Hydrogen Generation via Electrolysis, whats next?

Hydrogen electrolysers – where do we go?

• Authors: Erik Rakhou and Andrew Emil, personal thoughts – provocative

i) Prologue - Trust in Hydrogen as investment 

• This story starts in a bar in Riga. It was late night, and I (Erik) arrived to be in the jury of H2 tech valleys competition - a tall man sat on the bar and was bored. We got into conversation - he quickly realised I was into Hydrogen - then he said, I have a complaint - my Hydrogen stocks dropped 90%. So why do you keep it? 
• He said - "my brother builds electrolysers, he told me to keep faith....for now I do". 
• That story is illustrative of where global trust into Hydrogen stands - at its 2020 levels, normalised - as figure below shows.

Source: IEA World H2 review

• Now scenery changes - one of my business friends - Andrew, an experienced commercial executive from electrolyser industry - with whom I co-wrote the article, is on the podcast with my fellow hosts of Global Tales of Carbon Transition Joachim von Scheele and Oghosa Erhahon and he speaks passionately on thermal storage instead of electrolysers - he temporarily left electrolyser industry as it was uphill battle at the time. His decision at the time, given his commercial expertise, was quite telling.
• Fast forward autumn 2024 - Andrew and I - both got in touch and decided to spell out provocatively where could the electrolyser industry go, as one of most interesting investments in Hydrogen industry, as we still do have demand for low carbon Hydrogen, and respective electrolysers, even if its just 100 GW installed by 2030 (* using a rule of thumb of World bank = 1 mta demand for Hydrogen translates roughly to 10 GW electrolysis), as figure below shows based on policy targets for demand.

Source: IEA World H2 Review 2024

• So lets explore below where Electrolyser industry could be heading - what are the attributes of winning firms - this may enable those who are interested to invest ahead of the trend, and gain potential value. And please note - we would love you to disagree.

ii) State of the Electrolyser Market - the global push for Hydrogen

• The global, slower, momentum for electrolysis made hydrogen is still transforming the electrolyser industry. As we can see 
• Manufacturing capacity is projected to rise dramatically from single digits GW/year today to double of triple digits of GW/year by 2050, fueled by policy support and market demand. Alkaline Electrolysis Cells (AEC) and Proton Exchange Membrane (PEM) electrolysers currently dominate the space, but no single technology leader has emerged. Instead, we see a fiercely competitive and fragmented market landscape. Some financiers tell us - they expect a consolidation battle. 
• Achieving for now and delivering even a target of 100 GW capacity by 2030 is an uphill climb, presenting significant challenges:

• Supply Chain Bottlenecks: Shortages of critical materials (e.g., iridium for PEM electrolysers) could constrain production. Albeit R&D is ongoing and IEA reports iridium-free catalyst breakthroughs (e.g. by Toshiba).
• Unproven Technologies: Emerging solutions like Solid Oxide Electrolysis Cells (SOEC) and Anion Exchange Membrane (AEM) electrolysers lack real-world, large-scale validation. Albeit this may be changing due to ongoing efforts as some firms show.
• Policy Variations: Divergent regulations across countries create uncertainty for developers and investors alike. However as Hydrogen Europe reports there is firm single digit MTa policy demand in the making by 2030.

• To succeed in this environment, companies will need key attributes to withstand risks and thrive in the market.
• Now before we proceed brief intermezzo on used writing style - a bit staccato - to increae chances of industry executives scanning it:) - time is money.

iii) Explanation of structure

• To ensure clarity, the following structure is used throughout the following "staccato" analysis:

1. Identify the Problem Example: Supply chain bottlenecks or variability in renewable energy supply.
2. Propose the Solution Example: Large incumbent EPCs leveraging their scale, M&A capacity, and system integration skills to mitigate these risks.
3. Highlight the Value Example: Ensuring project continuity, reducing costs, and maintaining competitiveness in the global electrolyser market.

