Cost pressures have slowed the growth of the green hydrogen project pipeline “significantly” in the past four months but demand for electrolysers continues to outstrip supply, according to Danish electrolyser manufacturer Topsoe.

Increases in the cost of capital because of higher interest rates, as well as higher energy and construction costs, have combined to slow growth, Kim Hedegaard, Topsoe’s CEO of power-to-X, told Hydrogen Economist. “It is basically all the cost components that have gone up, and that puts additional pressure on the project developers,” he said.

Despite the slowdown, the project pipeline remains “extremely large”. “Demand is still significantly larger than the supply side,” Hedegaard said. However, projects are also taking “a little bit longer” to materialise compared with six months ago, he added.

Topsoe, which focuses on solid-oxide electrolysis cell technology, is constructing its first major production plant in Denmark and finalising plans to develop a facility in the US.

The Denmark plant, which is sited in Herning on the Jutland peninsula, represents an investment of about €350m ($374m). It will have a capacity of 500MW/yr. Production at the plant is expected to start by the end of 2024.

US momentum

In the US, where Topsoe plans to invest a similar amount, the company has identified a location for a new facility and expects to announce details of the plan later this year or in early 2024.

“The rationale for [the US investment] is to be close to what we believe is going to be the largest market for us in the next five years,” said Hedegaard. “We see that now with the progress on the hydrogen hubs and the progress on a number of the subsectors under the Inflation Reduction Act [IRA], we believe that this market is going to pick up pace again in 2024.”

”All the cost components have gone up and that puts additional pressure on the project developers” Hedegaard, Topsoe

Topsoe’s push into the US market comes as several of its European rivals make similar moves on the back of expected growth driven by the IRA. In recent weeks, UK-based proton-exchange-membrane electrolyser manufacturer ITM Power and Norwegian technology company Hystar have both announced their intentions to go after the US market, with the latter predicting its business in North America could eclipse that in Europe by the end of the decade.

Norwegian firm Nel has selected Detroit as the site for its second gigafactory after evaluating various locations around the world—including Europe and China. German firm Thyssenkrupp Nucera is also weighing an investment in North American production capacity.

The design of the IRA, which offers tax credits to projects on a sliding scale linked to carbon intensity and other criteria, has several advantages over support schemes in other regions, Hedegaard said. 

“The first thing is that you are basically getting your tax credits upfront with a ten-year guarantee,” he said. “So that gives security for the initial investors and for the project developers that at least it has financial viability for the next ten years.”

This allows projects to commit to offtake agreements “at a completely different price point than what you see in Europe”, he added. “And you have to remember that IRA is not only subsidising the producer of the fuel, it is also subsidising the producer of the components.”

Power shock

Hedegaard stressed the importance to the green hydrogen sector of access to renewable power and said recent developments in the offshore wind sector were concerning. Danish energy company Orsted sent shockwaves through the renewables industry in late October when it abandoned two major wind projects off the coast of New Jersey, citing cost and supply chain pressures, as well as the need for higher subsidies.

“The power-to-X industry is not only limited by the amount of offtake of the green products, or the amount of available electrolyser [capacity], it is also limited by the amount of accessible renewable energy, which is extremely important,” Hedegaard said.

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Author: Stuart Penson