The Green Tech Opportunity in Hydrogen

APRIL 12, 2021

By Max Ludwig, Martin Lüers, Markus Lorenz, Esben Hegnsholt, Minjee Kim, Cornelius Pieper, and
Katharina Meidert

It’s been decades since hydrogen was first proposed as a primary source of clean
energy. Thanks to advances in a variety of key technologies, the moment when the
abundant gas can begin contributing to the fight against climate change may
finally be upon us. But the hype level is high, and many technological, economic,
and policy challenges remain before hydrogen can offer a truly cost-effective way to
lower greenhouse gas (GHG) emissions. If hydrogen is to achieve its full potential,
it must become less expensive and more efficient to produce, distribute, and use.
Getting there will require two trends to come together.

© 2022 Boston Consulting Group 1

First, government policymakers and regulators must continue to support, through
direct subsidies and policy changes, the production and use of low-carbon
hydrogen for applications where hydrogen offers the greatest potential for abating
1
GHG emissions. Already, governments in several jurisdictions are incorporating
hydrogen into their efforts to meet GHG emissions targets. The EU, for example,
has made hydrogen a key element of its strategy to reach zero emissions by 2050.

Second, the hydrogen economy needs to become a reality, and stakeholders

throughout the ecosystem need to contribute. In particular, machinery makers (the
companies that develop and manufacture the necessary machinery, equipment,
and components) and their investors must do their part. With the proper support
throughout the hydrogen value chain—and assuming that the global effort to
reduce GHG emissions increases in keeping with the goals of the Paris Agreement
—the market for hydrogen-related machinery, equipment, and components could
2
rise to an annual $200 billion or more by 2050.

At present, the nascent market for low-carbon hydrogen is both highly complex
and highly fragmented, but it holds real promise. Money from governments and
private investors is beginning to flow into the sector, and large companies, small
and midsize enterprises, and startups are rapidly entering the field. Yet
uncertainties—about the market, the right business models, the best technologies,
and ongoing government support—remain high. Navigating the market will take a
great deal of expertise and a consistent, carefully considered strategy.

In this report, we
 consider the structure of
the low-carbon hydrogen
The nascent market for low- market—along with its
carbon hydrogen is both opportunities, benefits,
highly complex and highly and challenges—and offer
a roadmap for machinery
fragmented, but it holds real
makers to capture their
promise.
fair share of the value

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 inherent in the hydrogen
ecosystem. Their efforts
to research, develop, and produce the technologies needed will be instrumental in
reducing the cost and increasing the efficiency of hydrogen applications—and
making a real contribution to the fight to reduce global warming.

THE HYDROGEN VALUE CHAIN

Hydrogen’s potential for decreasing GHG emissions is high. By 2050, GHG

emissions could be reduced by 5 to 6 gigatons annually through applications such
as the substitution of clean H2 for base chemical production and refinery, the use
of fuel cells in heavy vehicles, and as a reduction agent in the iron and steel
industry. Altogether, those changes would eliminate about 15% of the 35-gigaton
3
total that we included in our earlier analysis of green tech. (See Exhibit 1.)

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Hydrogen can be produced in a variety of ways, some of them “cleaner” than
others. (See “Making Low-Carbon Hydrogen.”) To maximize the environmental
gains, H2 must be produced without emitting GHGs. The cleanest method of
producing H2 involves breaking water down into its constituent parts through
electrolysis, using electricity from renewable-energy sources. It is this so-called
“green” H2 that we focus on here.

MAKING LOW-CARBON HYDROGEN 

To maximize its environmental benefits, hydrogen must be “green”—made

entirely from renewable-energy sources. Other methods, however, will also
continue to be employed, some cleaner than others. (See the exhibit.)
Currently, the most common method, gray H2, involves using a fossil fuel
to heat water into steam, mixing the steam with methane, and capturing
the H2 released. Adding a filter to trap the GHGs emitted results in so-
called “blue” hydrogen. Blue hydrogen is likely to remain economically
favorable in places with an abundance of methane, especially once carbon
capture technologies fully evolve.