• This approach provides a clear framework to read fast about the challenges and opportunities in the electrolyser industry. Now back to our analysis findings.

iv) Attributes of Winning Electrolyser Firms

• a) The Problem: 
• Market Volatility and Uncertainty The electrolyser industry faces rapid growth but is riddled with challenges: intense competition, unpredictable policy environments, and supply chain constraints. Companies without financial resilience and adaptability are at high risk of failure or at least slower growth.
• b) The Solution: 
• Large Incumbent EPCs capable industry players may emerge as Key Winners Large Engineering, Procurement, and Construction (EPC) firms are best positioned to succeed in this turbulent market. Their established presence offers several advantages:

• Bankability: With proven track records, EPC firms enjoy trust from financial institutions, simplifying project financing and reducing risk.
• Diversification: Integrating electrolysers with renewable energy and storage solutions creates multiple revenue streams, hedging against market volatility.
• Efficiency in M&A: Such large firms can acquire and scale innovative technologies faster, enabling them to stay ahead in technology adoption.
• Cost Advantages: Leveraging established supply chains and R&D capabilities helps drive down project costs.

• Example: Siemens Energy and ThyssenKrupp Nucera illustrate these strengths in our view, combining robust EPC expertise with diversified technology portfolios and significant R&D investments. Kudos for showing the way for others in the industry!
• c) The Value: Stability, Scalability, and Innovation By leveraging their strengths, such large EPCs with electrolyser technology deliver:
• Project Stability: Mitigating risks linked to supply chains and market volatility.
• Scalability: Accelerating technology deployment through acquisitions and operational scale.
• Innovation: Advancing cutting-edge technologies while optimizing existing solutions.
• So could it be - as IEA numbers below show - that some investors do actually see a promising future for electrolysers? Investments growing and VCs still betting on electrolysers? Let data speak for itself below - 2 visuals:

Source: IEA world H2 review 2024

Source: World H2 review 2024

v) Future Market Scenario(s) - Superflex demand

• Where do we see the market developing then for Electrolyser players - say in 5-7 years from now - what kind of services will the winning future players will need to be able to offer - this is key to understand for those who look to understand how industry will consolidate itself. Well 1 possible scenario - and I am sure if asked - we can advise on 1 or 2 more - is what we call the "superflex demand" ruling the energy market - and we see signals of this, with batteries market booming.

a) The Problem: 

• Variability in Renewable Energy Supply Electrolysers increasingly rely on renewable energy sources like wind and solar, which are inherently intermittent. This creates a pressing need for technologies capable of rapid load adjustments. Without this flexibility, inefficiencies and downtime will reduce profitability and project feasibility.

b) The Solution: 

• Flexible Electrolyser Technologies "Superflex demand" emphasizes the ability of electrolysers to ramp production up or down to match the fluctuations of renewable energy, as a key tool alongside other flexibility measures in the energy markets. 
• Key technologies that meet this requirement include:

• PEM Electrolysers: Renowned for their rapid response and load adaptability.
• AEM Electrolysers: Emerging as cost-effective, flexible alternatives.

c) The Value: 

• Competitive Advantage for Large EPCs 
• EPC firms with electrolysers in portfolio can capitalize on superflex demand by providing integrated solutions. These firms can design systems that combine electrolysers with renewable generation and storage for optimal efficiency.

• System Integration Expertise: Offering end-to-end solutions encompassing renewable energy, electrolysis, and storage.
• Operational Efficiency: Designing systems that enhance efficiency and profitability through load responsiveness.
• Financing Strength: Leveraging their reputation and track record to secure financing for large-scale, complex projects.

Conclusions - so what?

• The electrolyser industry, much like the hydrogen sector it supports, stands at a crossroads. 
• Trust in hydrogen as an investment remains fragile, yet stories like the one from Riga investor and IEA data on continued rise of bets in electrolysers by investors reflect a cautious optimism — the belief that perseverance and innovation may still unlock its potential. 
• As Andrew and I explored, the path forward lies in overcoming market challenges through scale, adaptability, and technology. The emergence of large, bankable EPCs players with portoflio of flexible electrolyser technologies could position the industry as a cornerstone of the green flexibiity transition alongside batteries and electrification trend. 
• For those ready to anticipate trends and place thoughtful bets, the value proposition of electrolysers is not just about the promise of clean energy — it’s about seizing the opportunities hidden in the turbulence.
• Please write us and disagree with the above - we would love that.