Hydrogen electrolyzer OEMs have downgraded their capacity projections, according to Hydrogen Insight. This is the latest sign that the industry’s reality will not live up the level of hydrogen hype from just a year ago.

Hydrogen Hype in Decline

Over the course of 2023 a series of think pieces, tweets, LinkedIn posts, news reports, and personal communications have gradually thrown more and more cold water on the hydrogen industry, which in 2022 was at fever pitch levels of hype.

Electrolyzer Capacity Projections Down

The news from Hydrogen Insight that electrolyzer manufacturers are cutting capacity projections for the next two years is just the latest in this genre.

Projections have been cut by:

• 19% for 2023
• 26% for 2024

Even so, capacity will increase by:

• 145% to 33.5GW in 2023
• 57% to 52.6GW in 2024

The proximate cause is fewer firm purchase orders than anticipated (but plenty of non-binding purchase agreements), and the ultimate causes include lower than anticipated demand for clean hydrogen, regulatory uncertainty (e.g. 45V), and China’s faltering economy.

Reduced Expectations in Hydrogen Transport

In a further sign of a retrenchment in market sentiment, one of our client’s partners in the freight industry told us that at the Advanced Clean Transportation (ACT) Expo earlier this year, manufacturers sought to lower customer expectations for hydrogen fuel cell trucks and buses, pushed back projected delivery dates, and directed attention to their EV offerings. In contrast, hydrogen trucks and buses took center stage at the 2022 ACT Expo, with some manufacturers claiming deliveries would start in Q3 2023.

Maturation and Growth?

A piece in The Economist published earlier this summer struck a hopeful note, speculating that as hype-driven projects fail to materialize investment and effort will instead be directed toward realistic, feasible projects.

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 upwards by $2 since last year, to between $4.50 and $7 per kilogram.

However, the authors make the case that both corporate and political leaders seem to have more realistic views this year. Hydrogen producers appear to be looking at projects in difficult-to-abate industrial sectors, rather than planning to use hydrogen anywhere and everywhere (i.e. in the natural gas grid for home heating, or for light vehicle transportation).

How the Industry Looks to Us

We’re seeing some similar signs, but the hype is still out there. We regularly hear from development companies, electrolyzer OEMs, and others in the industry looking to put together projects in the Midwest without any clear idea of who the off taker would be. That sounds an awful lot like a bubble.