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Exhibit 2 breaks down the potential market in 2050—$200 billion in annual capital
spending—for the equipment and components needed at each link in the
hydrogen value chain:

• Production of H2, primarily via electrolyzer systems

• Distribution, including compression, pipelines, and storage

• Conversion of H2 to transportable forms, mostly components and materials-

handling equipment

• Transport and industry applications, including fuel cells, combustion, and use
as a feedstock

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These market segments will not mature at the same time. While production and
distribution will need to develop independently of where and how H2 is to be
used, the conversion of H2 into transportable forms and its specific uses depend on
their economic competitiveness with current technologies and other green
alternatives, as well as government policies and customer preferences.

Our scenario analysis shows that at $2 per kilogram of hydrogen, several

applications will likely be economically competitive in Europe by 2030. For heavy-
duty transport, unit economics will be favorable comparatively early. Direct
electrification using battery-electric systems is another green alternative for
transport applications, but in the heavy-duty segments, fuel cells and hydrogen-
based fuels have operational advantages compared with battery-electric options
owing to their higher power density and faster refueling times. We expect battery-
electric power to dominate the passenger car and light-commercial-vehicle
segments because of its generally higher round-trip efficiency.

In addition to unit economics, handling and distribution costs will need to be

considered in order to make hydrogen competitive for those heavy-duty
applications. This will require either lowering hydrogen production costs even
further or developing decentralized production and distribution networks. Either
way, companies need to overcome barriers related to the high capital intensity of
providing the required infrastructure and to the availability of hydrogen-powered
vehicles and equipment at industrial scale. (See Exhibit 3.)

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Applications in the chemical sector and the iron and steel industry could also
become economically viable by 2030, as hydrogen production costs decline. The
main barriers will be the high investments required to switch to low-carbon
hydrogen production, the need to maintain operational continuity in chemical and
steel production, and the long investment cycles and planning periods required.

Despite the challenges, the economic viability of H2 applications will increase over
the next decade. The higher that taxes or GHG emissions costs rise, and the faster
the barriers in infrastructure and availability of equipment at industrial scale are
removed, the sooner each application will become economically viable.

The task of developing and scaling up the equipment and processes needed to
reduce the costs of producing, distributing, and developing uses for hydrogen will
fall primarily to the world’s machinery makers. In what follows, we analyze the
four segments of the hydrogen market—production, distribution, conversion, and
applications—and the opportunities each segment offers to machinery makers.

PRODUCING HYDROGEN

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In the future, most of the hydrogen produced will be low-carbon—either green or
blue. In this report, we focus on the production of green hydrogen through
electrolysis. Although blue H2 will also likely account for a considerable amount of
the total hydrogen supply, the market for the carbon capture membrane
technologies needed to produce it will remain considerably smaller than the
electrolyzer market.

Under its Sustainable Development Scenario, the International Energy Agency

expects installed electrolysis capacity for producing H2 to rise to 130 gigawatts in
2030, with the EU accounting for 80 gigawatts of the total, including production for
import. Powering all these electrolyzers to produce green hydrogen will require the
production of about 600 terawatt hours of renewable energy, providing a huge new
market for the renewable-power generation industry (not considered in this
analysis). But to meet the expected demand for low-carbon H2, the cost of
electrolysis must decline, and its efficiency must rise.

Several different types of electrolyzers are in use. The most common are polymer
electrolyte or proton exchange membrane (PEM) electrolyzers, which use stacks of
solid polymer membranes between the electrolyzer’s anode and cathode, and
alkaline electrolysis cells (AECs), which use a liquid alkaline solution as the
electrolyte. Solid oxide electrolysis cells (SOECs) use a solid electrolyte to produce
H2 from steam; the technology is less mature but offers the potential for efficiency
levels of up to 80%.

