Share prices of US and European clean hydrogen companies have collapsed while projects have been delayed as the industry battles lower than expected demand, regulatory uncertainties and growing investor scepticism.
Shares of hydrogen companies Plug Power, Ballard Power Systems and Green Hydrogen Systems have fallen by more than half this year to historic lows as they reported repeated quarterly losses. Shares of Nel, Bloom Energy and ITM Power have dropped by a third.
The S&P Kensho Global Hydrogen Economy Index, which tracks companies across the low carbon hydrogen value chain, is back to levels akin to those in mid-2020, erasing gains made in late 2020 and early 2021 at the height of hype over the development of the green energy.
Hydrogen is seen as crucial to decarbonising energy-intensive industries such as steel and shipping. The fuel can be produced via renewable sources to create “green hydrogen” or using gas to generate “blue hydrogen”, whereby the resulting carbon emissions are captured and stored.
Last month, consultancy McKinsey slashed its 2030 green hydrogen forecast for the US by 70 per cent, predicting the country would miss its 10mn tonnes clean hydrogen production target set by the Biden administration. In July the European Court of Auditors, the bloc’s spending watchdog, warned the EU’s goal to produce 10mn tonnes of green hydrogen by 2030 was “unrealistic” and a “reality check” was needed.
“Green hydrogen is still not investable. It’s rubbish in terms of investment,” said Mark Lacey, head of thematic equities at Schroders, adding that the UK asset manager had “limited exposure” to green hydrogen in its energy portfolios.
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The downturn of the hydrogen market marks a turnaround from the investor euphoria just two years ago when President Joe Biden signed into law lucrative tax credits in the Inflation Reduction Act, which transformed the US into the most attractive destination for hydrogen production. At the same time the EU was charging forward with its newly adopted strategy for hydrogen.
It comes as shares in nuclear energy companies have surged to record highs on rising demand for energy from artificial intelligence.
Uncertainty over the US tax credit rules and stringent regulations in the EU combined with lacklustre demand have hampered projects on both sides of the Atlantic. While announced capacity has grown, only 18 per cent of clean hydrogen projects in North America and 5 per cent of projects in Europe targeted to come online by 2030 have reached a final investment decision, according to a McKinsey and Hydrogen Council report.
“It’s been a painful journey,” said Andy Marsh, chief executive of Plug Power, a hydrogen equipment manufacturer. The company confirmed that it had paused development on its $290mn project in New York, which was set to be the largest in North America, and is facing a cash crunch.
“We had unrealistic expectations about how fast this initially could move,” Marsh added.
Plug Power’s pause is one of several setbacks this year for the nascent fuel. Last month, US developer Hy Stor terminated its 1GW contract with Norwegian manufacturer Nel for a high-profile hydrogen project in Mississippi. Corporate developers including Marathon Petroleum, Fortescue and CNX have stalled or pulled out of their commitments to Biden’s $7bn hydrogen hubs programme.
“There will be a shakeout,” said Håkon Volldal, chief executive of Nel.
The company announced a $400mn factory in Michigan last year to manufacture hydrogen equipment but has not moved forward on development, citing “lack of momentum” due to higher-than-expected costs and a lack of clear tax credit rules.
“It’s just stupid to have a big factory with the glossy, shiny machines that can deliver gigawatts and then nobody will buy it because there are no projects,” Volldal said.
The slow rollout of tax credit rules from the White House and low demand have hit less diversified and smaller companies the hardest. Share prices at larger diversified energy companies with hydrogen businesses such as Cummins, Air Liquide and Linde have all risen since the start of the year as power demand forecasts have increased.
In Europe, slow and insufficient government funding, along with regulatory barriers in some states, have frustrated development.
This week Repsol, the Spanish energy company, said it was pausing all of its green hydrogen projects in Spain. Last month, Shell cancelled a blue hydrogen project in Norway, saying “it “[hadn’t] seen the market for blue hydrogen materialise”.
Repsol blamed the extension of a windfall tax on energy companies for its decision. But Tomás Malango, the company’s director of renewable fuels and circular economy, said that few projects in Europe had reached a final investment decision because there was little flexibility in EU rules. “The risk is higher if you only have one shot,” he said.
Despite delays, only a small fraction of projects globally have been cancelled, providing the industry with hope that clarification by Brussels and Washington around incentives and regulation could help the sector recover. Wood Mackenzie estimates about 2 per cent of existing and planned low low-carbon hydrogen capacity has been retired or cancelled over the past 18 months.
Middle Eastern oil companies Saudi Aramco and Adnoc are continuing to invest in clean hydrogen, with the latter signing a deal last month to buy a 35 per cent stake in ExxonMobil’s Baytown hydrogen project in Texas.
The European Commission launched a funding model earlier this year to reduce the cost of green hydrogen and was looking to create “demand markets” through public auctions, according to officials involved. The US Department of Energy has set aside $1bn for a programme to stimulate hydrogen demand.
But the European hydrogen industry has complained that the commission’s definition of green hydrogen is too rigid. In the US, a fierce debate has raged for nearly two years over how stringently the Biden administration should define green hydrogen in its tax credit rules, stalling investment and forcing developers to burn cash.
Aviva Aron-Dine, assistant Treasury secretary for tax policy, told reporters earlier this month that final rules for hydrogen would be released by the end of the year.
“It boils down to IRA being a very good tool in principle, but when there’s limited clarity on the regulations . . . it’s difficult to take the final investment decision,” Volldal said.
“You have this big piggy bank, and you’re not able to get anything out of it. You’re shaking it, but nothing is coming out.”
