Water Electrolysis Market

Market Overview

The global water electrolysis market size was valued at USD 468 million in 2022. It is estimated to reach USD 7,162 million by 2031, growing at a CAGR of 35.4% during the forecast period (2023–2031).

Electrolysis is a possible method of producing carbon-free hydrogen from nuclear and renewable sources. Water is divided into hydrogen and oxygen through a process known as electrolysis. An electrolyzer is an apparatus in which this process occurs. The size of an electrolyzer can range from tiny, appliance-sized machinery ideal for small-scale dispersed hydrogen generation to large-scale, central production facilities that might be connected directly to renewable or other non-greenhouse gas-emitting types of power supply.

Water electrolysis is a well-known technique utilized in several industries, including the food business, the metallurgical industry, and power plants, among others. In addition, the water's components, which include hydrogen and oxygen, have several applications. For example, electrolysis-produced hydrogen provides a clean, renewable, and efficient fuel source. Water electrolysis primarily aims to produce pure hydrogen and oxygen gases.

Market Dynamics

Market Drivers

Increasing Use of Hydrogen in the Petroleum Refining Industry

Since modern petroleum refineries employ a tremendous amount of hydrogen in numerous processes, hydrogen has become an essential component of these sectors. The International Energy Agency (IEA) states that natural gas is the refineries' primary source for producing hydrogen, with methane used to create 75% of the necessary hydrogen. In addition, the cost of methane is considered the biggest bottleneck in the hydrogen generation process, which has encouraged companies to find other solutions for hydrogen production.

Hydrogen production is a crucial component of the refinery operation, so its demand is constantly increasing. The production of green hydrogen from large-scale electrolyzers at refineries is helping the companies meet growing hydrogen demand while reducing their carbon emission. As refineries are under increasing pressure to meet environmental legislation and reduce carbon emissions, it is expected that the refining industry will be one of the leading adopters of water electrolysis technology in the coming years, driving global market growth. 

Rising Demand for Green Fertilizers

Fertilizer production plants take hydrogen from natural gas or water and combine it with nitrogen from the air to make ammonia, which is further used to manufacture fertilizers for agricultural applications. For the fertilizer plant, hydrogen is produced using natural gas, and it causes greenhouse gas emissions, which have several adverse effects on the environment, including ozone depletion. Therefore, fertilizer companies are trying to reduce their emissions and move toward sustainable production, leading to a growing demand for green chemicals for fertilizer production.

Additionally, according to the American Chemical Society, in 2020, two Spanish companies, Fertiberia and Iberdrola, announced their plans to build Europe's largest plant for the generation of green hydrogen in Spain by the year 2027 for industrial applications such as fertilizer production and other applications. In this project, a green hydrogen production plant with a capacity of 720 metric tons per year will be set up next to Fertiberia's ammonia plant in Puertollano, Spain. The plant will also feature a 100MW photovoltaic solar plant to generate electricity to power electrolyzers for splitting water into oxygen and hydrogen. Fertiberia will then combine hydrogen with nitrogen to form ammonia to produce fertilizers. Fertiberia will also use electrolysis-generated oxygen as a raw material for nitric acid, which is also used for fertilizer production. Thus, the rise in demand for green fertilizers fuels market growth.

Market Restraint

Expensive Hydrogen Technology

The International Energy Agency (IEA) claims that several technical and economic factors, with energy prices and capital expenditures being the two most important, determine the price of hydrogen produced through water electrolysis. Therefore, the green hydrogen production cost depends on the cost of renewable energy and water electrolysis technology. Commercialized water electrolysis technology mainly consists of alkaline and proton exchange membrane water electrolysis technology. Among these, alkaline water electrolysis technologies contain low-pH electrolytes and corrosive electrodes.

In contrast, the proton exchange membrane electrolysis consists of costlier materials such as platinum, iridium, and many more, and it needs to be changed frequently. Therefore, the high prices of metals used in electrodes and catalysts coupled with other issues associated with water electrolyzers are the major challenge faced by the industry for the growth and wide adoption of water electrolysis technology across the globe.

