Struggling hydrogen industry: Suggestions for revival
The hydrogen industry is poised to play a significant role in delivering energy independence, reducing emissions, and creating manufacturing jobs in the U.S., but it faces challenges that are not inherent to hydrogen itself, but rather with the business model. To make green hydrogen production commercially viable and reduce risk for hydrogen users, the industry needs to focus on three key strategic areas: standardization, scaling, and customer support.
- Standardization
The industry must transition from bespoke, custom projects to modular and standardized systems for green hydrogen production. This shift, similar to how computing evolved from custom mainframes to standardized, service-driven systems, increases reliability, simplifies development, and builds customer confidence. Establishing common technical standards and interoperable components across the value chain enables easier replication and deployment at scale.
- Scaling
Rapid scaling requires industrialization and automation to reduce capital expenditures and bring down production costs. This includes building gigafactories for electrolyzer manufacturing and advancing technologies like PEM electrolyzers through ongoing research and development to improve efficiency and durability. Scaling is also facilitated by leveraging low-cost renewable electricity, preferably from dedicated renewables rather than fossil-fueled grid power to maintain truly green credentials and competitive pricing.
- Customer Support
To reduce risk for hydrogen users and accelerate adoption, long-term agreements such as hydrogen power purchase agreements (PPAs) should be promoted. These contracts assure stable demand and fixed pricing, helping projects reach financial viability while providing customers predictable supply costs. Additionally, cross-industry collaboration is crucial to optimize the hydrogen ecosystem and develop supportive policy frameworks that provide investment certainty and encourage demand creation.
Clear policy and regulatory support, financial de-risking mechanisms, and data-driven risk intelligence will further lower barriers and risks associated with green hydrogen projects. As the industry matures with standardized, automated production and strong market signals, green hydrogen can become cost-competitive, enabling widespread deployment and reducing reliance on subsidies.
Electrolyzers need to have simple supply chains to make it easy for customers to adopt these systems in their operations. The industry should focus on building modular, affordable electrolyzer systems that can be expanded over time and deployed on-site. Most electrolyzer systems today require customers to integrate, operate, and maintain the equipment, offloading the operational burden onto buyers.
Manufacturers of electrolyzers and other sustainable hydrogen production technologies should stop selling hype and start standardizing, scaling, and supporting buyers willing to take the first steps towards embracing the hydrogen economy. The industry should stop offloading risk onto customers to increase adoption.
The hydrogen industry is currently facing challenges, including a liquidity crisis, bankruptcy filings, and decreasing customer demand. Natural disasters, rising demand for power, and cyber and physical attacks on critical infrastructure pose risks to grid resiliency. Customers must also manage the cost and complexity of hydrogen transportation and storage, which adds to the fragility of the current system.
In sum, the commercial viability and risk reduction for green hydrogen depend on standardizing production and supply systems, scaling manufacturing and renewable energy integration, and supporting customers through stable contracts and collaborative ecosystems, all underpinned by robust policies and ongoing innovation efforts.
- To ease the challenges in hydrogen production and create a more stable market, the industry must invest in technology to improve the efficiency and durability of PEM electrolyzers and advance the automation of large-scale production through the creation of gigafactories.
- With customer confidence being crucial for widespread adoption of green hydrogen, the industry needs to focus on establishing long-term agreements like hydrogen power purchase agreements (PPAs) to provide stable demand and fixed pricing, reducing risks for customers and encouraging further investment in the sector.
