,000 and 3,000 dollars per kilowatt (kW) in Europe and the United States, compared to 480 and 720 dollars per kW for the cheapest in China (total CAPEX). On average, engineering and construction add more than 1000€/kW in addition to the cost of the electrolyser in Europe and the USA compared to 350€/kW in China. This gap is due to a cheaper workforce and a more mature supply chain in China, to volume effects and to the cost of connecting to the network, but also to the use of different materials for the modules and to a more flexible definition of performance (stability over time not guaranteed).
For the IEA, the CAPEX hypothesis in 2019 was $900/kW as a global average, in 2023 it was substantially revalued at $1640/kW as a global average for 2022 projects, and $1,070/kW for projects in China (these figures being compatible with the BNEF report, which has more recent data).
Finally, everywhere in the world, including China, electrolysis systems encounter problems of reliability, safety, efficiency and flexibility, with the most striking example being the largest green hydrogen project in the world (260 MW project in Kuqa, China) operating at only 20% of its nominal capacity (260 MW project in Kuqa, China) operating at only 20% of its nominal capacity. This situation puts the profitability of projects at risk, which chills investors.
It should be noted, however, that the projects currently being developed are still on often modest or intermediate scales (a few tens of MW, rarely more than 100 MW for projects that have reached the final investment decision) and those on which the sector has industrial setbacks rather around 10-100kW and without operating with flexible renewable energies.
These technical problems could be resolved within five years, but it is clear that the European objectives of 6 GW of electrolyser capacity installed in 2024 and 100 GW in 2030 (in order to produce 10 Mt of green hydrogen) are likely to be very complicated to meet.
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