The cost both to produce and to operate electrolyzers is high, owing largely to the
inefficiency of current electrolyzer technology and the end-to-end support systems
they require. (See Exhibit 4.) Increasing overall efficiency offers a major
opportunity for machinery makers. For example, boosting the system efficiency of
PEM electrolyzers from 60% to 70% seems possible, primarily by improving the
materials used in the stack.

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At present, building out the required electrolyzer capacity is far too costly to be
practical. These capital cost are high for several reasons. For one, electrolyzers
require a large amount of pricey material, such as precious metals. This holds true
especially for PEM electrolyzer stacks that mostly use a membrane with platinum
on the cathode and iridium or ruthenium on the anode side of it. R&D is ongoing
to explore ways of reducing the amount of precious metal needed without risking
durability.

Other factors also contribute to the high capex. One issue is that only a small
number of electrolyzers are being produced. And manufacturing costs are high
owing to a lack of production automation. Electrolyzers typically contain as many
as 150 cells, in ten very thin layers; given the precision needed to make them,
automating the process is extremely difficult and requires considerable expertise.
Quality standards, too, are lacking, forcing operators to ensure the quality of each
individual electrolyzer, further increasing costs. Finally, the largest operational
electrolyzer has a capacity of just 10 megawatts. At today’s relatively small
capacities, the cost of setting up the peripheral components for each electrolyzer is
high.

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Reducing the cost of materials and increasing automation and standardization
could bring down the capex needed for AEC stacks by 30% to 40%, if production
can be scaled up from 50 units to 1,000 units a year. At that scale, the capex
needed for the balance of plant (BOP) would decrease by 20% to 30%, bringing the
overall system cost to about $280 to $350 per kilowatt (not including margins,
overhead, and SG&A). For PEM electrolyzers, the capex required for the stacks
would need to fall by 40% to 50% and for BOP by 20% to 30%, bringing overall
system costs down to $320 to $400 per kilowatt.

As production of H2 electrolyzers ramps up, established system makers may have

an advantage because they are more likely to be able to establish large-scale
electrolysis plants at the required quality standards. In time, however, this is
expected to change, as increasing specialization opens up opportunities for
suppliers of components such as membranes and bipolar plates for the electrolysis
stack, as well as the compressors, pumps, power electronics, and gas analytics for
entire electrolysis systems.

Hydrogen production offers a variety of opportunities

for machinery makers, worth a total of $60 billion to
$65 billion annually by 2050.

Taken together, the production end of the hydrogen value chain offers a variety of
opportunities for machinery makers, worth a total of $60 billion to $65 billion
annually by 2050. Building and improving the efficiency of the electrolyzers that
will be needed is only part of the equation. More R&D will be required to improve
the reaction and startup times of electrolyzers and the methods for running them
under different conditions.

DISTRIBUTING AND STORING HYDROGEN

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If the market for hydrogen is to reach its full potential, companies must overcome
several significant hurdles in distribution and storage. Unlike the current oil and
gas industry, the low-carbon hydrogen ecosystem will require a mix of centralized
and decentralized production, distribution, and storage, depending on the
availability of renewable energy, the existing infrastructure, and the locations for
efficiently using the H2.

Unlike hydrocarbons, hydrogen is highly volatile and lighter than air, making
transportation and storage tricky. Thus it makes sense, in the near term, to locate
hydrogen production near where it will be used. Over time, however, as demand
for low-carbon hydrogen increases, the cost advantages of producing large volumes
of H2 in the Southern Hemisphere, near major sources of renewable energy
(especially solar energy), will drive further growth of international markets for H2.
Long-distance transportation networks must be developed, most likely using ships.
For shorter distances, large amounts can be sent through pipelines, while a
combination of trains and trucks can deliver smaller amounts. (See Exhibit 5.)

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H2 is highly flammable and explosive, escapes easily, and has a relatively low
density. Transporting it in one of its higher-density forms is preferable but requires
compression, liquefaction, or conversion. H2 also reacts with many metals, causing
them to become brittle.

