Is green hydrogen competition coming faster than we expected ?

This blog does not constitute Investment Research as defined in COBS 12.2.17 of the FCA’s Handbook of Rules and Guidance (“FCA Rules”). See the end of this blog for links to important information and disclaimers.

Is competition in green hydrogen coming even faster than we expected?


Back in July 2021 we published research on the investment opportunities in the green hydrogen theme, with a focus on the likely long term development of the industry, not just demand but also supply, and sources of competitive advantage. For suitably qualified investors, this analysis can be accessed via our website. In this blog we look at how quickly the green hydrogen supply landscape has changed since the report, with many more companies entering the market.

Much of the analysis of the green hydrogen theme focuses on demand, especially orders and plans. We think this doesn’t give the full picture. Tougher competitive dynamics in the green hydrogen electrolyser space has been something we’ve written about frequently in our weeklies, and it is one of our key mid term concerns for the European industry. Our first green hydrogen report in July 2021 highlighted our belief that blossoming supply from larger, integrated players, new entrants, and emerging market manufacturers, was likely to mean supply will grow much faster than demand. This in turn would result in industry wide production capacity utilisation remaining lower than many market observers expect. This is likely to be compounded by demand  in the next few years (in the sense of deliveries not orders), primarily being for pilot projects. We expect customers (end users of hydrogen) to hold back on production at scale until green hydrogen costs become more comparable. In another case of history rhyming, we worried the electrolyser space could go the way of German solar in the late naughties. Market capitalization of the then world leaders was effectively erased by an explosion of Chinese supply that vastly exceeded existing demand. Having spent a great deal of time raising capital for many of those companies in those days, it was a hard-learned lesson & one that remains fresh. The chart below is from our July 2021 report.



Since July 2021 – a surge in new projects (demand), but also in competition (supply)

Back in July last year, we were looking at a fairly concentrated industry (ex China). But with low barriers to entry, and a well understood benefit from economies of scale, the risk was that the potentially large end market (at least long term) would attract competition at scale. Since then we have seen a surge in deals, tie ups and expansion plans. These have included:

  • In October, Mukesh Ambani’s Reliance inked a JV with Stiesdal to produce very low cost electrolysers in India. Wind energy pioneer & former Siemens Windpower CTO said he believes his proprietary alkaline electrolyzer technology can quickly reach €200/kwh.
  • In late November,  Plug Power & Acciona  finalized a 50:50 JV to develop, operate, and maintain green hydrogen projects in Iberia with facilities co-located at industrial customers and stand-alone plants. Medium term targets are to produce 100 tons/day and for the first plants to be online in 2023. This follows the earlier November announcement that Fertiglobe (OCI and ADNOC) selected PLUG as provider for 100mw electrolyser for EBIC project in Ain Sokhna, Egypt. Plug Power also said it will open a new 70,000-square foot European HQ in Germany to serve new & existing customers.
  • Also in November, Indian Reliance Industries, JSW Group and Adani Group announced plans to make electrolysers in India with India’s Power Minister R. K. Singh promising subsidies.
  • In September,  ABB flagged a collaboration with Chinese h2 electrolyser player Peric to integrate ABB automation, electrification and digital solutions with Peric electrolysers to bring down the cost of production & prices for hydrogen producers.
  • In December, Enel Green Power Chile and Highly Innovative Fuels (part of AME) announced that they were successful in bidding to provide a 240MW electrolyser for the first commercial phase of the Faro del Sur project. According to the tender documents, the commissioning of the project must not take place later than December 31st, 2025.
  • More recently Thyssenkrupp’s Nucera (previously known as TUC) unit announced a supply contract to provide a 200MW electrolysis plant in Rotterdam, with final investment decision due in 2022 and production start seen in 2024. This followed the win of an Air Products contract to supply a 2GW electrolysis plant for the gargantuan NEOM project in Saudi Arabia in early December. In October, Thyssenkrupp said it would scale electrolyzer production from 1 to 5MW together with integrated energy solutions provider, Siemens energy, supported by the German government. Thyssen are also considering an IPO as early as q1 2022.  Market reception of any transaction will be very interesting for European pure plays, given the much larger scale of operating business, order backlog and margins of the Thyssen subsidiary. The business recently held an investor day, which supported the IPO expectation .


Mid term demand to mostly come from current production replacement

While many analysts talk about the exciting long term “possible” uses of green hydrogen in hard to decarbonise sectors (transport, steel, green back up electricity etc), all of these involve material cost and technological challenges. Our expectation is that demand over the next decade or more will mostly come from replacing existing “dirty” hydrogen production. Current global production of pure hydrogen is c. 70m tonnes pa, of which 97% is not green.  Of this, c. 90%  is used in highly cost sensitive commodity end markets like oil refining and fertilisers – with most hydrogen plants co-located alongside their big industrial customer.  Replacing this demand with a green alternative would be a good outcome for carbon emissions.  Even if only half of this demand switches over the next 20 years, it would require a massive increase in green hydrogen production capacity. The snag from a financial perspective – the green hydrogen element is only part of a much bigger industrial process.



Key trend – shifting to an integrated product offering

Given this expected demand development, we would particularly highlight two announcements – the ABB/Peric collaboration, and the expected thyssenkrup nucera IPO. Our analysis suggests that much of the value created in this industry in the longer term will go to the systems integrator’s. Looking at our favourite three phase model of the industry, developed by IRENA, we can’t help thinking we’re rapidly progressing from stage one, dominated by first movers producing pilot projects, to stage two. This is where the first mover advantage begins to erode in favour of the fast followers, the larger, integrated players (and lowest cost producers). We think it’s fair to suggest that the competitive dynamics in the sector are indeed accelerating, possibly faster than even our initial bearish take assumed. If the model is correct, within a few years the industry could have already begun to move to stage three, where the technology rapidly diffuses and competitive advantage gets even harder to sustain.

Related Posts