In 2024, hydrogen emerged as a climate-friendly alternative to fuel as well as electricity. Promising projects sparked to life on both the production and consumption fronts. Despite Trump’s pro-oil stance, analysts are optimistic about hydrogen’s future in this new year- 2025.
According to BNEF, clean H2 supply is projected to increase 30X and could reach 16.4 million metric tons annually by 2030. This surge is mostly attributed to supportive policies and a flourishing project pipeline.
As we step into 2025, several crucial moments await the low-carbon, clean hydrogen sector. They could be a mix of challenges and opportunities. Analysts also predict an increase in the fructification of significant projects and financial investment decisions this year.
Wood Mackenzie recently released a report identifying some crucial developments in the hydrogen sector for 2025 that one needs to scrutinize. Let’s study it here.
Blue Hydrogen to Dominate the U.S. Market in 2025
- In 2025, the U.S. hydrogen market will focus heavily on blue hydrogen, with over 1.5 million tons per annum (Mtpa) of capacity reaching the final investment decision (FID).
This marks a 10X increase compared to green hydrogen. The report revealed that at least three large-scale blue hydrogen projects are expected to mature this year. With this output, the U.S. has all the potential to become the world’s leading blue hydrogen producer.
Green Hydrogen to Face Strong Headwinds in 2025?
Conversely, green hydrogen projects are likely to face major challenges in 2025. FIDs for these projects are expected to fall short of expectations. This could be due to reduced government focus on clean energy under the Trump administration.
Green hydrogen could also face stiff competition for electricity resources from data centers. On top of that, lengthy delays in connecting projects to the grid can slow down the progress.
While some demand will come from companies working toward sustainability goals, short-term growth opportunities are expected to shrink. Many green hydrogen projects, especially those targeting transportation, and heavy industries like steel, and e-fuels, may be delayed or canceled altogether.
Nonetheless, it will Shine Through the Storm…
If not in the U.S. green hydrogen will have its niche in emerging economies like South America, the Middle East, India, and China. Eventually, these economies can launch giga-scale projects in 2025. So how can these nations properly green hydrogen progress globally?
Well, these projects leverage cheap solar and wind power and government incentives that reduce costs and ensure financial viability. For instance, India’s Kakinada project utilizes existing ammonia infrastructure and enjoys government subsidies.
Meanwhile, Saudi Arabia’s Neom Helios project benefits from state-led support and a 30-year offtake agreement with Air Products. These factors add a bonus point to green hydrogen.
Emergence of Chinese Electrolyzers
Most importantly regions like Southeast Asia, the Middle East, and North Africa will benefit abundantly from low-cost renewable energy and affordable electrolyzers from Chinese manufacturers.
By 2025, China can supply at least one-third of orders outside North America and Europe. Competitive pricing, shorter delivery times, and strong manufacturing capacity give Chinese electrolyzers an edge. Moreover, China is also expanding its domestic manufacturing capacity and is most likely to add over 10 GW of capacity this year. This will further strengthen their global presence, especially in areas with fewer trade barriers.
However, entering Europe and North America is more challenging. Trade restrictions and regulatory hurdles, such as the European Union’s 25% content limit for Chinese-made electrolyzers, limit their opportunities. To overcome these challenges, some Chinese companies are localizing production through partnerships and technology licensing.
Green Hydrogen’s Stance in Europe and North America
While blue hydrogen dominates the U.S., green hydrogen is making headway in Europe and North America. The European Commission (EC) also launched a nearly €2 billion hydrogen auction as part of its broader €4.6 billion initiative to accelerate net-zero technologies. This marked a significant step in the EU’s push for renewable hydrogen.
In Germany, HydrogenPro partnered with J. Heinr. Kramer Group to develop green hydrogen projects ranging from 5 MW to 50 MW. They aim to advance green hydrogen projects in Germany, Austria, and the Benelux region. These projects will power industries and the grid, and fuel hydrogen-powered vehicles.
On October 30, 2024, Avina Clean Hydrogen announced its major green hydrogen project in Vernon, California, near the Port of Long Beach. The facility with a capacity of 4 metric tons of compressed green hydrogen daily can decarbonize heavy-duty transport and advance California’s clean energy goals.
Uncontracted Hydrogen Supply to Persist in 2025
The Woodmack report emphasized another interesting scenario that would prevail in this year’s hydrogen economy. It says uncontracted low-carbon hydrogen capacity will remain a challenge due to difficulties in securing offtake agreements. This means out of the 5.5 Mtpa of low-carbon hydrogen projects that have reached FID, ~ 2.5 million tons of hydrogen remains without contracts.
This issue is most common in the U.S. blue hydrogen sector and, to a lesser extent, outside China, where securing agreements is tougher. The Chinese green hydrogen market lacks transparency in offtake contracts. So, the real value of uncontracted investment is not clear.
Moving on European policies like the Emission Trading Scheme (ETS) and the Carbon Border Adjustment Mechanism (CBAM), make it a key market for blue hydrogen and its derivatives. So, developers may keep production uncontracted to benefit from higher prices in Europe.
Overall, uncontracted hydrogen volumes may shrink for some projects, but overall, they are expected to grow as more blue hydrogen projects reach FID this year.
The U.S. Treasury Simplifies Clean Hydrogen Tax Credit Rules
The U.S. Department of the Treasury and IRS released final rules for the section 45V Clean Hydrogen Production Tax Credit under the Inflation Reduction Act on January 3. These rules encourage clean hydrogen production from some nuclear power plants that are nearing retirement. The hydrogen will be used in fuel cells.
The new rules included some important changes and added flexibility for the clean hydrogen industry. These updates will propel projects ahead and ensure they comply with the emissions requirement laws to qualify for clean hydrogen.
Notably, they will also provide much-needed clarity, investment stability, and adaptability, especially for participants in the Department of Energy’s Regional Clean Hydrogen Hubs program.
The final rules clarify how hydrogen producers, using electricity from diverse sources, natural gas with carbon capture, renewable natural gas (RNG), or coal mine methane, can qualify for the tax credit.
Nuclear for Clean Hydrogen
As the fresh rules enable at-risk nuclear to produce clean hydrogen, it will subsequently boost nuclear energy demand in sectors like AI. S&P Global reported market optimism surged following the announcement, and energy companies saw significant gains.
For instance, Constellation Energy’s shares rose by 3.8%, closing at $251.74, while Vistra experienced a 7% jump, reaching $160.33. NextEra Energy and its renewable energy unit also saw increases of 1.2% and 3%, respectively. Plug Power recorded a 2.6% rise, closing at $2.39. These positive market movements were witnessed after Constellation announced a $1 billion contract to supply nuclear energy to 13 government agencies.
John Podesta, Senior Advisor to President Biden for International Climate Policy mentioned something very significant that sums up all for the U.S. green hydrogen future. He said,
“The extensive revisions we’ve made in this final rule provide the certainty that hydrogen producers need to keep their projects moving forward and make the United States a global leader in truly green hydrogen.”