These considerations open up a number of potential markets for machinery

manufacturers, especially those that specialize in hazardous materials, and for
suppliers that can adapt their products for use with hydrogen.

Because of its low density, H2 must be highly compressed in order to store it

efficiently and ship it to its destination. Several technologies are under
consideration. H2 becomes a liquid at a temperature of –252°C, but transporting
liquid hydrogen over long distances is only 70% efficient; the efficiency is limited
by the need for super-cold cryogenic tanks and constant active cooling to prevent
rising pressure and the associated risk of explosion. And still, some of the liquid
will inevitably return to its gaseous state and escape as boil-off gas. Improved
liquefaction methods and insulation materials need to be developed in order to
make shipping liquefied H2 over longer distances economically competitive. New
ships that can keep the H2 cold must also be designed and built; and regulatory
hurdles must fall: transporting liquid H2 is currently not allowed.

Another option for long-distance transportation is converting hydrogen to a

different form. (See the next section.) Converted hydrogen can be handled through
existing transport infrastructure in use by the gas industry. But if the converted
hydrogen needs to be reconverted at its destination, efficiency losses are even
higher than for liquid hydrogen.

The most economical way to transport H2 across distances of up to a few thousand

kilometers is through pipelines, opening up a further opportunity in pipeline
construction and repurposing. As of 2018, for example, Europe had just 2,000
kilometers of pipelines carrying H2 but had almost 23,000 kilometers of methane
gas pipelines that could be refitted for H2 by 2040. New pipes designed for H2 could

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also be installed inside current pipelines, making it unnecessary to recoat and
reseal the existing pipes.

Either way, there will be high demand for pipeline materials that can withstand H2
for decades and for the equipment required to keep the H2 under compression as it
moves through the pipelines. Leak-proof seals, pumps, gas flow management
systems, and heat exchangers, as well as smaller parts like valves, will also be
needed.

Opportunities in the storage of H2 for future transport and use differ depending on
the amount being stored. Solutions vary from gas cylinders for small amounts of
compressed hydrogen up to salt caverns and rock cavities for large amounts.
Medium amounts will most likely be stored in larger vessels or tanks, in
compressed, liquefied, or converted forms.

For machinery makers, the potential hydrogen distribution market opportunity

will total an annual $25 billion to $30 billion by 2050.

CONVERTING HYDROGEN

As mentioned above, once H2 is produced, it can be converted into other forms,

such as ammonia and synthetic hydrocarbons like methanol, or bound to a liquid
organic carrier such as toluene. This allows it to be stored and transported through
the existing commodity infrastructure, including storage tanks, ships, and
pipelines. (See Exhibit 6.) Japan, for example, expects to import 300,000 tons of H2
annually by 2030. Ships capable of transporting 50 tons of liquefied H2 are in
development, and that would require 5,000 to 6,000 shiploads. But transporting H2
converted into ammonia, for example, could reduce the number of shiploads
required by a factor of 100.

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Energy efficiency losses vary from about 12% when converting H2 to ammonia, to
more than 20% when converting it to methanol or binding it to a carrier, and up to
about 35% when converting it to a synthetic hydrocarbon. In the latter case, the
added carbon required must be derived from sources other than fossil fuels—
through a process called direct air capture, for example.

Depending on its application, the converted H2 does not necessarily need to be

reconverted to pure H2. For example, ammonia can be used directly as a feedstock
in the chemical industry and to make fertilizers, and methanol can be converted to
power and heat for the steel industry through combustion. Both processes offer
considerable potential as soon as producing green H2 becomes competitive with
other production methods. Ammonia, as well as synthetic hydrocarbon, could
eventually be used for direct combustion in other applications, but this depends on
replacing traditional combustion engines and turbines with ones fit for ammonia
or synfuels, which isn’t likely to happen at scale until well after 2030.

