BP PLC has taken a large stake in an Australian renewable-hydrogen project, betting on growing appetite for energy made using wind and solar power. While that is a big vote of confidence in the alternative fuel, the fledgling green-hydrogen industry still has a long road ahead, analysts say.
Bringing large-scale green hydrogen into production involves challenges that range from high costs and supply-chain development to permit and transport issues.
“Procuring electrolyzers, for example, will not be straightforward,” says Wood Mackenzie analyst Maria Yee. “The backlog for electrolyzer manufacturers currently sits at 43GW and the pipeline sits at 304GW.”
In addition to shoring up suppliers, project developers need to find customers willing to sign up to—and likely pay a big premium for—the clean-energy product, say analysts. Some skepticism also remains over the nascent technology, which remains unproven at scale, they add.
“Some projects clearly we don’t think are going to happen or, if they do, it will be late 2040s,” said Minh K. Le, head of hydrogen research at Rystad Energy.
The case for green hydrogen has improved, especially in Europe, amid surging energy prices and concerns about commodity supplies following Russia’s invasion of Ukraine, he said. Projects with backing by a major resources company seem among the more likely to proceed, he said.
BP on Wednesday said it would take a 40.5% stake in the Asian Renewable Energy Hub, planned in northwest Australia. The project is expected to cost upward of US$30 billion, according to one of its consortium partners, CWP Global.
Alex Hewitt, CWP Global’s chief executive, said BP brings engineering expertise and experience with complex projects at remote sites.
Australia has the biggest pipeline of green hydrogen projects globally, analysts say.
Wood Mackenzie’s Ms. Yee estimates Australia accounts for roughly 20% of all low-carbon hydrogen projects proposed world-wide, which includes projects that plan to use methods, such as electrolysis, carbon capture or pyrolysis. Though, in Australia, most projects are for electrolysis-based hydrogen, she said.
Australia’s abundance of sun and wind, its low population density and proximity to key Asian markets are among the attraction for green-hydrogen developers, investors and analysts say. Most proposed green-hydrogen capacity is linked to megaprojects in remote parts of the country.
The scale of potential investment is large.
”By 2050, we estimate a minimum of US$600 billion will be invested purely for green hydrogen electrolyzer capacity,” not including other costs such as storage and transportation, said Ms. Yee.
Goldman Sachs analysts estimate US$5 trillion of investments will be needed in the global clean-hydrogen supply chain to reach net-zero targets.
While some analysts expect cost estimates to improve over time, green hydrogen remains expensive to produce—a hurdle for developers seeking to attract partners and customers. “Only the most competitive projects will be brought online first,” Ms. Yee said.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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