Clean hydrogen holds enormous potential to accelerate progress towards Net Zero. Most developed countries have published clean hydrogen targets, and global demand is projected to soar in the next decade. Yet, despite the ambitious targets, the International Energy Agency (IEA) alerts that only 4% of the hydrogen projects planned for 2030 have reached the final investment decision. This slow pace of progress signals that manufacturers are struggling to find clients and secure funding. In light of Bloomberg NEF’s founder Michael Liebreich’s assertion that the hydrogen industry is "missing trillions", this article aims to dive into the basics of hydrogen uses, understand global supply and demand balance, why hydrogen isn't taking off as expected, and determine which of its numerous applications holds the most promise to reach Net Zero goals.
What can we decarbonize with hydrogen?
Often described as the "Swiss Army knife of zero-carbon solutions", hydrogen has a wide range of potential applications. Let's explore these uses across sectors:
Power Sector
Hydrogen can be used for its ability to provide long-term energy storage. This could help renewables integration by addressing the intermittency of wind and solar which produce surplus energy in some periods and fall short in others. For example, during sunny or windy months, excess renewable energy can be used to produce hydrogen through electrolysis. This hydrogen can then be stored in salt caverns, depleted gas fields, or other large-scale facilities, and later converted back into electricity during periods of low renewable generation—such as during winter or overcast days. Storing large amounts of energy for long periods is essential for ensuring grid stability and energy security in a fully renewable-powered future. However, hydrogen-based power storage faces significant challenges, including high costs compared to fossil-fuel baseload electricity and low efficiency. In data centers, hydrogen fuel cells also have the potential to provide power, energy storage, and even cooling, but these applications face similar cost and efficiency concerns.
Heating
Clean hydrogen can be used in residential heating via fuel cells or hydrogen boilers. One key advantage here is the possibility of repurposing traditional gas infrastructure, which reduces the need for expensive retrofits.
Transport Sector
Hydrogen's application in transport spans across several modes, including aviation, road transport, and maritime shipping. In aviation, clean hydrogen can be used to produce sustainable aviation fuels, and companies like Airbus are betting that hydrogen could help reduce aviation emissions by as much as 50%. However, the low density of hydrogen means that it requires a significant amount of storage space, which is a challenge in airplanes. For road transport, hydrogen is best suited for heavy-duty vehicles where battery weight impacts efficiency. Hydrogen offers fast refuelling times and a longer range than battery-electric alternatives. Maritime shipping faces similar challenges. While hydrogen offers a zero-carbon fuel option, its low energy density makes storage difficult, limiting its practicality compared to alternative fuels like ammonia or methanol.
Industrial Applications
In industry, hydrogen plays a crucial role, especially in ammonia production for nitrogen-based fertilizers. Green hydrogen could replace the current “grey” or “black” hydrogen produced from fossil fuels in processes like the Haber-Bosch method. Moreover, hydrogen is essential in refineries to upgrade crude oil into cleaner and more valuable products through hydrocracking, hydrotreating, or desulfurization for example. Lastly, hydrogen is emerging as a potential feedstock for green steel production and methanol, which would help decarbonize hard-to-abate industries.
Hydrogen Demand
The Industrial sector is currently the biggest consumer of hydrogen, particularly making ammonia, methanol, and steel (Fig. 2). It is mostly made with fossil fuels (IEA). The refining industry comes second, as the hydrogen is often created on-site: either using natural gas or as a by-product from other operations.
Fig. 2: Global Hydrogen Review 2023
Globally, forecasts for total clean hydrogen demand by 2050 range from 400 to 660 million tons (Mt) (IEA, BNEF, IRENA).
Hydrogen Supply
Given these numerous potential applications, over 30 countries have developed national hydrogen strategies, competing for leadership in the clean hydrogen market. Global projections suggest that China, Europe, and the United States could account for over 80% of clean hydrogen supply by the end of the decade, driven by supportive policies and advanced projects:
The US is expected to become the largest producer of clean hydrogen by 2030, aiming to account for almost 37% of global supply. The country’s goals are ambitious: targeting 50 Mt of hydrogen production by 2050, with a focus on industrial, transportation, and power applications. The Inflation Reduction Act offers significant tax credits for clean hydrogen, further boosting its prospects.
In Europe, the European Union has set similarly ambitious targets, including the REPowerEU demand for 10 Mt of annual hydrogen production by 2030, supported by 120 GW of electrolyser capacity.
China is the leading producer of electrolysers and green hydrogen, now aiming to produce over 1 Mt of green hydrogen annually by 2025. It is developing an extensive hydrogen pipeline network to align production and demand centres.
Despite these ambitious targets and projections, hydrogen production remains low. In 2021, total global hydrogen production was about 94 Mt, with only 4% coming from electrolysis, and of that, only 1% being classified as green hydrogen. To meet the global demand projections of 400 Mt by 2050 (as shown in fig. 2), approximately 4,000 GW of electrolyser capacity will need to be available—up from just 1.3 GW today. Furthermore, renewable energy capacity will also need to increase massively to create the electricity used to produce green hydrogen. The figure below shows how clean hydrogen projects are supposed to increase in the future, but you can see how this is insufficient compared to the volume needed to reach the Net Zero scenario modelled (green line in fig.4).