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A further possibility is to link H2 to a liquid organic carrier that is less toxic than
ammonia (such as toluene), ship it, and then return it to gaseous form once it
reaches the destination. At present, the conversion and reconversion or
dehydrogenation process results in a 50% loss of H2, far less efficient than other
conversion processes. And the dehydrogenated liquid organic carrier must be
shipped back to where the H2 was originally converted so that it can be reused. But
technological advances in conversion and transport could make this method more
energy efficient.

The development of improved conversion and recapture technologies presents a

considerable opportunity for machinery makers—$35 billion to $40 billion a year
by 2050.

USING HYDROGEN

Hydrogen will be put to a wide variety of uses. The applications with the greatest
opportunity for machinery makers are fuel cells for transport and feedstock for the
iron and steel industry. (See Exhibit 7.) In the longer term, H2 is also expected to
be used in direct combustion to produce power and heat. Together, these add up to
potential revenue for machinery makers of $80 billion to $90 billion annually by
2050. Hydrogen, however, is not nearly as cost-effective as current applications yet
and must compete with other low-carbon technologies for some applications.

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Transport. As a fuel for trucks, trains, and ships, hydrogen has many advantages.
Given its higher energy density, it offers considerable advantages in range and
refueling time compared with direct electrification through battery-electric systems.
But the abatement cost of replacing the industry’s current GHG emissions can be
high, depending on the form of transportation.

Because of the considerable efficiency losses inevitable in both the electrolysis

process and the use of fuel cells, direct electrification has a much higher round-trip
efficiency. Although the total cost of ownership of battery-electric vehicles is lower,
their long recharging times and heavy batteries give vehicles powered with fuel
cells operational advantages in applications such as heavy-duty trucks, off-highway
vehicles such as mining trucks and excavators, and long-haul buses, given their
heavy loads, long ranges, high fuel consumption, and the need for fast refueling.

In rail transport, fuel cells provide a green alternative in situations where an

overhead catenary system providing electric power can’t be used, and they will
likely become competitive with diesel in the next ten years. The infrastructure
challenge is smaller than in road transport since fewer refueling stations are

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required. The first trains
powered by hydrogen are

already in passenger
operation in Europe today. The first trains powered by
hydrogen are already in
Fuel cells can also be used in
other forms of transport. In passenger operation in Europe
certain kinds of shipping, today.
such as ferries, they are likely
to become a green alternative
to biofuels, given potential
restrictions on emissions close to some coastlines. For other forms of shipping,
ammonia and methanol derived from green H2 will likely become the favored
green alternative to battery-electric power, though such applications will probably
not be developed at scale by 2030.

For transport applications, fuel cell technology is already well advanced, and both
policymakers and vehicle manufacturers are beginning to promote it heavily. We
expect the use of hydrogen in the transport sector to grow rapidly over the next
ten years—albeit from a low base—eventually offering a market opportunity for
machinery companies of some $45 billion to $50 billion annually by 2050. The
opportunity can be broken down into three areas:

• Refueling Stations. If the demand for H2 for heavy on-road vehicles rises to as
much as 40 megatons to 45 megatons a year, more than 50,000 H2 refueling
stations will be needed around the world by 2050, up from just 450 in 2019.
On average, each station will need to supply 800 tons to 900 tons of H2 per
year—by providing a consistent supply of hydrogen to the station via pipelines
or other means, by storing enough H2 at the station, and perhaps by
producing the H2 at the station itself, conceivably with onsite solar panels or
wind turbines. To ensure short refueling times comparable to the refueling of
diesel or gasoline, the H2 must also be precooled and compressed.

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 • Fuel Tanks. Powering vehicles with H2 can be done in three ways: through
direct combustion of H2 in an engine, conversion of H2 in a fuel cell to
generate electricity to power electric engines, and conversion into a synthetic
fuel or e-fuel to run a combustion engine. The first two require the ability to
store H2 onboard the vehicle compactly, safely, and inexpensively. Tanks must
be able to withstand high pressure and be sealed perfectly. Opportunities for
machinery companies will also include improving and lowering the cost of the
production processes for both the tanks and the carbon fibers used to make
them.

