Tokyo 2022: Delivering hydrogen gigaprojects

Scaling up hydrogen will require infrastructure—including electrolyzers, large-scale renewable-energy plants, pipelines, ports, and reformers—worth $950 billion through 2030 alone.

On October 21, 2022, as part of the Global Infrastructure Initiative Summit 2022 in Tokyo, McKinsey convened leaders from across the hydrogen value chain to discuss major questions such as the following:

  • What infrastructure is required for a hydrogen economy to succeed?
  • How can project design and delivery be optimized?
  • What can the hydrogen industry learn from energy and other infrastructure sectors?
  • What collaboration models lead to the most successful outcomes?
  • How can these projects be structured across their life cycle to lower their cost of capital?

The following key themes emerged from the roundtable?

  1. The right infrastructure is crucial for the rapid scale-up of the hydrogen economy. Clean hydrogen is cheapest to produce in Australia, Latin America, the Middle East, and North and South Africa, while Europe, Japan, and Korea will want to import hydrogen. By 2030, a hydrogen economy that transports and trades hydrogen and derivatives such as ammonia, synthetic fuel, and hot briquetted iron (HBI) is up to 40 percent cheaper than a hydrogen economy with only local production.
  2. The scale-up will require investments of up to $950 billion until 2030, of which $240 billion have been announced. Much of this infrastructure is in clusters and megaprojects. For example, green-ammonia projects have a practical “minimum size” of around one metric megaton of ammonia per year.
  3. Scaling up equipment manufacturing is both a huge challenge and an opportunity. The scale-up of, for example, the electrolyzer industry from less than one gigawatt of installed capacity today to more than 250 gigawatts by 2030 is a tremendous challenge. It also offers an opportunity to reduce costs through automation, better product design, and a scaled-up supplier landscape. Cost reductions of up to 60 percent should be possible on standardizable equipment over the next five years.
  4. Location matters. The most cost-competitive hydrogen plants in the world will be those that are located where the best sun and wind are available, and also those that are designed and delivered the best. In a “digital first” design of hydrogen plants, a complete and complex digital twin of the integrated plant (including conversion, electrolyzers, renewables, and storage) is built and optimized using powerful computing. With up to 90 percent of the final product cost linked to capital expenditures, optimizations in the design stage can have an influence of up to 25 percent on product cost.
  5. Collaboration across the value chain is key. The first successes in hydrogen projects were developed from concept to final investment decision (FID) in record time because of collaboration among project owners, developers, and offtakers. Such collaboration is also critical for the successful delivery of these projects. Contracts don’t reduce risks and accelerate projects—collaboration does.
  6. Solving the offtake challenge is crucial. Without long-term offtake agreements, hydrogen infrastructure is difficult to finance at competitive rates, yet offtakers are wary of a first-mover disadvantage if hydrogen costs fall in the future. Framework contracts, alliances, and joint investments between offtakers and producers can solve this “chicken and egg” problem, as can regulatory support for early-mover projects.
  7. Liquefied natural gas (LNG) and other industries offer many lessons. There are several parallels and learnings from the development of the LNG industry and other rapidly scaling technologies, such as battery production and data centers. For example, the development of standard contracts for hydrogen delivery can simplify negotiations and the structuring of projects. Standards and norms for hydrogen equipment can accelerate project design and delivery. And “blueprinting” facilities can reduce costs for multiple plants and modules and accelerate schedules.
  8. Overall, the sentiment about the hydrogen economy is highly positive. There is a clear realization of the challenges ahead but also an understanding of the size of the opportunity and the potential positive repercussions for the world.