Moreover, the IEA alerts that only 4% of the projects proposed for 2030 have reached the final investment decision. This means that despite high government targets and projected increases in demand, manufacturers are struggling to find clients and secure funding.
Challenges to hydrogen adoption
So, what's the problem? The high costs associated with producing, transporting, and distributing hydrogen are the main barriers to adoption, leading the hydrogen industry to need a layering of subsidies to make any project competitive.
Producing green hydrogen through electrolysis is currently much more expensive than traditional methods like steam methane reforming, primarily due to the high cost of renewable electricity and the electrolysis technology itself. Whilst the National Strategies are targeting green hydrogen production costs around $1-3/kg to compete with grey hydrogen, the inaugural hydrogen auction in the UK revealed prices of £9.49/kg were necessary to support green hydrogen projects, and TNO even released average project cost $13.69/kg in the Netherlands. While electrolyser costs are expected to decrease along learning curves, the costs related to electricity production and transport remain unclear. This causes important uncertainty and makes it harder to predict future project revenues. Additionally, high interest rates and inflation have negatively impacted the industry.
Transporting hydrogen is another significant challenge. It can be transported either as a gas or a liquid, but both forms present issues: its low energy density (1/3 that of natural gas) means it requires much more volume, and hydrogen’s flammability makes transportation riskier. When liquefied, hydrogen also loses 30% of its energy through the liquefaction process. Pipelines used for natural gas cannot safely or effectively transport hydrogen without significant modifications due to hydrogen embrittlement and low energy density. Shipping of hydrogen is very expensive too as it requires extremely low temperatures.
Lastly, the hydrogen industry relies on multiple layers of subsidies across its entire supply chain: subsidies for renewable power for electrolysis, electrolyser production, hydrogen transport (such as ships and pipeline conversion), blending hydrogen with natural gas, and hydrogen fuel cell vehicles. These subsidies come through public investments multilateral finance, and supportive policies. Unlike renewables like wind and solar, which also receive subsidies, hydrogen receives more diverse and additional support at each stage, making its reliance on subsidies unique and more complex.
So… Where Should We Focus?
To accelerate a data-driven and fair energy transition and maximize the impact of hydrogen, it's crucial to redirect funds towards its most promising applications towards Net Zero, instead of spreading resources thin across all sectors. Hydrogen's versatility is often touted as its strength, but given the challenges stated and to truly drive the transition forward, we need to focus on where hydrogen can offer the greatest value. By concentrating investments in long-term energy storage and industrial decarbonization, we can ensure that hydrogen fulfils its most promising roles while avoiding the pitfalls of overinvestment in sectors where it faces strong competition from cheaper and more adapted technologies.
Long-term energy storage
Hydrogen’s most compelling use case is in long-term energy storage, which can play a crucial role in integrating renewable energy into power systems. Unlike battery energy storage systems (BESS), which are ideal for short-term energy balancing, hydrogen offers the possibility of inter-seasonal storage. Hydrogen, converted to other carriers like e-Methanol or e-Methane, also provides a solution for long-term storage where other technologies fall short. In this niche, hydrogen faces little competition, as no other viable technology offers such large-scale, long-term storage options. Directing resources towards developing cost-effective hydrogen storage systems will enhance energy security and accelerate renewable energy penetration into the grid.
Decarbonising industrial sectors
Hydrogen should also be prioritized in sectors where there are few alternatives, especially for processes that require high temperatures or produce significant emissions. One of the key areas is fertilizer production, which remains the largest consumer of hydrogen today. By replacing grey hydrogen (currently used in ammonia production for fertilizers) with green hydrogen, we can decarbonize a crucial sector without needing to overhaul the entire supply chain, and keeping the same infrastructure. It is however important to keep in mind here that reducing use is the priority and the target for the fertilizer industry globally.
Similarly, hydrogen’s use in steel production represents another critical area of focus. Green hydrogen has the potential to replace coal in steelmaking processes like direct reduced iron (DRI), enabling the production of green steel. This sector is responsible for around 7% of global carbon emissions, and clean hydrogen is seen as one of the only viable pathways to decarbonizing this hard-to-abate industry.
All in all, there is almost always a cheaper alternative to hydrogen, and here are some examples winning against hydrogen to which funds should be reallocated to:
EV which will dominate light-duty road transport: the high number of car parts in H2FC vehicles, high costs and a lack of infrastructure, with limited refueling stations available lead to more H2 fuelling stations closing than opening nowadays
BESS for short-term electricity storage and grid balancing of daily fluctuations in renewable generation.
Heat pumps will outperform hydrogen boilers in residential heating as they are more efficient, easier to install, and cheaper.
Finally, International cooperation is also essential to build a sustainable hydrogen industry, as it requires a global supply chain for materials and technologies. Increasing reliance on countries like China (for nickel) and South Africa (for platinum group metals) could create new dependencies, highlighting the need for diversification of supply sources (IEA, IRENA).
Fig. 5: Electrolysers for the Hydrogen Revolution - Stiftung Wissenschaft und Politik (swp-berlin.org
To go further:
To provide context, Ugurcan's article offers a valuable historical overview, exploring hydrogen’s colors and unique properties and why, after decades of research, it's now becoming a focus of global energy discussions.