'Green hydrogen developers fear electrolysers will quickly sell out when the ketchup effect kicks in', says Nel CEO

Jon André Løkke tells Recharge that his company, one of the world's leading electrolyser makers, is in discussions with clients about reserving manufacturing capacity for their projects

Source: Recharge News | By Leigh Collins

Readers of a certain age may be familiar with the difficulties of getting thick tomato ketchup out of a glass bottle — holding it upside-down doesn’t work, it has to be shaken vigorously or whacked on the base until the sauce starts flowing, and then it suddenly gushes out, often smothering the plate.

Jon André Løkke, the chief executive of leading electrolyser manufacturer Nel, believes this “ketchup effect” is a metaphor for today’s hydrogen sector.

In other words, gigawatts of orders are ready to be signed off, but will not be until the industry gets the metaphorical whack on the bottom of the bottle from governments, and then OEMs will suddenly be swamped, leaving customers scrambling to place orders before manufacturing capacity is swallowed up.

“Customers are increasingly concerned about securing access to production capacity… and [our] plant may soon end up being sold out,” Løkke tells Recharge, adding that Nel has already “initiated capacity reservation discussions with a selected number of clients”.

This fits with recent analysis by US investment bank Jefferies, which found that global electrolyser manufacturing capacity will not be big enough to meet demand in 2030, even in the lowest demand scenarios.

Løkke explains that the company’s new fully automated 500MW factory in Herøya, Norway, was completed in September, with production now being ramped up to meet “actual customer demands”, with plans to expand capacity to 2GW once the proverbial ketchup starts flowing.

Nel’s order pipeline already consists of more than 800 projects adding up to more than 11GW of electrolysers, with its largest being a 1.6GW facility.

It will be ‘first-come-first-serve’ principle so that the clients that commit first will be secured first.

“However, we are still waiting for the “ketchup effect” where firm commitments are made,” Løkke tells Recharge. “Here it will be ‘first-come-first-serve’ principle so that the clients that commit first will be secured first.

“Given that we already have developed a fully automated production concept and spent more than three years on that, we also believe that we will be able to add additional capacity relatively quickly. Copy/paste is faster than developing from scratch. Hence, this will also depend on the demand from end customers.”

He explains that demand for electrolysers will grow rapidly once countries and regions provide “clear and predictable policy frameworks”.

“It’s not just about providing subsidies or carbon contracts for difference to reduce the short-term cost gap between renewable H2 and fossil H2,” he says. “It’s a mixture of different funding instruments and policy tools at EU level and national level. Like the proposed targets in the revised Renewable Energy Directive, where the European Commission has proposed a target for the use of renewable hydrogen in industry... 50% of the hydrogen they consume [would have to be] renewable hydrogen. This is one way that we can incentivise a switch from grey to green.

“Having certainty that there will be demand means we will increase our capacities, which will lead to economies of scale and a subsequent reduction in capex costs. You cannot reduce cost from an empty factory.”

Cutting the cost of green hydrogen

Nel declared in January that its new factory will cut the cost of its electrolysers — ie, the machines that use an electric current to split water molecules into hydrogen and oxygen — by about 75%, helping the price of green hydrogen to fall to $1.50/kg by 2025.

“It is absolutely doable, provided of course we have the right regulatory framework to achieve volumes in production,” Løkke explains, pointing out that the US government has since adopted the same cost target. “Clear signals from policy makers, regulators and industry are key for us in terms of making the additional investments to increase capacity further.”

That $1.50/kg price would also require the cost of renewable energy to continue to fall.

“With the levelised cost of energy of wind and solar prices continuously coming down, renewable hydrogen will follow the same path, as electrical power constitutes 70-80% of hydrogen’s total cost.”

Løkke says that four factors will enable Nel to cut the cost of delivered electrolysers by 75% — automation and economies of scale at its new factory (which accounts for roughly half of the reduction); standardising module offerings to 20MW, 50MW, 100MW and 250MW; improved supply-chain procurement; and standardised design and pre-fabricated skids that reduce time and cost for commissioning and installation.

Use cases

The Norwegian tells Recharge that the biggest demand for electrolysers is currently coming from heavy industry, from hard-to-abate sectors such as “CO2-free steel, CO2-free ammonia, CO2-free methanol, etc” — rather than for more controversial uses such as transport and heating.

“We cannot achieve climate neutrality without hydrogen,” he explains, adding that the gas “can unlock the full potential of renewables, providing a means to flexibly transfer energy across sectors, time, and place”.

“You cannot make CO2-free steel with a battery, you need an H2 molecule to electrify steel production. The same goes for many other industry applications including mobility applications like shipping and aerospace. Hydrogen is key and we cannot decarbonise without it. That is why the future is bright for renewable hydrogen.”

He points out that Nel is already involved in projects focused on energy storage, heavy-duty trucks and steel plants, including the HyBrit project in Sweden, which is already producing steel using green hydrogen.

But while many independent analysts believe that hydrogen should not be used for heating buildings, Lokke is not so convinced, saying that it has potential in neighbourhoods close to industrial hubs — so-called “hydrogen valleys” — that will be both producing and using large amounts of H2.

“Regarding heating, we recently delivered a purchase order in Scotland for an electrolyser system that would heat 900 homes in a first phase,” he says. “Moving forward, as hydrogen valleys develop and as supply and demand increase, the case for the use of renewable H2 in heating could increase in these types of locations.”

And as a company that also manufactures hydrogen filling pumps, it is not surprising to hear Løkke talk up the potential of green hydrogen in transport.

“We are designing the station modules with a clear focus on TCO [total cost of ownership] for the final customer. From a cost of hydrogen at the pump of $5/kg, hydrogen will reach fossil parity and be competitive in most transport applications.”

The cost of hydrogen at the pump in Germany — the biggest market for fuel-cell vehicles in Europe — is currently €9.50/kg, according to the H2.live website.

Løkke also sees a bright future for green hydrogen in energy storage, despite the poor round-trip of efficiency of converting power to H2 and back again.

“Hydrogen can also help to balance the grid and store energy,” he says. “In 2020, an estimated €1.35bn [$1.52bn] worth of offshore wind energy was curtailed in Germany due to insufficient transmission grid capacity. In 2021, in the UK, 2.5TWh were curtailed at a cost of £172m ($227m) — that’s taxpayers’ money.

“So we need a clearer framework there to help the business model develop. This would be a win-win for all stakeholders: consumers, governments and industry.”