Dive Brief:

• The sudden growth of green hydrogen since 2020 could cut the cost of the resource to less than $2 kilogram as soon as 2040 in most markets, according to recent analysis by Wood Mackenzie.

• Hydrogen fuel cells are already cost-competitive with lead-acid batteries used in the forklift market. Green hydrogen from renewable energy may be economic for use in long-haul trucking as soon as 2025, according to separate research from Morgan Stanley.

• Supply chain constraints in natural gas markets are poised to spur broad adoption of hydrogen in Europe, according to Bridget van Dorsten, a hydrogen research analyst at Wood Mackenzie. The firm expects to see hydrogen co-fired with coal and natural gas in the 2030s and beyond, with the power sector accounting for 31% of hydrogen demand by 2050.

Dive Insight:

After several false starts, hydrogen now appears to be growing at the exponential rate seen in other renewable energy resources — and the rapid course of development may finally break the industry's longstanding price problem, analysts say.

The number of announced hydrogen projects suddenly jumped at the height of Covid-19 in 2020, and then almost doubled again in 2021, van Dorsten said. Exponential growth seems set to continue — announcements from the first quarter of 2022 are already equivalent to 25% of the total project pipeline, van Dorsten said.

While these figures were drawn up before the conflict in Ukraine began, van Dorsten said she didn't see that slowing the trajectory for hydrogen in the long-term. If anything, surging energy prices have only bolstered the case for hydrogen, she said.

The rising cost of oil and natural gas has helped close the gap between price parity for fossil and renewable fuels in recent months, said Stephen Byrd, head of Morgan Stanley's North American equity research for power, utilities and clean energy.

"There's a lot of optimism because, while there is an energy crisis right now and power and gas prices are quite high, it has flourished a mindset of wow, we really need to be not so reliant on other countries for imports of natural gas," van Dorsten said. "We're already on a pretty exponential ramp up. We will likely see it ramp up even more."

What this means, Byrd said, is that hydrogen has finally managed to break free of the paradox in which it has been trapped for so long. For years experts have said that scaled-up manufacturing and larger electrolyzers would bring the cost of hydrogen down, but the demand needed to stand up those projects has not existed due to the high cost of hydrogen. Now, industry is rapidly investing in hydrogen, and capital expenses are expected to fall 35-65% in the next decade, according to Wood Mackenzie.

"Traditional forms of energy like natural gas are so expensive in Europe now that demand for green hydrogen is increasing quite a bit because green hydrogen looks relatively attractive," Byrd said.

Within the U.S., Byrd said he also sees real, near-term potential for hydrogen to begin displacing battery powered systems in logistics and in transportation, thanks to Plug Power's work to make hydrogen fuel cells and electrolysis more economic. With the reduced cost of those technologies, Byrd said, hydrogen fuel cells now have competitive advantages over batteries in vehicles such as forklifts, which Plug Power supplies, or trucks that need to travel long distances without stopping to charge.

"The advantage is weight and space — in a long-haul truck, you're going to need a very large amount of batteries, and that can be prohibitive in terms of weight," Byrd said. "With hydrogen, the fuel cell that's on the vehicle doesn't double in size, you just double the hydrogen, and hydrogen is relatively scaleable. That's a big advantage for longer duration mobility."

However, Byrd noted that blue hydrogen, derived from natural gas, is likely to remain far more cost effective than green hydrogen within the United States through 2030. For that to change in the near future he said would require significant policy action, such as substantial subsidies through the Build Back Better plan.

"That would be one of these rare cases of a true game changer for green hydrogen," he said. "You could see demand accelerate very rapidly if that passed."