The sector-linking hydrogen economy heats up

First envisioned in the 1970s, the hydrogen economy has been held back due to high costs and lack of infrastructure. In recent years, however, momentum has been building as a confluence of factors drives increased interest and investment.

Policymakers are supporting hydrogen as a tool to decarbonize the global economy — a huge challenge, especially in some sectors where hydrogen could perform well, such as heavy transportation. Technology improvements are driving interest: Fuel cells and electrolyzers continue to fall in price, even as renewable feedstock electricity from wind, solar photovoltaic and other sources hits new low costs. As these and other drivers coalesce, corporations have been contributing to the momentum with investments across the hydrogen value chain to stake out positions in this developing market.

Although it has not yet realized its multi-trillion-dollar sector-crossing potential, a version of the hydrogen economy is already upon us, valued at more than $100 billion annually. Most hydrogen is used in industrial processes such as refining, ammonia production and steelmaking. Against this backdrop, two broadly categorized types of disruptive activity are taking place:

• Decarbonization of existing production of grey hydrogen, so named because it is generated from fossil fuels — especially natural gas and coal. Several decarbonization pathways exist, including blue hydrogen (capturing carbon emissions at the point of production) and green power-to-gas (generating hydrogen with an electrolyzer, driven by renewable electricity). Decarbonization is being driven by policy requirements, corporate sustainability initiatives and a growing recognition that the economics of cleaner hydrogen are improving.
• Emerging hydrogen end uses such as transportation, seasonal energy storage and global energy trade. These uses account for much less demand today than industrial uses; however, they are growing more quickly with far greater future potential. These end users demand all types of hydrogen, be it grey, green, blue or a mix.

Against this backdrop of disruption, diverse new stakeholders are joining the hydrogen value chain, forming links between sectors such as transport, electricity and industry. While some see an immediate commercial opportunity, others are wading in more slowly to stake out their place in the future value chain.

For a deeper look, Navigant Research studied the membership of eight of the largest global hydrogen trade associations, as seen in the chart. The membership of these groups encompasses most of the key global players involved in hydrogen. A closer look at the companies in each category and the relative annual revenue earned in each category sheds some light on market developments.

A look across this value chain activity provides unique insights:

• The core of the hydrogen industry is a tiny part of the larger interested ecosystem. The core of the hydrogen industry — the 81 companies in the industrial gas and electrolyzer/fuel cell segments — account for more than one-third of membership but barely 2 percent of revenue of the companies reviewed, or about $117 billion in annual revenue versus more than $5 trillion across all companies. These smaller companies are incumbents in an industry that has not yet seen dramatic growth, with a lot of intellectual property and much to gain from the growing hydrogen economy. These companies will do well to partner across the value chain to help scale up.
• The $3.4 trillion heft of the oil & gas (O&G) and transportation segments will drive the industry. Averaging $53 billion in annual revenue and accounting for nearly 5 percent of global GDP, the 66 O&G and transportation companies are aware of the potential disruption hydrogen can bring to their industries and are chasing its potential growth. From Total and Shell to Toyota and Hyundai, these companies are increasingly active in hydrogen and have long investment horizons, allowing them to invest across the hydrogen value chain with purpose.
• Utilities are underrepresented. Just 18 global gas or electric utilities (including gas and electric distribution system operators and transmission system operators) are members of hydrogen stakeholder organizations. Given the decarbonization hydrogen can bring to gas utilities — and the load growth, grid services and transmission and distribution deferral it could bring to electric utilities — there is room for much more engagement with utilities across the hydrogen value chain. In one example, a group of leading gas transportation companies formed Gas for Climate: A Path to 2050, which has identified innovative pathways to sustainability using renewable gas. This work is supported by Navigant.
• Industrial hydrogen end users are underrepresented. Although some hydrogen end users fit into other segments (such as diversified manufacturers), large sections of industry are not represented — such as the world’s largest steel manufacturers. This underrepresentation signals an opportunity for hydrogen and equipment providers: Many end users may not yet be engaged in opportunities related to the advanced hydrogen economy and may not be aware of the sustainability and other benefits available.

Navigant Research expects significant change in this value chain map in the coming years, with significant membership growth (and increased interest) among utilities, O&G companies and diversified manufacturers.

This latter category — including such current players as Siemens, Mitsubishi and thyssenkrupp — can provide full equipment and service solution offerings from hydrogen production to end use, a trend that is expected to accelerate. Geographically, Navigant Research expects strong hydrogen growth and innovation in longtime advocate nations such as Japan and Germany but with growing expertise in many markets that easily could lay claim to global hydrogen leadership, including Australia, California, China, France, South Korea and the U.K.

Navigant Research’s report, “Emerging Cross Sector Opportunities in the Hydrogen Economy,” includes further assessment of the hydrogen value chain, emerging hydrogen demand centers and a deeper look at power-to-gas deployments worldwide.