• Fuel Cells. Perhaps the greatest challenge lies in developing and producing
the high-quality, efficient, and affordable fuel cells used to provide power for
electric vehicles. Fuel cells are made from hundreds of individual cell
membranes that generate electricity. These are combined into stacks and
equipped with cooling systems, compressors, pumps, control units, and gas
flow management systems to form a complete fuel system.
Altogether, fuel cells offer many opportunities for machinery makers. The
efficiency, durability, longevity, and cost of the cells must be improved, and
the amount of precious metals, such as platinum, that are used to make them
must be reduced. It will also be necessary to develop a method of recycling
these metals so that they can be reused.
Currently, fuel cells are crafted mostly by hand, a time-consuming method.
The process must become fully automated at rapid speeds of less than 2
seconds each, allowing factories to produce as many as 1 million a year within
high tolerances and under extreme pressure. Different kinds of fuel cell stacks
and systems will need to be manufactured for specific applications. This will
increase the demand for very complex assembly line equipment and for the
equipment needed to manufacture the many components that go into the full
fuel system.

Industrial Processes. H2 can be used in a variety of industrial applications. In the

chemical industry, H2 is already used to produce feedstock, significantly decreasing

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the market potential for equipment in this industry. The use of green or blue H2,
however, will significantly reduce the GHG emissions generated as a result of the
process.

If blue H2 is used for these processes, it could be produced onsite by refitting steam
methane reformers and installing carbon capture and compression equipment to
produce clean blue H2. Providing the carbon capture equipment and membrane
technology for filtering out the GHGs released should provide a business
opportunity for machinery makers of $5 billion to $7 billion per year by 2050.

The iron and steel industry is the second-most-promising industrial application,

where H2 can replace methane gas as a reduction agent for producing direct-
reduced iron that can then be used in an electric-arc furnace to produce steel.
Assuming that countries around the world comply with the Paris Agreement, this
market could reach an annual $16 billion to $20 billion by 2050, including the
equipment needed for cooling, heat recuperation and compression, as well as
humidifiers and gas-drying systems. To reach that potential, however, several
challenges must be overcome. These include boosting the quality of the steel made
using H2, dynamically managing the supply of H2 from onsite electrolyzers, and
optimizing H2-based furnace design and reduction processes to improve the
system’s overall efficiency—not to mention the need to replace all the existing
traditional blast furnaces.

Finally, H2 can be put to use in a variety of power and heat generation

applications, a market that could total a yearly $8 billion to $10 billion by 2050. It
can be used, for example, as a combustion fuel for large-scale, stationary turbine
engines and generators and to produce heat for industrial uses. H2 fuel cells can
also be used in decentralized stationary power applications, where they can
generate electricity, and the heat created as a byproduct can be captured and used
in other industrial applications.

ENTERING THE HYDROGEN ARENA

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Like companies moving into any new and rapidly growing sector, machinery
makers looking to participate in the hydrogen economy face several challenges and
risks, aside from the development of the technologies and the effort to make them
cost-competitive. Overcoming these obstacles will require considerable planning as
well as support from other players.

Regulatory Uncertainty. Because hydrogen technology is still immature, the

market’s continued growth will depend considerably on strong regulatory and
policy support. Companies are making significant investments in production and
market development, and most are still losing money. The risks involved remain
high, and stamina will be needed to stay in the game.

Governments around the world have a critical role to

play in creating the hydrogen value chain and a major
stake in making it sustainable.

Governments around the world have a critical role to play in creating the hydrogen
value chain and a major stake in making it sustainable—through taxes on GHG
emissions, cap-and-trade schemes, market regulation, and direct support of the
industry. Such efforts would significantly increase the upside potential of the
hydrogen market, but whether governments will continue to support hydrogen,
and at what level, remains unclear.

