Growth Opportunities in the European Hydrogen Industry, 2024-2040

Alternative Hydrogen Becoming a Niche as Offtake Opportunities Become More Concentrated Between Traditional Hydrogen Consumption Industries

As the energy transition gathers pace in Europe, market evidence and the growth trajectory of alternative/low-carbon hydrogen point to a niche market opportunity where production and offtake will likely be dominated by traditional hydrogen consumption industries, including refining, chemicals, and petrochemicals, as well as heavy industrial sectors like steel and glass manufacturing. Our latest analysis of key EU markets and the UK indicates that total low-carbon hydrogen production will likely reach 3 million tonnes by 2030, led by green and blue hydrogen, followed by purple and bio-based hydrogen, with the Netherlands, Germany, and Spain leading from the front. As growth becomes increasingly complex in this market, one of the key enablers for investors and project developers to overcome this challenge has been long-term funding support, such as contracts for difference payments offered over a ten- to fifteen-year horizon in countries like France and Italy. Such mechanisms will be vital for the hydrogen industry to achieve cost competitiveness with conventional hydrogen.

This study outlines how major European markets are aligning with their respective national hydrogen strategies through a three-dimensional rating and ranking based on regulatory drivers, market access, and physical market design in each country covered in scope, followed by long-term production forecasts of different types of hydrogen, an overview of key incumbents across the hydrogen value chain, and the top offtakers in each country market.

Scope of Analysis

The scope of analysis includes the following hydrogen types:

• Grey: Hydrogen produced from natural gas through steam methane reforming (SMR), where methane reacts with high-temperature steam to generate hydrogen and carbon dioxide. This conventional production method releases approximately 10 kilograms of CO2 for every kilogram of hydrogen produced, making it the most carbon-intensive form.
• Blue: hydrogen is produced using the same steam methane reforming process as grey hydrogen but incorporates carbon capture and storage (CCS) technology to trap 85-95% of the CO2 emissions.
• Green: hydrogen is produced through electrolysis of water using 100% renewable electricity from sources like solar, wind, or hydroelectric power. The electrolysis process splits water molecules (H2O) into hydrogen and oxygen without generating any carbon dioxide emissions.
• Purple: Purple hydrogen (also called pink hydrogen) is produced through electrolysis powered by nuclear energy.
• Bio-based: hydrogen produced from organic biomass materials through thermochemical processes (gasification, pyrolysis) or biological processes (fermentation, photobiological conversion) that convert organic matter into hydrogen gas.

The Impact of the Top 3 Strategic Imperatives on the European Hydrogen Industry

Disruptive Technologies

• Why: To meet global decarbonization goals, clean hydrogen (H2) must replace fossil H2. However, from a cost standpoint, to replace fossil H2, clean H2 costs must decrease three- to five-fold to reach those of grey H2, depending on the region of production-an extremely challenging feat to achieve. In that sense, the cost of electricity needs to decrease, and its consumption efficiency needs to increase during clean H2 production.
• Frost Perspective: Increasing consumption efficiency requires higher electrolyzer and balance of plant electrical efficiency. This is vital to reduce the operational costs of owners/operators. Electrolyzer manufacturers must consistently pursue technology disruption and innovation to achieve this and avoid becoming trapped in lower electrolyzer system standardization.

Transformative Megatrends

• Why: The world is racing to meet net-zero goals, with each country pursuing specific pathways according to their strengths and weaknesses. Clean H2 production will be a key pathway-among many-to decarbonize the economy's demand side. Clean H2 will contribute to decarbonizing fertilizer production, hydrogenation (oils, petrochemicals, and food manufacturing), and desulphurization and hydrocracking (crude oil refining).
• Frost Perspective: In the next 5 to 10 years, clean H2 production's significant growth capacity will come online, considering the number of projects in the pipeline. As a result, electrolyzer demand will increase over the coming years, with the added support of federal and state-level support policies.

Industry Convergence

• Why: The race to net-zero emissions is about collaboration between various ecosystem stakeholders to meet common objectives, so that costs do not pass onto consumers, to keep system reliability strong, and to reach decarbonization goals. Without collaboration, progress will be imbalanced and biased, and stakeholders will fail to meet their net-zero goals.
• Frost Perspective: Collaboration in the supply side of the H2 economy-between electrolyzer manufacturers, material providers, and surface finishing providers-and between the supply and demand sides must increase to accelerate clean H2's impact on decarbonization.