The global pipeline of announced green hydrogen projects is close to terawatt-scale, but the vast majority are far from starting construction—and some will likely never reach financial close. While these ‘paper projects’ may appear to build momentum behind the industry, they are insufficient to justify actual investment in the supply chain and particularly in local manufacturing, according to developers and equipment manufacturers speaking at the recent World Hydrogen Mena conference.

“When you see all those announcements, it appears as a lot of noise—for me, a lot of fake projects,” says Luc Koechlin, CEO of the Middle East subsidiary of French energy group EDF. However, he argues these announcements are useful, as “offtakers need projects—huge projects—to confirm that the cost of hydrogen is going to decrease”.

“We need developers to try to start development for huge projects… some of them will never happen, but we need them to unlock the market and to unlock offtake,” he adds.

“There has got to be a basis behind the announcements” Edmondson, Neom

But the pipeline of announced projects may be preventing some developers from setting up supplier contracts.

“We are facing a lot of challenges, especially in the supply chain… there is too much hype in the market,” says Mohamed Amer, global head of power-to-X at developer Scatec. He adds that suppliers are overbooked beyond current manufacturing capacity, with high demand doubling the cost of electrolysers. A lack of gigawatt-scale manufacturing capacity “is really impacting the [commercial operations date] of most of the projects” in the market, he adds.

However, manufacturers are reluctant to invest in scaling up capacity due to uncertainty around projects, according to Daniel Schwappach, head of sustainable energy systems for the Middle East and North Africa at Germany’s Siemens Energy.

“We need a lot of security in our projects and our funnel to invest further into factory capacity… large-scale announcements are good, but if you do not see this in a concrete funnel, it is difficult to invest,” he says.

Schwappach adds that, while country-level announcements of planned hydrogen capacity help to show ambition, this may not be enough to justify investment in local manufacturing capacity. He points to Oman—which has set a target of 180GW of renewables and 100GW of electrolysers by 2050—as an example.

“Overall, in numbers, that means we need to build out 300mn solar panels, 10,000 wind turbines and, roughly—depending on the size of the specific electrolyser—5,000 electrolysers. Looking into my funnel right now in Oman, it is far away from these numbers,” Schwappach says, adding that “there is a mismatch between real projects moving forward from pre-Feed, Feed status toward FID status [and] the numbers we see as ambition”.

Credibility

David Edmondson, CEO of Neom Green Hydrogen Company—which recently took FID on its 1.2mn t/yr flagship project in Saudi Arabia—agrees that project credibility is key to avoid the risk of manufacturers overinvesting for a market that may never materialise. “There has got to be a basis behind the announcements. The three shareholders [of Neom], when they did make the announcement, they were absolutely committed to seeing it through to completion.”

Edmondson notes that “three years ago, no one was really talking about green hydrogen and its viability in the marketplace”, with particular uncertainty around price. “And yet, we have got a 30-year pricing formula for an offtake agreement. That is fairly unique, and that is what gave us credibility going to the lenders,” he says, adding that the shareholders’ previous experience in the renewables and gas markets also added to the integrity of the project.

Neom opted to contract Germany’s Thyssenkrupp Nucera for a 2GW electrolyser at the end of 2021. “We chose what we believed to be the best technology at the time—and still do—but they also have a robust supply chain, so they had the manufacturing capacity,” Edmondson says. The developer plans to “put a lot of pressure on wind turbine manufacturers to bring local fabrication” to the Mena region. “That goes true across the supply chain.”

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Author: Polly Martin