Market Opportunities

Increasing Demand for Hydrogen Energy Storage

Renewable energy sources frequently experience supply and demand imbalances because they are most productive during low energy demand, creating a surplus of unused energy, and least productive during high electrical demand, creating energy shortages. Therefore, there is a growing demand for energy storage systems from renewable energy sources.

Hydrogen is considered an excellent option for energy storage. Hydrogen produced through electrolysis can be saved for later use as a variety of loosely bound hydride compounds, a compressed gas, or a cryogenic liquid. It can also be used in stationary fuel cells for power generation to power fuel cell vehicles, injected into natural gas pipelines to lower their carbon intensity, or any of several other applications. Therefore, with the application of hydrogen energy storage technology for renewable energy storage that is growing steadily, it is expected that it will present several lucrative opportunities for the growth of the water electrolysis market during the forecast period.

Regional Analysis

Based on region, the global water electrolysis market is divided into North America, Europe, Asia-Pacific and Japan, China, the UK, and Rest of the World.

Europe Dominates the Global Market

Europe is the most significant global water electrolysis market shareholder and is anticipated to grow at a CAGR of 34.0% during the forecast period. Europe is actively focused on lower-cost methods to produce hydrogen using water electrolysis to minimize carbon emissions in the region. In addition, Europe has developed a hydrogen strategy that describes the present and future aspects of hydrogen production and its applications and declares investments toward green hydrogen production. Expanding the use of hydrogen in various industries such as transport, steel, and iron manufacturing, where green hydrogen is used as a fuel, is also at the forefront of Europe's hydrogen strategy. Furthermore, many financial institutions and the European Investment Bank (EIB) have provided significant funding for developing large-scale green hydrogen projects in the region.

North America is estimated to grow at a CAGR of 35.3% over the forecast period. The North American region is one of the most developed regions in the world, and the rising environmental concerns and depleting energy resources in the area have increased the demand for sustainable hydrogen production methods. Furthermore, North America is adopting innovative techniques such as photobiological water splitting, high-temperature water splitting, and water electrolysis for hydrogen production. This advancement shows that investments in sustainable hydrogen production technologies are growing, driving the growth of the water electrolysis market in the region.

The U.K. is one of the nations actively focused on increasing the use of green hydrogen in the country's commercial, industrial, and residential sectors. The increasing initiatives by the government toward the usage of hydrogen are helping the nation to become a better and more sustainable economy. The U.K. government supports secure economic facilities to increase hydrogen production using the water electrolysis method to overcome climate concerns and achieve the net-zero carbon emission target. In addition, the U.K. government has decided to reach 5 GW of low-carbon hydrogen production by 2030. The U.K. government has planned to introduce highly sustainable and integrated plans to produce hydrogen.

The Asia-Pacific and Japan region is full of opportunities and growing economies with suitable government programs supporting the production of green hydrogen. Many growing industries in the region, such as transport, ammonia, steel, and iron, are actively focused on green hydrogen as these industries use hydrogen as a fuel or feedstock. In addition, the countries in the Asia-pacific and Japan region, such as Australia, South Korea, India, and Japan, are increasingly investing in the production of green hydrogen because it is expected to be an emerging solution to combat the growing issue of greenhouse gas emission and get rid of the dependency on fossil fuels. Furthermore, to support the hydrogen strategy, many financial institutions and the United Nations Environment Program have provided significant investments for the development of large-scale projects, which are projected to lead to the growth of the water electrolysis market in the region.

China is a fast-growing economy, and the flourishing economy has made the country the largest energy consumer and producer in the world, which has raised climate concerns and led to a shortage of fossil fuels. China is making intelligent moves by switching and inventing cleaner fuels and taking anti-pollution measures to overcome climate change which the government of China supports. Furthermore, according to the Center for Strategic and International Studies, China has become the world's largest hydrogen producer, supported by massive renewable energy resources and increasingly adopting the water electrolysis method to produce green hydrogen. Therefore, the increasing support from the Chinese government toward green hydrogen and expanding the use of renewable energy resources have supported the growth of the water electrolysis market in the country.

