Electrolysers

Electrolysers are a widely used technology in the chlori-alkaline industry to produce chlorine and sodium hydroxide. In this sector, the installed electrolysis capacity has reached more than 20 GW. However, the pace of deployment of electrolysers for dedicated hydrogen production was slow until the late 2010s, when developments started to accelerate. By the end of 2020 the global installed capacity of water electrolysis for hydrogen production was around 300 MW. 2021 saw significant growth in annual capacity additions, becoming the year with the largest deployment in the historical series: more than 200 MW of electrolysis capacity became operational, a threefold increase compared with the previous record year, and total installed capacity reached more than 500 MW, a nearly 70% increase compared with 2020. The Ningxia Solar Hydrogen Project in China, with a total capacity of 150 MW, accounted for almost three-quarters of the global additions.  

Based on the current pipeline of projects under development, global electrolysis capacity could reach around 1.4 GW by the end of 2022, an almost threefold increase in total capacity compared with 2021. By 2023 it may have grown 10-fold if projects (mainly concentrated in Europe, China and Australia) are realised on time. If all the projects currently in the pipeline are realised, global electrolysis capacity could reach 134-240 GW in 2030. Europe and Australia lead the scene, with about 30% of the capacity each, followed by Latin America with more than 10% of the announced projects.  

This is a significant increase compared with 2021, when the total capacity of the projects in the pipeline aiming to become operational by 2030 was 54-90 GW. However, to get on track with the Net Zero Scenario, in which over 700 GW of electrolysers are installed globally by 2030, the project pipeline needs to scale up much faster. 

Global electrolyser manufacturing capacity reached almost 8 GW per year in 2021, more than doubling the installed capacity that was available at the end of 2020. Europe and China account for 80% of global manufacturing capacity. With the addition of more than 200 MW of water electrolyser capacity in 2021, this technology’s global manufacturing capacity is currently underutilised (even including deployments related to chlor-alkali applications). Manufacturers have started to expand their production capacity based on current market growth (with an increasing number of large-scale projects announced), on expectations of future demand growth, and also because large manufacturing facilities represent a long-term decision. Based on company announcements, the global manufacturing capacity for electrolysers could reach 65 GW per year by 2030. Europe and China would still lead, with around 20 GW per year of capacity each. In terms of technology, almost two-thirds of the capacity is for alkaline electrolyser production and a fifth for proton exchange membrane (PEM) electrolysers. In addition, about 40 GW of manufacturing capacity has been announced with an unspecified date for the start of operations. While the announced manufacturing capacity could meet the targets in current national strategies, it is insufficient to meet the electrolysis capacity in the Net Zero Scenario. 

Electrolyser investment costs are difficult to compare across systems as often there is a lack of information about key system parameters such as temperature, voltage, current density and pressure. However, when adjusted for inflation, the cost reductions for the alkaline technology have generally been moderate over recent decades, while PEM technology has shown significant cost reductions, now approaching the cost of alkaline systems. These cost reductions have been realised mainly through R&D in the absence of significant market penetration. CAPEX requirements are currently in the range of USD 500-1 400/kW_e for alkaline electrolysers and USD 1 100-1 800/kW_e for PEM electrolysers, while estimates for solid oxide electrolyser cell (SOEC) electrolysers range across USD 2 800-5 600/kW_e. 

Traditionally electrolysers have been built in small volumes for niche markets, but the anticipated increase in production volumes and associated growth in unit size are expected to reduce investment costs for all electrolyser technologies. Optimisation of electrolyser supply chains is also expected to be an important source of cost reductions.  

Tracking the evolution of electrolyser efficiencies is equally complicated, as efficiency is closely dependent on the system design and optimisation goals. Alkaline systems deployed in the chlor-alkali and fertiliser industries decades ago were already optimised for high efficiency under continuous operation. However, efficiency improvements have continued to focus on reducing cost systems using high current densities, achieving higher efficiency across the load curve, and minimising voltage degradation over time. In the past few years, new electrolyser designs have reported very high efficiencies, such as Hysata’s capillary technology (80% efficiency on a low heating value basis) and Sunfire’s high-temperature electrolysers (84% efficiency on a low heating value basis). The electrical efficiency of electrolysis can be further improved by supplying part of the energy input in the form of heat from external sources. This is especially the case with SOEC electrolysers, which use water in the form of high-temperature steam. 

Alkaline and PEM electrolysers are already commercially available. Alkaline electrolysers are a more mature technology with a long history of deployment in the chlor-alkali industry. However, for the dedicated production of hydrogen, both technologies are at the same technology readiness level (TRL9) since both are commercially available, but require policy support and improvements to stay competitive with traditional hydrogen production technologies based on unabated fossil fuels. Considering the number and scale of projects under development, it seems that alkaline designs will have a larger market share than PEM electrolysers in the short term. 

