The International Energy Agency (IEA) has warned low electrolyser factory utilisation could derail the hydrogen industry’s push for cost reductions.
Underutilised factory capacity could drive up electrolyser manufacturing costs by up to four times, according to the IEA’s Global Hydrogen Review 2024.
It comes as electrolyser manufacturers look to achieve economies of scale, but utilisation of the equipment remains low as project developers face struggles in getting projects off the ground.
The report emphasises that high utilisation rates of electrolyser factories could result in alkaline stacks costs $45-65/kW – representing 50-60% of uninstalled system costs.
However, low utilisation rates of around 10%, as seen today, could increase the manufacturing cost three- to fourfold to $130-250/kW.
Chinese dominance
The IEA highlights significant regional cost variations with Chinese manufacturing at the lower end of the spectrum and Europe and the US at the higher end, further reinforcing the People’s Republic’s manufacturing dominance.
“China’s continued expansion of manufacturing capacity is expected to drive down electrolyser costs, as has occurred with solar PV and battery manufacturing in the past.
“Moreover, several large Chinese manufacturers of solar panels have entered the business of manufacturing electrolysers, and today they account for around one-third of China’s electrolyser manufacturing capacity,” the report said.
However, despite electrolyser manufacturing doubling in 2023 to reach 25GW/year – 60% of which is in China – the IEA warned this capacity is heavily underutilised, with just 2.5GW of output in 2023.
Future demand
It comes amid concerns that China has been “significantly overspending” on electrolyser capacity, “far exceeding” foreseeable demand.
Research house BloombergNEF (BNEF) and Citigroup reported that 71GW of electrolyser manufacturing could be online by the end of 2024, whilst projecting demand to reach just 10GW in 2025.
Read more:Are we really on the brink of electrolyser oversupply?
The IEA, however, has a more favourable view on electrolyser demand.
“Considering projects with final investment decision (FID) or under construction, capacity could reach more than 40GW/year in 2024,” it said. “The project pipeline to 2030 adds up to more than 165GW/year, of which 30% has reached FID.”
Based on those capacity increases from announced projects, mass manufacturing and economies of scale – primarily to the stack – the IEA estimates a 40-50% reduction in the capital cost of an installed electrolyser system could be achieved.
If early-stage projects are included, a 55% reduction is feasible, it added.
“This potential cost reduction is quite close to what is achieved in the Net Zero Emission (NZE) Scenario, with capital cost down by 55-60% compared to 2023, and an installed capacity of 560GW by the end of the decade,” the report added.
“In the Stated Policies Scenario (STEPS), by predominantly taking into account projects that have at least reached FID, the cost reduction is much lower, at around 40% by 2030.”
The IEA said cost reductions will benefit all projects. In combination with continued technology development, the agency called for optimisation of deployment processes and a shift toward mass manufacturing.
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