Enclaves affected by a global wave of hydrogen project cancellations

In an analysis of the global green hydrogen market, consultancy Wood Mackenzie warned this year that costs were putting pressure on hydrogen projects. “Hydrogen has been a hot topic in the energy transition. But promoters and policy makers are struggling to move at the planned pace – with costs the main barrier.

The energy consultancy believes projects will continue to emerge, but the focus will be on those that have managed to reach a final investment decision (FID). “This will be a critical year in determining the pace at which the markets for hydrogen and its derivatives can grow,” said Murray Douglas, vice president of the hydrogen and hydrogen derivatives region. research Of hydrogen and ammonia.

The analyst points out that “the costs of developing hydrogen and renewable energy projects increased significantly during 2023, and on top of that, developers faced difficulties in securing financing.” These new, unproven technologies, often targeting new customers, are risky. With funding difficult to obtain, costs rising, and regulatory decisions still pending, project delays and cancellations have been widespread – a pattern that is expected to continue.

“Export projects are struggling to secure direct investment, but Europe and China continue to have the largest capacity under construction. Only 2% of total announced capacity globally is still under construction or in operation,” Wood Mackenzie highlights.

Export-focused projects represent 44% of the announced capacity, but their entry into force will depend on “increasing demand in import markets.” Although nearly half of global capacity announcements are speculative, and announcements skip developments, it is clear why these projects are considered high-risk.

In the last quarter of 2023, a record high in terms of declared capacity was reached: 12.7 million tons per year announced, bringing a global total to more than 120 million tons per year. “Production centers and mega projects have dominated production capacity announcements around the world, and new projects have mainly been in export-focused markets, particularly in North Africa,” says Wood Mackenzie.

The consultancy highlights the need to approach major announcements in less developed markets with caution: “Export-focused markets host a small number of large projects, inflating the overall capacity of each region. But in reality, most of these projects (… ) will struggle to advance due to financing problems, lack of supportive policies, challenges in securing buyers and underdeveloped supporting infrastructure.

By analyzing the production of electrolyzers, which is critical to hydrogen production, and with the need to fine-tune the technology needed to produce larger, large-scale electrolyzers, China stands out as one of the major powers in its production, being able to “scale up production capacity more quickly.” From Europe and North America, perhaps capturing a large portion of the market.

But there are “doubts about performance and reliability”, with WM giving the example of Sinopec's Kuqa project which has encountered “technical problems and is currently operating at less than a third of its installed capacity”.

Meanwhile, new and ambitious players are promising to “expand” although “alarm bells” are ringing due to the risk of electrolyzer oversupply in the short to medium term.

There are projects being canceled all over the world, but others are moving forward

The consulting firm, based in Edinburgh, Scotland, gives an example of several cancellations: The Cavendish project in the United Kingdom was canceled due to technical and economic challenges and uncertainty about the British government's support for the project. In the United States, Nutrien suspended the Geismar project for two years, due to high costs and uncertainty for borrowers. In China, five projects were cancelled, including a project worth about three billion dollars.

But there are good examples. In Saudi Arabia, the NEOM Helios green fuel project received the final investment of $8.5 billion, funded by the Saudi Public Investment Fund. In China, the China Energy Engineering Corporation (CEEC) has secured the final investment for a 640 MW green hydrogen plant, powered by 800 MW of renewable energy with the aim of producing 45,000 tons per year of hydrogen which will then be used to produce ammonia as well as methanol.

The Sense project is expected to invest “several billion euros”

The budget for the H2SinesRDAM project is “several billion euros” for “the entire value chain, from renewables to all infrastructure,” Niels Grubet, European vice president of green hydrogen at electricity company Engie, told JE in April 2023. The goal was for the project to enter into force in 2028/2029.

Exactly a year ago, Engie's president confirmed that the project was waiting for the European Commission's response to a request for European funds from IPCEI (Important Projects of Common European Interest).

Niels Grubet then said that the project would contain “a gigawatt of renewable sources and 400 megawatts of electrolyzers.” And also liquefaction units (known as trains), with an export capacity of more than 100 tons per day at the Sens station, via a ship designated for transport towards the import station in the port of Rotterdam. The goal will be to sell this liquid hydrogen to customers in Northern Europe, which is more expensive than the regular H2 version.

In addition to Engie and Shell, Anthony Vedder, a specialist in marine transportation of liquefied natural gas, and the Dutch company Vopak, a storage terminal operator, which will be responsible for constructing and operating the refinery, also participated in the project. stations.

Other hydrogen projects in Portugal are making their way

Engie is also part of another green hydrogen project planned for Sines: GreenH2Atlantic which aims to build a 100 MW green hydrogen production unit on the site of the former EDP coal plant, which is also part of the consortium along with Galp, among others. The project has already received financing worth 30 million euros from European funds.

Also in February, the European Commission announced that two projects in Portugal were entitled to European funds: the Fusion Fuel project in Sines and the Winpower project would receive funds from the Hy2Infra programme.

The Fusion Fuel project represents an investment worth 650 million euros with a capacity of 630 megawatts. “Green hydrogen will be exported in the form of green ammonia from the port of Sens to Rotterdam. The deadline for the project to become operational will be 2029,” João Wahnon, founder of the Portuguese Wall Street-listed company, told JE in February.

Galp already has a €217 million project to produce green hydrogen at its refinery in Sines to replace gray hydrogen, produced on the basis of fossil fuels, which is already consumed at the complex.

This project is scheduled to be completed by the end of 2025. GalpH2Park will have a green hydrogen production and storage capacity of 100 MW and will be installed on land belonging to the Sinz Industrial and Logistics Zone (ZILS), with an area of ​​4.5 hectares, and a useful life of 20 years.