Shortage of

electrolyzers for
green hydrogen
February 2023
“
Green hydrogen has the potential to become
the cogwheel of India’s decarbonization
strategy. However, there is a need to build a
robust manufacturing ecosystem for green
hydrogen electrolyzers in the country.
Although the government has been taking steps
to accelerate the uptake of green hydrogen, a
more forward-looking policy framework for
investors, PLI subsidies for manufacturers,
innovative financing mechanisms, and creation
of demand through purchase obligations can
provide the necessary boost to the sector.

Kiran Malla
Partner, EY Parthenon
Strategy Leader for Energy
transition and decarbonization

Green hydrogen capacity addition projections have reached 21MTPA by 2030, pipeline
projects have grown 5x over the last 24 months

Cumulative green hydrogen production capacity vs. demand (MTPA) ► The growing focus on hydrogen applications, coupled
with net zero ambitions, has driven the production
63 capacity for green hydrogen to increase five times of
the 2021 projections.
► The global demand for hydrogen was 94 million tons in
2021 and is expected to reach 185 million tons by
2030 in the net zero scenario. In that scenario, green
~5X ~21 hydrogen demand is expected to reach 63 million tons
by 2030.
~4.4 ~8
<1 ► With the pipeline of announced projects until Sep
2022, green hydrogen production is expected to reach
FY22 2030 announced 2030 green 21MTPA by 2030.
projects hydrogen demand
► The number of countries with policies that directly
support investment in hydrogen technologies is
Feb 21 projections Sep 22 projections
increasing, along with the number of sectors they
Jul 21 projections 2030 net zero scenario demand target.

Source: Hydrogen council, IEA, EY analysis

India has recently announced the National Hydrogen Mission with an initial outlay of
US$2.5 billion

National Hydrogen Mission

► In January 2023, the Union Cabinet has approved the National Green Hydrogen Mission with a target to achieve green hydrogen production
of 5 MTPA by 2030 and to become net zero by 2070.
► The government has approved a capital outlay of US$2.5 billion to support green hydrogen initiatives, including setting up of electrolyzer
manufacturing capacity of 60 to 100GW and RE capacity of 125 GW toward green hydrogen production.

Page 2 Shortage of electrolyzers for green hydrogen

EU’s decision to shift away from Russian gas dependence is one of the primary triggers

REPowerEU

► February 2022: Russia’s military aggression against Ukraine disrupted the world’s energy system.
► In March 2022, the European Commission (EC) published the ‘REPowerEU’ plan to phase out Europe’s dependency on Russian energy
imports by developing strategies, such as diversifying energy imports and boosting renewable energy.
► It has set a target of producing 10 million tons of green hydrogen domestically and importing 10 million tons by 2030.
► 5 million tons of additional production target from REPowerEu would require approximately 50GW—60GW of electrolyzer, in addition to the
44GW already required for the 5 million tons in Fit for 55.

EU electrolyzer manufacturing capacity target EU installed electrolyzer capacity - 2030

~90GW—100GW
17.5GW per year

~50-60

44GW
1.75GW per year

FY22 FY25 EU Fit for 55^ REPowerEU

EC has signed a joint declaration with major European electrolyzer Meeting REPowerEU’s target of producing 10MTPA, to increase
manufacturers to increase the electrolyzer manufacturing capacity installed electrolyzer capacity by FY30
to 10 times the current capacity
^EC plans to reduce greenhouse gas emissions in 2021

Source: European Commission, EY analysis

US incentives are expected to create an exponential increase in hydrogen production

Inflation Reduction Act (IRA), 2022

August 2022: The IRA encouraged investments in power generation from renewables, emissions reduction technology, and others. The act
will provide investment tax credits (ITCs) and production tax credits (PTCs) for clean energy generation. It is estimated that the IRA will create
a demand for 10 million tons of clean hydrogen by 2030.

Tax credits are provided to low-carbon hydrogen producers based on the quantity of carbon emitted during production. Producers
PTC are to be eligible for a credit of up to US$3 per kg of hydrogen, making green hydrogen produced in the US to become one of the
most economical options in the world (as low as US$0.73 per kg).

IRA to create a 30% credit for energy storage technology constructed before January 2025 (applicable only to hydrogen-related
ITC
storage).