SOEC electrolysis is a technology under demonstration. Sunfire is building the largest SOEC electrolyser in the world (2.6 MW) in a Neste refinery in the Netherlands, expected to become operational at the end of 2022. Larger-scale projects are also under development, some of them quite advanced. In February 2022 the Norsk e-fuel project announced that it will start construction in 2023 of the first phase of its project to produce 12.5 million litres of synthetic kerosene per year with an estimated SOEC electrolyser size of 25 MW. 

Anion exchange membrane (AEM) electrolysers are at earlier stages of development. Last year, the IEA considered the technology to be at TRL4 (early prototype). However, seeing how the technology is rapidly evolving, the IEA has revised upward this assessment and considers AEM electrolysers to now be at TRL6 (full prototype at scale) Enapter and Alchemr have readily available prototypes at the kilowatt scale and Enapter aims to produce them at scale from 2023.  

Governments are establishing targets for the deployment of low-emission hydrogen production capacity to send signals to private partners about their long-term vision for hydrogen technologies. This is creating some momentum in the industrial sector, particularly for projects aiming to deploy electrolysis capacity. Targets for the deployment of hydrogen production technologies are growing fast. The sum of all national targets for the deployment of electrolysis capacity has reached 145-190 GW, more than double the 74 GW of 2021.

Many projects under development are first-movers and face a combination of risks associated with uncertain demand, unclear regulatory frameworks, lack of infrastructure and non-existent operational experience. Governments can support project developers by adopting policies that help them to mitigate risk and leverage private investment. Several governments have begun to implement such policies in the form of grants, loans, tax breaks and carbon contracts for difference (CCfDs). Activity has been particularly intense over the last year, with several significant announcements: 

• United States: In 2021 the US Congress passed the Bipartisan Infrastructure Law, which includes grants for the creation of hydrogen hubs and incentives to foster infrastructure and electrolysis manufacturing. The US DOE Loan Program Office finalised a USD 504 million loan guarantee for a large-scale hydrogen storage project. The Inflation Reduction Act, signed in August 2022, offers several tax credits and grant funding to support hydrogen technologies. 
• European Union: In July 2022 the European Commission approved funding of EUR 5.4 billion to support its first hydrogen-related Important Project of Common European Interest (IPCEI), with a focus on hydrogen technologies. Three more IPCEIs dealing with industrial applications, hydrogen infrastructure and mobility are expected in late 2022 and early 2023. 
• Germany: In 2021 Germany launched the H2Global initiative, which uses a mechanism analogous to the CCfD approach, compensating the difference between supply prices (production and transport) and demand prices with grant funding from the German government. The initial bidding process is expected to start in 2022. 
• United Kingdom: In 2021 the United Kingdom presented for public consultation a business model for low-carbon hydrogen based on similar approach to CCfDs. The government aims to finalise the business model in 2022 and to allocate the first support contracts for projects reaching a final investment decision from 2023. 

More electrolyser capacity came online in 2021 than in any previous year. In addition, close to 900 MW of electrolyser capacity is planned for operation in 2022. As the number of projects and their sizes ramp up, so too is the amount of capital committed to them, only slightly offset by declining costs. We estimate that more than USD 1.5 billion was spent on projects at advanced stages in 2021, i.e. those with a final investment decision and under construction, mostly projects aiming for commissioning in 2022 or 2023. This is a threefold increase from the equivalent spending in 2020. Much of this relies on government funding, support that continues to underpin project viability, which would otherwise have been harder hit by market uncertainties since 2020. 

The large-scale deployment of electrolysers for the dedicated production of hydrogen depends on the development of large-scale projects and an increase in manufacturing capacity that can allow electrolysers to benefit from economies of scale and learning by doing. 

Stimulating demand can prompt investment in these areas, but without further policy action, this process will not happen at the necessary pace to meet climate goals. Providing tailor-made support to selected, shovel-ready flagship projects can mobilise the necessary investment and kick-start the scaling up of low-carbon hydrogen. This will also help manufacturers to have clearer visibility of the demand for electrolysers and take investment decisions to expand manufacturing capacity from which later projects can benefit. 

Innovation in electrolyser technologies will be critical to ensure that this technology plays its role in the transition to a net zero energy system. Despite some electrolyser designs already being commercial (alkaline and PEM), without policy support they cannot compete with traditional hydrogen production technologies. Supporting the already strong innovation activity in the sector will help deliver important objectives more quickly, such as higher efficiencies, enhanced resistance against degradation and decreased material needs. These would significantly decrease both the cost of manufacturing electrolysers and the cost of producing hydrogen. In addition, supporting those technologies that are not yet commercially available (SOEC and AEM) will help them to reach commercialisation faster. Having a larger portfolio of commercial technologies would decrease impacts on demand of critical materials and increase competence among the developers, which in turn can enhance innovation activity and accelerate technology development. 

The private sector and governments should work together to make sure that supply chains for key technologies, such as electrolysers, are able to respond to a large increase in demand in a short period of time. Making sure that supply chains are resilient and can respond to this challenge requires them to have the ability to scale up and diversify. Early engagement with governments can help in identifying potential bottlenecks and identify regulatory and supportive actions that can overcome those barriers.