The Rest-of-the-world region consists of South America and the Middle East, and Africa. The water electrolysis market is not developed in this region yet; however, a massive potential for renewable energy and growing investment from the government toward green hydrogen projects are expected to present lucrative opportunities for the growth of the water electrolysis market in the region during the forecast period.

Segmental Analysis

The global water electrolysis market is segmented by electrolyzer type and end-user application.

Based on electrolyzer type, the global market is divided into alkaline electrolyzer, proton exchange membrane (PEM) electrolyzer, solid oxide electrolyzer cell (SOEC), and anion exchange membrane (AEM) electrolyzer.

The alkaline electrolyzer segment is responsible for the largest market share and is anticipated to grow at a CAGR of 34.2% over the forecast period. The alkaline electrolyzer is a mature technology for green hydrogen production up to the megawatt scale, and it represents one of the most widely used electrolysis technology worldwide. A common alkaline electrolyzer unit mainly consists of two electrodes, an anode and a cathode. These electrodes are immersed in a highly concentrated aqueous alkaline electrolyte solution containing 20 to 30 mass% of potassium hydroxide (KOH). Further, Alkaline electrolyzers offer the lowest installation costs compared to other electrolyzers, with the slight disadvantages of managing caustic electrolytes and limited current densities resulting from moderate hydroxide ion mobility. The new advanced alkaline electrolyzers are based on novel polymer-based membrane concepts and are expected to drive the growth of the alkaline electrolyzer segment in the coming years.

The proton exchange membrane (PEM) water electrolyzer has a compact unit for hydrogen production and offers good performance and stability. The anode and cathode materials are typically iridium oxide and platinum in a PEM electrolyzer. Acidic membranes such as perfluorosulfonic acid membranes are used as solid electrolytes instead of liquid electrolytes. The ability to use high pressure on the cathode side while the anode can be operated at atmospheric pressure is another benefit of the PEM electrolyzer over the alkaline electrolyzer. In addition, PEM water electrolysis might provide a sustainable solution for the clean production of pure green hydrogen in the future; therefore, increased demand for green hydrogen is expected to create a growing demand for PEM water electrolyzers in the coming years.

Based on end-user application, the global market is segmented into ammonia production, methanol production, refining industry, power and energy storage, transportation/mobility industry, and others.

The ammonia production segment owns the highest market share and is expected to grow at a CAGR of 34.9% over the forecast period. The production of ammonia for fertilizer manufacturing is one of the significant applications for hydrogen generation using water electrolysis. Due to the critical role of ammonia as a fertilizer in the agricultural industry and a promising energy carrier, green ammonia is the most environment-friendly, energy-efficient, and economically viable chemical. In addition, according to the American Institute of Chemical Engineers, in 2020, 55% of the total hydrogen produced around the globe was used for ammonia production.

Chemical and fertilizer companies were the early adopters of water electrolysis for hydrogen production. Due to its low carbon emission and sustainable nature, more businesses are anticipated to switch to producing green ammonia in the upcoming years. Furthermore, the growing investment in renewable energy and the development of hydrogen infrastructure will also contribute toward growing products in the green ammonia industry and create growth opportunities for the water electrolysis market.

The refining industry is one of the significant consumers of hydrogen, most of which is currently obtained from fossil fuels. The demand for hydrogen has increased in refineries for numerous applications, including sulfur removal by hydrodesulfurization, long-chain hydrocarbons cracking to shorter chains in the gasoline range by hydrocracking, aromatics hydrogenation to cyclo-paraffin or alkanes by de-aromatization, standard paraffin conversion into iso-paraffin by hydro-isomerization to improve the product properties. Additionally, the demand for hydrogen has risen in refineries for diesel fuel as sulfur-content regulations have become more stringent.

Recent Developments

• February 2023- Honda will enhance its fuel cell system as the foundation of its hydrogen business. In an effort to realize a carbon-neutral society, Honda will not only continue to electrify its goods but will also enhance the use of hydrogen as an energy carrier and seek to develop its hydrogen business.
• February 2023- Greenko Group stated that John Cockerill would provide the firm with 28 units of 5MW alkaline electrolyzers for use in its green ammonia factory in Una, Himachal Pradesh.