Electrolyser Manufacturers - Picking Leaders

By Erwan Kerouredan
Published March 9, 2023 | 3 min read

RBC Capital Markets’ Equity Research team believes the momentum in the green hydrogen space is set to accelerate due to de-carbonization goals and energy security concerns – as many countries look to build individual supply chains and attain energy independence.

Not all developers can turn momentum into an industrial reality

RBC Capital Markets’ Equity Research team believes the momentum in the green hydrogen space is set to accelerate due to de-carbonization goals and energy security concerns – as many countries look to build individual supply chains and attain energy independence. Mass production of electrolysers could therefore represent a significant opportunity. The key challenge is to determine which developers are most exposed to the sector’s growth.


Deep-dive on green hydrogen leveraging cross-sector collaboration work and bespoke models

RBC expects the green hydrogen sector to be a structural growth area through the energy transition, and new energy security realities reinforce its investment thesis. Hydrogen represents a $150bn market as of 2021, with 98% of current production being based on coal or gas without the use of carbon capture technologies alongside.

According to Hydrogen Council, hydrogen represents only 4% of global primary energy demand in 2021. Looking ahead however, McKinsey expects hydrogen to account for 18% of primary energy demand and represent a $2.5 trillion opportunity in 2050, with Transportation, Heating, Industry Energy and Power Generation driving demand alongside Refining and Ammonia.


Source: RBC Capital Markets estimates; European Commission


Tangible opportunities to replace today’s grey hydrogen with green hydrogen

98% of hydrogen today is not green, but grey or blue hydrogen and hence rather carbon intensive.

  • Grey Hydrogen, often called steam reforming, is the process of splitting fossil fuel hydrocarbons (mainly natural gas, but also coal) with high temperature pressurized steam. Carbon waste remains an unfortunate outcome of grey hydrogen.
  • Blue Hydrogen is the process of producing grey hydrogen, and capturing the carbon emissions, often called carbon capture storage (CCS).
  • Green Hydrogen is formed through electrolysis where an electrical current splits water into hydrogen and oxygen. When electricity is obtained through renewable sources, no carbon is emitted.

Source: IRENA

We believe that just replacing grey with green hydrogen represents a $140bn opportunity.


Source: RBC Capital Markets


Barriers remain for mass hydrogen production

However, major challenges exist, which include: 1) renewable buildout requirements, 2) location – assessing the impact of the distance between sources and end-use; and 3) limits related to the transport and storage of hydrogen.

Around 75% of the total cost of green hydrogen relates to the cost of generating power, and we believe many industrial companies may look to replace grey hydrogen (now much higher opex), with green hydrogen on-site, which has a high initial capital outlay but potentially lower opex over time. We believe the ongoing renewable buildout not only in Europe but in other regions should help support these trends going forward.


Policy remains supportive, with different regions going for the ‘carrot’ or ‘stick’ approach

RBC anticipates most near-term momentum in the EU and the US, given comprehensive policy programmes have been put in place. In the US, the recent Inflation Reduction Act bill incorporates tax credits to support green hydrogen production to the tune of $0.6-3/kg over ten years, which should significantly boost the competitiveness in the country. In Europe, the EU’s ‘Hydrogen Roadmap Europe’ sees significant demand growth, including an “ambitious” scenario which incorporates potential new markets.


Source: RBC Capital Markets estimates


Electrolyser manufacturing remains the key bottleneck

In terms of the companies likely to benefit, out of the 36 electrolyser manufacturers we track, 16 have clearly stated capacity roadmaps. Together, those represent a cumulated capacity of ~4GW in 2022, which we expect to grow >8x to 33GW through the decade. This would still represent just between 4% and 18% of the global market by 2030 (depending on IEA’s demand scenarios), suggesting much further to run in the next decade.


Source: RBC Capital Markets estimates; Company reports.


Green H2 production is a supply-constrained market, with room for more competition

In terms of technology, RBC sees alkaline as most disposed to benefit from mass-market adoption, with PEM in second position in terms of mass-market adoption potential as it is less mature and more costly, while Solid Oxide comes third as it suffers lack of maturity and cost limit potential.


Projected demand far outstrips supply

RBC estimates that 168TWh of hydrogen is needed in 2030, which equates to >200GW of renewables generation capacity – assuming electrolyser efficiency of 60% and a load factor of 15% – representing investments of around $70bn over the next decade (assuming all solar), alongside the investment required in the electrolysers of >$110bn (assuming a ~7% per annum decline in capex throughout the decade). The 2030 implied figures would represent electrolyser capacity 5x more than capacity announcements RBC has tracked across major European and North American manufacturers.


Source: Capacity from BNEF, EU demand from European Commission, Global demand from IEA


Source: BloombergNEF


Picking leaders in the space

RBC believes that five key participants, NEL, ITM, Ceres, McPhy and Fusion Fuel Green will benefit from a growing order book going forwards. The manufacturers most likely to benefit from the expected hydrogen boom are those with a credible growth pipeline, larger orders and ability to execute will stand out vs peers.

Erwan Kerouredan

Erwan Kerouredan
Integrated Energy Research Analyst