Players should therefore consider taking several steps to reduce their risk in the
face of uncertain government support. Diversifying geographically will reduce
dependence on single markets and exposure to individual regulatory and policy
support. Some areas offer favorable local policies and financial support, through
public funding of lighthouse projects. Private investors might also help fund such

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efforts, but this would require stronger business cases backed by greater regulatory
support.

Investment Hype. Investors are pouring money into hydrogen-oriented

companies, rapidly driving up valuations for pure-play hydrogen companies with
little revenue but strong growth prospects. In some cases, the enterprise value-to-
sales multiples are heading upward of 50. As a result, incumbent machinery
companies looking to grow inorganically will find deals very expensive to make.
The money flooding into these companies is enabling their management to invest
heavily in R&D and production, making it that much more difficult for private
companies without access to that capital to compete.

Ecosystem Complexity. Adding to the challenge is the sheer complexity of the

hydrogen investment landscape. At present, there are about 120 active providers of
electrolyzers and mobile and stationary fuel cells alone, according to analytics
provider Delphai, and two-thirds of them entered the market in the past 20 years.
As can be seen in Exhibit 8, a large number of companies are focusing on PEM;
although it has higher capex than the more mature alkaline technology, PEM is
considered the most promising tech for mobility applications.

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Given the market’s complexity, companies must first decide which sectors to enter.
This decision should be based on several considerations:

• What specific technological know-how does the company bring to the table?
Does it expect its technology to become mature enough in the medium term

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 to start or continue to invest in it now?

• Which uses can the company’s technology most effectively be applied to in

order to create the most value?

• Which regions are the most promising, considering the company’s technology
and the market’s need? How difficult will it be for the player to gain a foothold
in the market there, given the region’s competitive landscape?

After prospective players choose their preferred market, they have several options
for how to participate (see “Promising Strategic Plays”):

PROMISING STRATEGIC PLAYS 

Many partnerships and joint ventures have emerged across the hydrogen
landscape, each with its own specific makeup of partners, areas of
expertise, and strategic goals. Collaboration options available to machinery
makers can be divided into four categories, as shown below, with
examples:

• Teaming Up for Scale. Makers of complementary components to

power similar applications can partner in order to work out production
issues and drive scale.
• EKPO Fuel Cell Technologies is a joint venture between two auto parts
makers, ElringKlinger and Plastic Omnium, to produce fuel cell stacks and
systems as well as high-pressure tanks.

• Partnering for Capabilities. Players can join together to leverage

their complementary capabilities. Established companies in related
industries, for example, can join with component suppliers throughout
the value chain to gain proprietary know-how and build complete
systems.
• Bosch is working with PowerCell to combine its production expertise and
existing customer base with the fuel cell maker’s stack technology.

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 • Building Networks. Two or more players can form a consortium-like
partnership to supply a variety of connected products along the value
chain. For example, makers of hydrogen-based power systems could
promote their products through joint ventures with companies that
develop complete hydrogen-based ecosystems.
• Hyundai Hydrogen Mobility (itself a collaboration between Hyundai Motor
and H2 Energy) has partnered with Hydrospider (a joint venture of Alpiq, H2
Energy, and Linde for hydropower, electrolysis, and distribution) to make
and lease fuel-cell-based trucks and provide them with the necessary
refueling infrastructure.

• Creating Local Networks. Makers of equipment such as fuel cells can

partner with customers to build independent, local customer-centric
networks.
• Plug Power, for example, aims to cross-sell its H2 production, fuel cell, and
refueling technology through its diverse customer base.

• Companies targeting organic growth should focus on the most promising link
in the hydrogen value chain, depending on their specific expertise. This is true
for both suppliers of specific components, such as valves, and those offering
complete systems, such as electrolysis, refueling stations, or mobility
applications. Canadian fuel cell maker Ballard, for example, has partnered
with several mobility players to combine its fuel cell expertise with their know-
how in specific transport modes, including Siemens for trains, Van Hool for
buses, and Weichai for commercial vehicles.

