Oops. The hydrogen producers are in big trouble. The hydrogen production will never be economically viable.

Hydrogen electrolyser manufacturers are staring into the valley of death, as the hype-fuelled valuations of 2021 and high hopes of the hydrogen economy come crashing down around their ears.

Last week, two of the most notable electrolyser technology developers – Plug Power and Bloom Energy Corp – revealed the depth of their problems as they try to achieve massive scale while improving and reducing the cost of the technologies they are developing. The RenewEconomy has the story.

Shares in the two US-based companies, along with the US-listed Fuel Cell Energy and Ballard Power Systems, have been sinking since July last year, and none have come back from the hype-fuelled peak of early 2021.

In contrast, European companies appear to be in less financial trouble but their investors are just as glum, with Nel ASA and McPhy Energy also trading at five year lows. 

Hydrogen bubble has popped

The electrolyser manufacturing industry wasn’t supposed to be in this shape in 2024. At least, not for those who believed the assumptions being made at the time. 

In 2021, costs were expected to fall but instead they rose dramatically, while expectations of exponential, tech-like revenue growth for the first movers led to hyped up valuations.

Today, the bubble has popped, along with the realisation that while hydrogen will play an important role in some key industries, it’s not likely to make much ground in sectors such as passenger cars of home appliances.

“The electrolyser manufacturing sector is going through a massive learning-by-doing as they’re flying the plane,” says Clean Energy Finance director Tim Buckley.

“It reminds me of the internet bubble 20 years ago where you had the hype and the bubble burst, and a decade later a lot of the expectations came through and the industry was transformed. But you’ve got to get through the valley of death and we’re only three years into that.”

An example of the kinds of wild figures being tossed around was speed of electrolyser cost reductions suggested by McKinsey and global industry lobby group the Hydrogen Council.

In February 2021, at the very peak of the hydrogen hype cycle, the two organisations issued a report forecasting electrolyser costs falling to $US480-620 per kilowatt (kW) by 2025 and $US230-380 per KW by 2030. 

Two years later in February 2023, consultancy EY said costs had only fallen by a fraction of what was expected, with alkaline electrolysers at $US700-1,100 per kW and PEM technology at $US1,200-2,000 per kW.

“As the PEM technology advances, it is expected to achieve parity with alkaline (about $US500 per kW) by FY2030,” the report read. 

Also in 2021, Norwegian electrolyser maker Nel ASA said it would cut the cost of its electrolysers by 75 per cent and reduce the price of green hydrogen to $US1.50 per kg by 2025, with a new 2GW factory. It got its first 500 MW production line running by 2022, but has delayed those initial ambitions from 2025 to 2028. 

Green hydrogen still costs about $US5/kg to make. 

The outlook generally is positive, but the market is taking longer to develop than expected as the industry figures out what models and markets will actually work, Evercore senior managing director James West told industry publication Hydrogen Insight in November.

Some of the troubles are being attributed to the slow rollout of government support programs, but these are finally expected to start paying out this year.

The Regional Hydrogen Hubs programme in the US, part of the 2021 Bipartisan Infrastructure Act, hasn’t issued any funding yet. And the $US3/kg production tax credits from the US Inflation Reduction Act are being held up by delays in rules from the Treasury Department as to who qualifies for them.

In Europe, developers are also claiming that country-level funding via that Important Projects of Common European Interest has been too slow. 

China leads on prices – again

In contrast, Chinese companies appear to be beating the McKinsey forecast. 

A public tender by state-owned China Energy Engineering Group saw alkaline machines sold in at an average of $US210 per kW and PEM electrolysers at $US630 per kW.

These are figures that will put pressure on Asia-focused companies, such as Bloom Energy which is leaning hard on sales to Korea, and on startups in Australia which are still in their infancy. 

And they’re figures that non-Chinese companies will only be able to beat if Asian nations create a joint regional carbon border adjustment mechanism (CBAM) – a carbon price – that makes green hydrogen competitive with fossil fuels, says Buckley.

“In some respects there is huge potential for seaborne hydrogen and ammonia exports but consensus about where the real market will be… all of that presumes there is going to be significant policy framework. Calling it bluntly, a price on carbon in the Asian market,” he says.

“There’s got to be a carbon price so we can compare hydrogen against LNG or coal. Otherwise we’re looking at open-ended subsidies for hydrogen.” 

Beating China will also take money. 

Read the full story here.