Source: US Department of Energy, Secondary Sources, EY analysis

Europe’s new REPowerEU targets and IRA incentives in the US will provide big push to the hydrogen market and we
may be within the reach of meeting the green hydrogen demand of 63 MTPA by 2030, equivalent to 700 GW of
electrolyzer demand

Shortage of electrolyzers for green hydrogen Page 3

Electrolyzer manufacturers are gearing up to increase the green hydrogen production
capacity
Capacity (MW)
Manufacturers Headquarters Technology
Current Expansion plans Growth
ITM Power UK PEM 1,000 5,000 (by 2024) 5x
McPhy France PEM, Alkaline 100 1,300 (by 2024) 13x
Nel Norway PEM, Alkaline 500 10,000 (by 2025) 20x
John Cockerill Belgium Alkaline 350 8,000 (by 2025) 22x
Plug Power US PEM 75 3,000 (by 2025) 40x
Thyssenkrupp Germany Alkaline 1,000 5,000 (by 2030) 5x
Sunfire Germany Alkaline, Solid oxide 40 500 (by 2023)^ 12x
Siemens Energy Germany PEM 125 1,000 (by 2030) 8x
Cummins US PEM, Alkaline, Solid oxide 38 3,500 (by 2025) 92x
Topsoe Denmark Solid oxide 75 5,000 (by 2030) 66x
Ohmium US PEM 500 2,000 (by 2022) 4x
Enapter Italy AEM 30 300 (by 2023) 10x
Bloomenergy US Solid oxide 500 1,000 (by 2023) 2x
Green Hydrogen Systems Denmark Alkaline 75 400 (by 2023) 5x
Hydrogen Pro Norway Alkaline 100 1,000 (by 2030) 10x
Elogen France PEM 160 1,000 (by 2025) 6x
Other manufacturers PEM, Alkaline, Solid oxide 1,000E 12,000E (by 2030)
37,000 (by 2025) 6x
Total 5,600
60,000 (next 10 years) 10x
Source: EY analysis, Company press releases, Secondary sources
^1,000 MW, eventually | PEM: proton exchange membrane | AEM: anion exchange membrane

The sudden increase in hydrogen capacity announcements is resulting in an overflow of

orders for electrolyzers All values in MW

Current Current
Manufacturers Tie-ups Order size Manufacturers Tie-ups Order size
capacity capacity

Plug Power H2 Energy 75 1,000 Topsoe First Ammonia 75 5,000

Thyssenkrupp Air Products 1,000 2,000 Siemens Energy Air Liquide 125 3,000

Source: EY analysis, company releases

The sudden increase in hydrogen capacity announcements is resulting in an overflow of

orders for electrolyzers NA: not applicable

Current
Manufacturers Announcements
capacity (MW)
h2e Power NA To set up a solid oxide electrolyzer manufacturing plant in Maharashtra by 2023
Ohmium 500 To increase manufacturing capacity to 2GW at its factory in Bangalore
Hydrogen Pro and Larsen & Toubro NA MoU signed for GW-scale manufacturing of alkaline water electrolyzers
John Cockerill and Greenko NA To set up two alkaline electrolyzer factories of 1GW each over the next 1.5 years
Stiesdal and Reliance NA Formed a partnership to develop and manufacture hydrogen electrolyzers
Source: EY analysis, Company press releases, other secondary sources

In India, the existing capacity of alkaline electrolyzers is estimated to be less than 1GW, which is mainly used for the
chlor-alkali process

Page 4 Shortage of electrolyzers for green hydrogen

Indian manufacturers should grab this opportunity and create world-class facilities
Key points to consider are:

1 Choice of technology and access to technology partners Major technologies - current share and future outlook

► Alkaline electrolyzers dominate the market today and are expected to 8% 10%
continue being the most preferred technology. Of the other technologies, PEM 0.3% 4%
is emerging to be a promising electrolysis technology.
31% 22%
► Today, alkaline technology is cheaper, with an average cost of US$700 to
US$1,100 per kW and has an efficiency of ~70% (producing 0.021kg H2 per
kWh). PEM technology costs between ~US$1,200 and US$2,000 per kW,
having an efficiency of ~60% (producing 0.018kg H2 per kWh). As the PEM
technology advances, it is expected to achieve parity with alkaline (~US$500
per kW) by FY2030. 61% 64%

► Players look forward to technology diversification. For instance, NEL has

exposure to both alkaline and PEM technologies, which offers an edge in case
one of the technologies prevails in the future.
► Solid oxide and AEM technologies are at a nascent stage today with some FY20 FY30E
players like Bloom Energy (US) and H2e Power (IN), developing electrolyzers Alkaline PEM Solid oxide Others
based on solid oxide, while Enapter (IT) and Hydrolit (IL) are a few players that
are developing AEM. Source: IEA

2 Secure raw material supply to prevent bottlenecks

Key minerals and metals for electrolyzers

Solid oxide Alkaline PEM

Zirconium Nickel Yttrium Lanthanum Nickel Zirconium Palladium Iridium Platinum Palladium

Key suppliers of critical materials for electrolyzers ► Many minerals and metals required for electrolyzers are highly
concentrated in specific geographies, presenting a supply chain risk
100% to manufacturers.
80% ► Critical raw material supply for PEM is highly concentrated, with
60% South Africa supplying over 70% of platinum and over 85% of
iridium required globally.
40%
► Solid oxide electrolyzers are produced at a lab scale today;
20%
however, they show future potential. They face a larger
0% concentration of supply as more than 90% of the critical materials
Y La Zr Ni Pd Ir Pt Co come from China.