• Companies first entering the hydrogen market or targeting growth by

acquisition must move fast in emerging segments. Given the current high
valuations, they should be prepared to pay up or consider very early-stage
companies, even though these players typically conform to a lower M&A risk
profile.

• Many companies will likely prefer to establish partnerships or joint ventures.

Either type of deal can foster the buildup of network effects—and thus the

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 creation of a more complete supply-and-demand ecosystem and swifter, more
sustainable growth.

Given the current dynamics of the market, moving quickly would be wise.
Valuations will keep climbing, enabling companies to continue investing heavily in
R&D and production, and potential partners will be harder to find. Finally, once
the COVID-19 pandemic subsides, a considerable amount of public funding
intended to stimulate the economy is expected to focus on green technologies.

Companies should consider two approaches to capturing the greatest possible share
of the value available in the hydrogen market. On one hand, they could
differentiate themselves through superior technology. Opportunities exist for
lowering the cost and improving the efficiency of individual components as well as
optimizing the systems needed for various H2 applications, for example. Every
performance enhancement translates directly into cost savings for customers, a
critical factor in making hydrogen economically viable at scale.

On the other hand, companies can also strive to excel in the services they provide
and the way they provide them. New business models such as “equipment as a
service” are already being explored; Nikola plans to rent out hydrogen-powered
trucks by the hour, for example. And Plug Power is developing integrated solutions
for its customers, providing fuel cells for forklifts as well as electrolyzers and
refueling infrastructure and services to operators of distribution centers.

POWERING UP

Although the hydrogen ecosystem is still nascent, it has the potential to

dramatically cut GHG emissions by as much as 6 gigatons a year, contributing
significantly to the Paris Agreement goal of keeping the increase in global average
temperature to well below 2°C by 2050. It is up to the makers of hydrogen-related
machinery, equipment, and components to help meet this objective—an annual
revenue opportunity of $200 billion or more by 2050.

© 2022 Boston Consulting Group 25

Taking advantage of the full potential of hydrogen brings with it significant
challenges and risks. Many technological hurdles remain, and the market is highly
fragmented, with no clear winners likely to emerge for some time. Further
progress will also depend to a significant degree on government subsidies and
supportive policies and regulations.

Still, we believe that machinery manufacturers have much to gain by participating

in hydrogen’s bright future. Our advice: begin innovating soon, strive for
technically superior and cost-efficient products, and find an advantage in
ecosystem plays and scale effects.

The authors thank BCG’s Christian Beck, Rajarshi Bhattacharyya, Jorge de Esteban,
Joonas Päivärinta, and Filippo Pizzocchero, as well as Delphai’s Jan-Peter Ferdinand for
their contributions to this report. They also are grateful to Edward Baker and Siobhan
Donovan for writing and editing support, Kim Friedman for design, and Taylor
Tinmouth and Mariella von Plessem for marketing assistance.

© 2022 Boston Consulting Group 26

Authors

Max Ludwig
Project Leader
Munich

Martin Lüers
Partner
Munich

Markus Lorenz
Managing Director & Senior Partner
Munich

Esben Hegnsholt
Managing Director & Partner
Copenhagen

Minjee Kim
Managing Director & Partner
Seoul

Cornelius Pieper
Managing Director & Senior Partner
Boston

Katharina Meidert
Consultant
Stuttgart

© 2022 Boston Consulting Group 27

 1 Low-carbon hydrogen refers to hydrogen produced by methods that release minimal
amounts of greenhouse gases. See “Making Low-Carbon Hydrogen” for further details.
2 Calculations are based on the International Energy Agency Sustainable Development
Scenario, assuming the faster innovation case.
3 For our last study, we included emissions data from 34 of the member countries of the
Organization for Economic Cooperation and Development (excluding South Korea and
Mexico) and the four BRIC countries (Brazil, Russia, India, and China). GHG
emissions are stated in terms of CO2 equivalents (CO2-e), a method for consistently
defining the global-warming potential of all GHGs. Methane, for example, has a
global-warming potential 28 times greater than CO2.

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