Prospects for the global green hydrogen and Power-to-X markets

Power-to-X and green hydrogen can be key drivers to accelerate the green energy transition and reaching a low-carbon economy. Ramboll has analysed the market potential and offers considerations on taking the emerging technologies from potential to profit.

Because of the sheer scale and momentum behind the green transition, it also represents an unprecedented business opportunity for companies and investors at the leading edge. This has led to enormous interest in technologies like Power-to-X, which has significant potential for accelerating the energy transition – particularly in sectors that are otherwise hard to decarbonise.

But what is the commercial potential and what is needed to realise it?

In a study for the Danish Energy Agency, Ramboll analysed the global market potential and technology readiness, providing perspectives relevant for organisations looking to invest in the Power-to-X value chain.

The market potential for Power-to-X

The commercial outlook for green hydrogen and other products of Power-to-X is closely connected to the global commitment to reduce global warning and depends on the level of ambition in reaching net carbon neutrality.

How ambitious will governments be in setting climate targets? And will those ambitions be matched sufficiently in actions and policies? The answers to these questions will greatly impact the potential and the profits that can be realised in the coming years.

To take into account different paths towards carbon neutrality and the timing of these, we considered two scenarios from the International Energy Agency (IEA): The Sustainable Development Scenario and the Pathway for Net Zero Emissions.

In the Sustainable Development Scenario (SDS), carbon neutrality will be reached in 2070 and global warming is limited to 1.65°C compared to pre-industrial levels.

In comparison, the Pathway for Net Zero Emissions (NZE) reaches carbon neutrality in 2050 and caps global warming at 1.5°C.

Depending on the scenario, we estimate the required global investment in Power-to-X technology to be between 375-1,418 billion EUR in capex spending by 2035.

To get the total market potential – all value created along project lifetime, from planning to decommission – we add operational expenditures and the profits achieved in projects.

This gives us an estimated global total market potential of 601-2,319 billion EUR in the same timeframe.

Estimated global market potential for Power-to-X markets in 2035 — The global market for potential for Power-to-X has been estimated according to IEA’s Sustainable Development Scenario (SDS), and IEA’s Net Zero Emissions scenario (NZE). Source: Study for the Danish Energy Agency in 2021

Even so, the IEA projections can be considered conservative compared to estimates from other global institutions, such as Bloomberg, the Hydrogen Council with McKinsey & Co., or Bain & Company. As a result the figures for the global market potential are also on the conservative side of things, and the outlook may be even more promising.

In short, there is tremendous commercial potential in Power-to-X and green hydrogen. The question is how we realise and leverage it.

Want more details?

Explore the full study for the Danish Energy Agency.

Go to the study

Green hydrogen: a complex path to realising potential

The factors that determine when, where and to what extent we can turn the potential of Power-to-X into profit are complex and come with a lot of interdependencies.

If we take a closer look at green hydrogen , for example, one of the key factors affecting the outlook is the role that hydrogen will play in the final energy demand: i.e. how much will we rely on hydrogen to achieve decarbonisation on a global scale as opposed to alternative solutions, such as continuing to use fossil fuels but combined with carbon capture technology?

It’s a question without a straight answer.

The IEA projects hydrogen to account for 5% of the final energy demand by 2050 in the SDS forecast and 18% in the NZE scenario, but other estimates vary greatly.

Bloomberg, for example, estimates the hydrogen share to be 7% by 2050 in their “weak policy” scenario and 25% in their “strong policy” scenario.

Meanwhile, the EU Commission estimates green hydrogen to meet 24% of global energy demands by 2050. The EU Commission also predicts green hydrogen will be competitive with fossil-based hydrogen in 2030, in regions where renewable electricity is cheap.

Whether green hydrogen will in fact surpass competing technologies depends highly on economic competitiveness, including the expected price.

