IEA’s Renewables 2022 Analysis and Forecast to 2027 found that for 2022-2027, 50GW of renewable capacity will be used for hydrogen production, accounting for 2% of total renewable capacity growth, with China expected to lead the expansion, followed by Australia, Chile, and the US.

The report concluded, that the projected renewable capacity growth could be 80%, however uncertainty over securing hydrogen off-takers, and lack of clarity on regulation defining low-carbon hydrogen is likely to prevent projects reaching financial close.

It estimated that new global capacity will be split evenly between solar PV and onshore wind, while offshore wind projects will account for less than 1% of new renewable capacity built during that period, due to long lead times.

China

China is expected to deploy over 18GW of dedicated renewable capacity by 2027, prompted by central government goals of decarbonising industry and transport, as well as an industrial policy on electrolyser manufacturing, according to the report.

A report by RMI, said that industries and regions in China have the potential to install 100GW of renewable hydrogen capacity by 2030 as the country looks to achieve climate neutrality by 2060.

Read more: China could install 100GW of renewable hydrogen capacity by 2030, report predicts

IEA has said expansion in China is expected to concentrate in provinces with high levels of solar and wind resources, and specific targets for renewable hydrogen, such as Inner Mongolia, which it said, “Aims to produce 500,000 tonnes of renewable hydrogen per year – more than twice the national target.”

However, the Agency noted that demand for renewable hydrogen forecasts are uncertain but will determine the pace of dedicated renewable capacity expansion, adding that despite industrial development strategies including hydrogen, not all specify the production must be from renewable sources.

Additionally, the report said policies for fuel cell vehicle targets are agnostic and do not guarantee new demand creation specifically for renewable hydrogen, adding, “especially if it costs more than hydrogen made from non-renewable resources.”

Europe

Over the 2022-2027 period, the IEA expect Europe to deploy 7GW of dedicated renewable capacity to hydrogen production, prompted by decarbonisation goals and the need to strengthen energy security by displacing Russian gas.

With the EU considering setting the electrolyser capacity target of 44GW by 2030, under its REPowerEU plan, IEA says there are two key uncertainties in the forecast in dedicated renewable capacity expansion in Europe.

Read more: REPowerEU: €39-43bn needed for hydrogen infrastructure

Firstly, it says, regulation concerning how hydrogen will be defined as renewable and how additionally will be implement. The report reads, “Developers are awaiting clarity on how electricity from the gird will be monitored to qualify hydrogen production as renewable. This will ultimately affect size and location decisions for dedicated onsite solar and PV win capacity.”

Secondly, IEA notes that policy uncertainty over industry and transport mandates make it challenging to assess renewable hydrogen demand potential and plan new electrolyser investments. “Whether developers will be able to secure off-takers and bring projects to financial close also poses a risk to the forecast,” it wrote.

APAC, Latin America, MENA

IEA says producing ammonia for export is the main driver for dedicated renewable capacity expansion in the Asia Pacific (APAC), Latin America, and MENA regions, with a combine dedicated renewable capacity expansion expected to reach 19GW by 2027.

The countries anticipated to lead that expansion are Australia, Chile, Oman, and Saudi Arabia, with large electrolyser project pipelines having emerged in the countries.

Furthermore, IEA say the share of renewable capacity dedicated to hydrogen in those markets is higher than other regions, with 14% of total deployment in MENA, 17% in Australia, and 19% in Chile, compared with the 2% globally.

The Hydrogen Council’s Global Hydrogen Flows report, released in 2022, identified MENA, South America, and Australia as key exporting regions of hydrogen and its derivatives, such as ammonia.

Read more: Regional hydrogen supply and demand mismatch will force global trade links by 2050, report predicts

IEA said, “For renewable hydrogen exporters, securing off-takers to finance planned projects is a key forecast uncertainty, but policies of importing countries to stimulate demand can help address this challenge.” It noted Europe’s goal of importing 10 million tonnes of renewable hydrogen per year under its REPowerEU plan.

Despite the potential import demand, IEA wrote, “Importer countries’ decisions on the emissions intensity levels required for hydrogen imports to qualify for targets and support remains an uncertainty for exporting markets. Rules and regulations defining threshold levels will affect project viability and influence decision on technology choice and oversizing.

US 

Following the unprecedented policy support for hydrogen, IEA says the US is expected to be responsible for 4GW of dedicated renewable capacity additions, 1.5% of total capacity expansion expected over 2022-2027.

The agency noted the Inflation Reduction Act which looks set to prompt the upscaling of renewable hydrogen production capacity, offering up to $3/kg of low-carbon hydrogen produced in tax credits, combined with state-specific support in the form of loans, grants, and tax breaks.

Read more: Win for hydrogen in the US – Inflation Reduction Act to become law

Despite the political support, the IEA’s report said, “Dedicated renewable capacity expansion will also depend on the business model chosen for new electrolyser projects. Some projects in the pipeline are being developed through long-term contracts with existing solar PV projects or operating hydropower plants.

“The main threat to forecast growth is the potential for long project development periods, depending on equipment availability and permitting and regulatory approval wait times.”

Off-takers, and regulation

IEA says it took a conservative in its approach in its main forecast due to, “the considerable number of policy uncertainties, market challenges and project-specific variables affecting dedicated renewable capacity growth.”

The report concluded that renewable capacity growth could be 80% higher (90GW) in its accelerated case if certain challenges were addressed, highlighting securing off-takers to bring projects to financial close and obtaining regulatory clarity on the definition of low-carbon hydrogen as potentially the most important factors.

It said, policy actions to support demand creation for low-emission hydrogen, particularly in the industry and transport sectors, increase the number of willing buyers; and financial incentives to help reduce production costs could improve the competitiveness of renewable hydrogen with other fuels and raise the likelihood of securing off-takers.

Additionally, IEA suggested, “Investors would be able to move forward with planned projects once they have regulatory clarity over what qualifies as renewable hydrogen and how electricity is accounted for. Policies that help lower costs associated with transport and reconversion of ammonia and other hydrogen-based fuels would encourage the development of international markets for renewable hydrogen.”