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Wherever carbon capture and storage are possible, blue hydrogen will likely be cheaper than green.

It is also the only near-term option for hydrogen at scale, which is important for the fuels markets.

Regional average costs say green needs huge incentives, but there will be small pockets of low costs.

While tax incentives give the US a major blue hydrogen advantage, blue in other regions beats green.

The incentives/encouragement to get blue hydrogen moving are minor versus the same for green.

We revisit hydrogen economics again this week, as many of the COP28 delegates believe hydrogen to be the right path and as Europe and others commit to expensive infrastructure in anticipation.

Even if Europe chooses to allocate renewable power at cost to hydrogen projects, the cost of making the hydrogen is high; valuing power at prevailing market prices makes investments very unattractive.

Although higher than in the recent past, US power prices remain more attractive, yet still drive unattractive hydrogen costs if local alternative power values are used versus power costs.

The US 45V credit works for power prices in the 6-8 cent per kWh in the US, but with residential power prices so much higher, giving hydrogen cheap power penalizes the consumer if the power is fungible.

Pockets of low-cost power will work in Europe and the US – idled wind power for example and hydro. If you could stack and trade credits in the US for power and hydrogen that might help – not yet!

Willingness to pay looks like the major stumbling block when it comes to hydrogen development as production incentives are driving investment in production equipment for which there is no demand.

Demand incentives may be the answer, but this is more taxpayer money – demand mandates may be the better solution and may provide the most economic pathways, but agreement is a challenge.

Small hydrogen projects, while not capital efficient, may be all that market demand needs today, but this leaves the equipment industry with a growing capacity overhang and no path to scale economies.

Otherwise, we question the headlong rush into hydrogen infrastructure in Europe, with many of the billions spent on pipelines likely to be wasted as distributed power and hydrogen evolves.

The rush for blue ammonia, especially in the US, assumes a step change in demand growth, as well as unlikely availability of labor and equipment, renewable power availability will also challenge many.

The unique features of the 45Q tax structure in the US are driving a hydrogen technology investment that would not make sense anywhere else in the world, but it relies on efficient CCS at low costs.

We question whether there is room for the new entrants and consequently feel better about the odds of success for the ammonia incumbents, especially those with recent project experience.

If the world moves aggressively down the (challenging) path of embracing ammonia as the shipping fuel and power stations’ fuel of the future, many of these projects could work; but it is a big “if”.

Those fabricating in China will have a timing and cost edge, however unpopular, but China provides another risk, as (see our past research), it could drive low-cost green hydrogen/ammonia quickly.

As low-cost green hydrogen becomes more elusive, we would expect increased efforts to find alternative sources of hydrogen. Gasification and pyrolysis are technologies that show promise.

The history of gasification is not good, but technology is improving, and syngas production can drive both fuels and materials production – finding low-cost feedstock is the challenge, as is scale.

Pyrolysis is very dependent on what it is you are heating up and your source of heat – as with gasification, you do not produce a pure stream of hydrogen, but it can be captured for fuel/materials.

Europe appears very disadvantaged in the table below as it does not have the low-cost feedstocks or the energy at the right price – Europe should rethink its attitude toward CCS to add some options.

Our work with multiple clients and many technologies suggests that there will likely be opportunities for all options, but it will be very situation and location-specific.

No one is making money in the West making electrolyzers today, but we see a new entrant almost weekly. This setting is reminiscent of the EV industry 2 years ago, which has not ended well for many.

What worked for Tesla and BYD was the rapid economies scale that others are struggling to match as the early EV adopters are largely satisfied – hydrogen evolution is not allowing for scale gains, so far.

While we see plenty of agreements to deploy electrolyzers, not many are past the investment decision post yet, and the orders are spread out with no clear volume winners but some losers.

While Plug Power is probably making more noise than most and appears to have plenty of orders, the stock market does not like the story any more than any of the other suppliers.

We note several better-capitalized established equipment suppliers in the mix and wonder whether they will be the ultimate winners, with the independents either acquired or failing.

Outside of power/fuel applications, demand for clean hydrogen is limited by an unwillingness to pay more than grey alternatives, and even within the fuel space, the focus is on low-cost blue projects.

Those who can pay do not want much, and only producing enough to meet higher-priced demand without flooding the market will be challenging, especially if the volumes are minimal.

Initiatives in Europe, especially in Spain and Portugal, not only require power prices that may reflect cost but do not reflect local pricing, but they also require more price-insensitive demand than is likely.

None of our clients is suggesting that they have significant pockets of demand to support a meaningful hydrogen premium. Higher capital costs (interest rates) will slow announced projects.

Two things stand out to us from the announced hydrogen hubs in the US last week – the embrace of blue and green hydrogen and the likelihood that some of the hubs have better plans than others.

Rapid local investment in green hydrogen in China will drive economies of scale for equipment producers, and this is something lacking in the West, allowing China to gain more competitive edge.

Changes in the Chinese power markets may also provide a boost for green hydrogen makers if grid connectivity can deliver cheap hydro and solar power to regions that can use the hydrogen.

Meanwhile, some of the delays in the West are cost-driven – costs are rising in the West, while they continue to fall in China – electrolyzer manufacturing capacity is likely to overshoot 2024/5 demand.

The competitive edge in Europe and the US is likely blue hydrogen rather than green, although it is not clear that China will gain a significant sales edge from going green early – prices remain too high.

Otherwise, we look at several new blue projects, even more US capacity to build electrolyzers, and falling capacity factors in US solar and wind, not encouraging for US green hydrogen.

The RED III proposal in Europe – soon to be signed into law – will likely result in a wave of green hydrogen announcements, but nothing will be cheap, and persistently high power costs remain a risk.

More concerning is the overall lack of practical realism in the plan, and as countries realize that meeting the goals will cause significant economic harm, it could push populism and harm the EU itself.

Transport targets will drive green hydrogen needs, but high prices and limited availability could be another significant nail in the European industrial coffin; more production/jobs will move offshore.

Trying to decarbonize without CCS is a major tactical and competitive error from the EU in our view, handing more competitive advantage to North America, the Middle East, and closer to home, the UK.

Otherwise, we look at why blue may dominate international ammonia fuel markets, what would need to happen for Mississippi to become a hydrogen hub, and continued competitive progress in China.