This price will in turn be determined by three primary factors:

The technology learning rate of electrolysis
Load-factor assumptions
The cost and availability of renewable energy

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Hydrogen explained

Taking technologies to scale

For the most part, the technologies needed to take us from Power to X – whether the outcome is green hydrogen, methanol, or ammonia – already exist. Many of the technologies are tried and tested and have a high level of market readiness as well as high market potential.

The challenges arise firstly in finding solutions to connect the different technologies, secondly in scaling: here, we move into new territory.

We have the building blocks we need, so to speak, but we’re still learning how to build with them.

This learning process demands investment in thorough research and testing to mature the knowledge of different options, including the related risks, and gain the necessary experiences.

An example:

At the very top of the potential scale, we find electrolysis.

Due to its role as an energy carrier in the transport and energy sectors, electrolysis is an altogether central part of the Power-to-X equation, and electrolyser technologies account for the highest market potential in the Power-to-X value chain. In our study, we estimate the market size to be 146 billion EUR in the SDS outlook and 1,411 billion EUR in the NZE scenario.

Looking at the technology learning rate , the price of electrolyser equipment is expected to decline thanks to economies of scale. As demand for annual installed capacity grows, it will become economically viable to invest in large-scale manufacturing plants, which will significantly reduce the cost of components.

Technology learning rate:

How the cost of a technology decreases as experience with that technology increases, due to factors such as learning-by-doing and economies of scale: the more of something we have produced, the cheaper it becomes, as we get better at using and producing it.

The IEA projects a cost reduction of 66% in a period of 30 years, corresponding to an annual cost reduction of 4% from 2019 to 2050.

However, this all hinges on scalability – and while it is technically possible, and even likely, it is not a given.

To support Power-to-X and production of green hydrogen, we need to build industry experience with unit duplication and maintenance and operation at scale.

The sooner the technologies reach scale, the sooner we reap the benefits – both environmentally, financially and socially.

What is the best way to achieve this?

Although speed is of the essence, companies and governments should prioritise investing in a high volume of smaller-scale projects, which will provide the necessary experience and knowledge to understand and manage risks effectively, when moving to the large-scale projects.

Renewable energy: Increasing capacity and decreasing cost

If we go back to the green hydrogen example, another factor influencing price is the availability and cost of renewable energy.

To produce green hydrogen, the electrolysis must be supplied with electricity from renewable energy sources.

If you have access to renewable energy for many hours of the day, you will naturally achieve a high utilisation of your electrolysis assets, so having a stable and continuous energy supply is crucial.

As a result, the CAPEX of the assets will be reduced due to greater production of hydrogen. Consequently, countries and regions with excellent conditions for renewable energy production, for example wind or solar power – such as North Africa, Chile, or Australia – will therefore be at an advantage and among the largest producers of green hydrogen in the coming years.

The Levelized Cost of Energy (LCOE) for utility-scale renewable power generation technologies has already fallen significantly over the last decade.

According to the International Renewable Energy Agency (IRENA), offshore wind has shown a cost decline of 29%, onshore wind of 40%, concentrating solar power of 47% while solar photovoltaics have seen a staggering 82% drop in cost. IRENA expects that this trend will continue in the future.

While the decreasing cost of renewable energy generation bodes well for green hydrogen and Power-to-X in general, the energy needed to power the processes poses a challenge:

The demand for energy (especially electricity) is set to rise 50% worldwide towards 2050, according to the IEA. Although technologies like hydrogen and Power-to-X may be important levers for decarbonisation, they also rely on still more power from renewable sources to reach the scale needed for significant carbon reductions.

Which brings us to a key point: for Power-to-X and green hydrogen to be truly sustainable solutions, a massive expansion of renewable energy is needed, especially of wind and solar power. And we can drive this expansion much faster than what we do today.

If we don’t look at the full picture and build renewable energy and Power-to-X in parallel, we are essentially robbing Peter to pay Paul.

*Certification of green hydrogen:

For certification of green hydrogen, using existing renewable energy supply might not be sufficient. If you plan to pursue certification, it is important to consult the regulatory framework applicable to the specific market and geographical location.