China Russia South Africa Congo ► There will be a need for electrolyzer manufacturers globally to work
with key stakeholders on raw material dependency issues, such as
Source: European Commission, USGS strategic sourcing and forming strong partnerships.

3 Plan for large-scale investments and bring efficiency with large-scale projects

Economies of scale impact: potential cost reductions Key factors driving cost ► Economies of scale can be
in PEM electrolyzers competitiveness achieved by increasing the
size of electrolyzer facilities.
1,299 Stack BOP
Electrolyzer cost ► In stack manufacturing, as
200kW 1MW more units of electrolyzers
613 Electrolyzer efficiency are produced, the shared
cost from assembly lines,
US$ per kW
System cost

buildings and staff comes

564 560 Renewable electricity cost
469 down, achieving economies
109
98 310 of scale.
686 323 265
Lifetime of electrolyzers
455 371 233 ► Manufacturing more units of
237 196
77 69 stack assembly is expected
Full load hours to result in cost reduction of
10 100 1000 10 100 1000
90% by shifting from a
Weighted average cost of capital manual to a semi-automated
Annual production (units per year)
process at a volume of about
Source: NREL, IRENA, EY analysis BOP: balance of plant 1GW per year.
Reduction Increase

Shortage of electrolyzers for green hydrogen Page 5

4 Tie-up anchor capacity with reliable hydrogen producers

Energy and utility Oil and gas Industrial gas ► As the demand for electrolyzers increases in
the next few years, the players look forward
to strategic tie-ups with key hydrogen
► John Cockerill ► Cummins ► Cummins ► ITM Power
producers across different industry
► Greenko ► Iberdrola ► Sinopec Group ► Linde segments.
► These partnerships are expected to support
(Alkaline) (PEM) (PEM) (PEM) the development of a green hydrogen
ecosystem.

► McPhy ► Stiesdal ► Ohmium ► Siemens ► Many electrolyzer manufacturers are forming

Energy partnerships with energy and utility players
► EDF Energy ► Reliance ► Shell India
as renewable power hubs are inferred to be
► Air Liquide
better suited for green hydrogen production
due to access to renewable electricity.
(NA) (Alkaline) (PEM) (PEM)

Source: Economic Times, Business Standard, (Indicates the technology)

Company press releases List is indicative and not exhaustive

Policy push in the US and Europe is expected to fast-track green hydrogen adoption and thereby accelerate the
energy transition. This will translate to multi billion-dollar opportunity for electrolyzer manufacturers, and India
should target to become a global hub for manufacturing.

Page 6 Shortage of electrolyzers for green hydrogen

India can become a global hub for electrolyzers by taking the following proactive steps
on the policy and regulatory front:

1. PLI policy for manufacturing 2. Mandatory purchase 3. Efficient hydrogen contracting

of electrolyzers obligations framework

A favorable PLI policy for electrolyzers, Green hydrogen will have higher cost The current framework that exists for
similar to incentives announced for solar compared to gray hydrogen and the value molecules, such as hydrogen, will not be
modules and storage, will enable Indian of Certified Emissions Reductions (CERs) is conducive to accelerate the green
players to gain scale in this emerging not likely to offset the premium in the near hydrogen consumption. The government
sector and achieve overall cost term. While the US and European markets should set up an intermediary, which can
competitiveness for green hydrogen. will spearhead the overall demand for facilitate long-term offtake of green
green hydrogen, it will be equally hydrogen and develop an efficient
important to create a local demand for contracting framework for subsidizing
green hydrogen. This will help electrolyzer green hydrogen until cost parity with gray
manufacturers to tie up with domestic hydrogen is achieved.
hydrogen producers and build additional
capacity for exports. Similar to renewable
purchase obligations that apply for utilities
and captive generators, the government
can consider purchase obligations for
petroleum refining and fertilizer sectors to
use green hydrogen as a certain
proportion of their requirements in a
phased manner.

Source: MNRE, NITI Aayog, EY Analysis

Policy support from the government such as long-term contracts, mandatory purchase obligations and incentives to
mitigate the challenges of high cost is expected to boost the green hydrogen market and provide India with a unique
opportunity to become a global electrolyzer manufacturing hub

Shortage of electrolyzers for green hydrogen Page 7

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Kiran Malla
EY exists to build a better working world, helping to Partner, EY Parthenon
create long-term value for clients, people and Strategy Leader for Energy
society and build trust in the capital markets. transition and decarbonization
Enabled by data and technology, diverse EY teams [email protected]
in over 150 countries provide trust through
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Working across assurance, consulting, law, strategy, Director, EY Parthenon - Strategy
tax and transactions, EY teams ask better questions [email protected]
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