Kathy Gao, Senior Associate from BloombergNEF’s Hydrogen team, discusses the potential for shipping and aviation to be customers in the hydrogen sector, the viability of nuclear hydrogen production, and the policies driving supply and demand in 2024.
Off-take agreements and the role of shipping and aviation as key customers and sources of demand are crucial areas to watch in the hydrogen sector in 2024.
The production of hydrogen across regions and the emergence of nuclear and pink hydrogen as viable options are significant developments to monitor in 2024.
Deep dives
The Importance of Off-Take Agreements and Shipping/Aviation in the Hydrogen Space
Off-take agreements and the role of shipping and aviation as customers and sources of demand are key factors to watch in the hydrogen space in 2024. The potential for off-take agreements to drive hydrogen project financing in the US is a critical area for growth. However, delays in the release of the US IRA guideline on the hydrogen tax credit have hindered progress. Additionally, regulations and mandates in the EU for decarbonization have created demand for synthetic fuel and clean hydrogen in the shipping and aviation sectors. Initiatives such as the Refuel EU Aviation and EU Maritime Initiatives are driving the need for green hydrogen. Off-take agreements between companies like Air France, Kom, Delta, and DG-Fuels in the aviation sector, as well as MERS and Goldwind in the shipping sector, showcase the increasing demand for hydrogen in these industries.
Hydrogen Production Methods and Policy Impact
The production of hydrogen across different regions and the emergence of nuclear and pink hydrogen as viable options are significant developments to watch in 2024. While regions like the US have abundant renewable resources and potential for nuclear hydrogen production, challenges remain. The US IRA guideline provides subsidies for low-emission hydrogen production but requires coupling with new renewable resources, making the use of existing nuclear power difficult. In Europe, the lack of clarity on regulations and emission accounting for clean hydrogen production creates uncertainty for blue and pink hydrogen projects. The European Union's definition of clean hydrogen and clarification on emission accounting methodologies are expected in 2024. Additionally, individual countries like Japan and South Korea are exploring the introduction of subsidies and mandates to support hydrogen import and usage in power generation and steel manufacturing.
Regional Perspectives: Asia and Europe
In Asia, Japan and South Korea are key markets to watch for hydrogen development in 2024. Japan has introduced a contract for difference mechanism to subsidize the cost difference between importing clean hydrogen and using grey hydrogen domestically. However, the success of this mechanism depends on the government's ability to raise funds through transition bonds. South Korea, with its usage mandate and push for clean hydrogen and ammonia in power generation and steel manufacturing, presents significant potential demand for hydrogen. In Europe, the region's favorable policies on hydrogen have made it a model for other countries. However, the lack of clear regulations concerning the production of blue and pink hydrogen presents challenges. The European Union's publication of a clear definition on low-carbon hydrogen and the implementation of member country-level subsidies and auctions are anticipated in 2024.
On today’s bonus episode of the podcast, Dana is joined by Kathy Gao, a Senior Associate from BloombergNEF’s Hydrogen team, to unpack the things to watch for the sector in 2024.
Together they discuss offtake agreements and the potential for shipping and aviation to step up as customers, whether nuclear could become a viable method of hydrogen production among the plethora of available options, and the policies that could drive supply and demand in the year ahead.
Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal, on bnef.com or on the BNEF mobile app.
