McKinsey cuts 2050 hydrogen forecast as costs soar and policy uncertainty grows

McKinsey has cut its projected hydrogen demand for 2050 by up to 25%, citing cost increases and regulatory uncertainty as barriers to growth.

The consultancy’s latest Global Energy Perspective report highlights that while hydrogen remains a critical component of the clean energy transition, the sector faces rising capital costs, slower learning rates, and higher expenses for renewable energy storage and electrolysis technology.

This has driven up green hydrogen production costs by 20-40%, it reports. Although hydrogen demand is still expected to grow, particularly in traditional sectors like chemicals and refining, it is projected to be lower than anticipated in areas such as road transport and buildings.

By 2050, McKinsey predicts global green hydrogen consumption will reach 179 million tonnes annually (mtpa), up from less than 1 mtpa today. However, lower progress in hydrogen adoption may prolong reliance on natural gas, with blue hydrogen also playing a role in future demand.

The report’s overall message was that the global energy transition is “entering a new phase,” marked by rising costs, complexity and increased challenges.

“Low-carbon energy sources are set to grow, but not currently fast enough to meet Net Zero goals due to business case viability and other challenges,” the report reads.

Despite low-carbon sources estimated to account for 65-80% of global power generation by 2050, the report says growth is not fast enough to meet short-term deployment targets.

While technologies with a low levelised cost of energy (LCOE), such as wind and solar, are projected to continue to grow, it said technologies such as hydrogen, e-fuels and carbon capture, utilisation and storage (CCUS) “lack sufficient demand and policy support for strong growth.”

Diego Hernandez Diaz, Partner at McKinsey, said, “Even with the surge in global Net Zero targets, the technologies needed to reach them aren’t progressing quickly enough.

“Low-carbon solutions must scale up, but they’re facing an uphill battle as rising interest rates and supply chain challenges limit access to capital.”

McKinsey revised hydrogen’s growth to 2050 downward by 10-25% compared to its previous estimates, due to higher cost projections.

“Increased capital costs, lower learning rates, more expensive electrolyser CAPEX, and higher renewable energy storage (RES) costs have driven up the cost of green hydrogen by 20-40%. Some lingering uncertainty around regulations also remains.

“While future hydrogen demand will be greater than it is now, our analysis shows that this slower growth would mean the associated demand for power for hydrogen production would be lower than previously anticipated, too, though also still greater than today,” the report said.

Nonetheless, McKinsey expects the majority of future hydrogen demand to be for green hydrogen – accounting for 50-70%.

The vast majority of demand is expected to come from traditional chemicals and refining sectors, with demand projected to be lower than expected in road transport and buildings in particular.

If momentum continues at current rates, the report estimates global green hydrogen consumption will increase to 179 million tonnes per annum (mtpa) by 2050, up from less than 1 mtpa today and 5 mtpa in 2030.

Based on the slowing progress, McKinsey expects gas demand to continue to grow into the 2030s, “as long-term price competitiveness and lower-than-expected hydrogen demand keeps gas in the energy mix—especially in power generation and for heat in industry and in buildings.”

Blue hydrogen will also contribute to rising natural gas demand, according to the report. By 2050, McKinsey says demand for the natural gas with CCUS-produced energy carrier could grow between 40 and 100 mtpa globally.