EMERGING MARKET

How To Capture Value In The Emerging Hydrogen Market

by Hannah Wintle

The growth in production of green hydrogen has the potential to cultivate a value pool worth €500 billion by 2030. At present, however, the immaturity of this emerging market means that the value chain for green hydrogen projects is not yet fully structured.

A recent report by Roland Berger highlights the new business models that are emerging, but estimates that players will only have until the second half of the decade to choose the right one for them, in order to exploit this unique opportunity and shape the industry.

As it stands, green hydrogen is a small market with strong growth perspectives, but will require innovation in terms of how established market players adapt their current business models.

Uwe Weichenhain, Senior Partner at Roland Berger and co-author of the report, highlighted that the key question for developers is to decide which piece of the value chain they take. Also emphasising the need for these industries to formally partner up with technology suppliers, Uwe added: “Since there is still very much a technology risk out there, we see a close link of technology supply and actual project development in these early projects.”

“Looking at the development, we believe that as projects get larger, the old industry structure we've seen in energy infrastructure projects in the green electricity or oil and gas markets, also holds true for the hydrogen market.”

Ultimately, we believe that the technologies and developments will lead to an industry structure that is quite comparable to what we see in energy infrastructure today.

The market will develop in two phases

Hydrogen’s capability to decarbonise sectors that cannot be electrified mean that its uptake is expected to grow massively as governments strive to reach their climate targets.

Therefore, in the five years between 2025 and 2030, the report postulates that the market will grow on the back of government incentives, particularly in the European Union, United States, and Asia.

After 2030, it is thought that the market will become self-sustaining, driven by supply routes between countries with high demand and those with low production costs.

Emmanuel Fages, Senior Partner and coauthor, said: “I would say this is the makeor-break period because until 2030, the projects would be set out. People would start buying hydrogen, you would have return of experience and feedback.”

“When we forecast to around 2030, we are relatively confident afterwards becomes much more hypothetical. We believe that it will be locked in and will continue.”

Business models will continue to evolve as the market matures

As hydrogen is a nascent industry with no strongly established business models or structures on the market at present, various market players involved in current projects tend to share risks by operating as part of a consortium.

Due to the lack of any clearly defined roles for the different players, they often act in line with their traditional role. OEMs, for instance, manufacture the equipment required for green hydrogen production projects, and EPC companies provide the necessary engineering, procurement and construction services.

The report predicts, however, that these market players will adapt their business models and thus capture more value as the market matures, as the companies involved will have a greater understanding of the projects’ risks and profit pools.

Three business models are currently competing

In a business model widespread across European companies, project developers, OEMs, or EPC companies are currently acting as pure players. US players, on the other hand, often take the role of technology providers, combining technology (OEM) and installation (EPC) roles. Finally, Asian players largely operate as solution providers, where all roles are covered by a group or conglomerate.

The report acknowledges that at present, it is difficult to pinpoint which business model will be the most profitable. Looking to previous examples demonstrates that value could lie in integration and project development across the whole value chain, such as in the case of photovoltaic cells. However, small, crucial players with a technological advantage could also prove valuable, as they were in the case of electrolysers.

A successful business model ultimately depends on a multitude of factors, including access to renewable energy and type of industrial process used. The report identified four types of green hydrogen production projects: two types of midscale industrial projects differentiated by sharing hydrogen production or producing hydrogen on site, and two types of utility-scale projects, offshore and onshore.

Project developers, solution providers, and technology providers can therefore all benefit from different aspects of the value chain due to the different natures of these hydrogen projects.

Now, it is down to the players to position themselves appropriately so as to secure their role and enjoy a share of the value pool expected to emerge by 2030.