Topsoe halts Virginia electrolyzer project amid low green hydrogen demand

The once anticipated green hydrogen boom in the United States has hit a significant snag. Danish company Topsoe has decided to halt progress on its $400 million electrolyzer facility in Richmond, Virginia, citing insufficient demand for green hydrogen. The company's decision comes as a result of the early expiration of a federal tax credit, initially aimed at boosting the sector's growth, creating uncertainty in the market.

Topsoe, which previously benefited from $135 million in advanced manufacturing tax credits, has not yet made a final investment decision regarding the Virginia plant, according to spokesperson Gabe Martinez. The company is taking a step back to assess market dynamics, including existing demand and supply chain issues, before definitively proceeding.

Martinez explained to Latitude Media, “Looking ahead, increased demand will be critical as the hydrogen industry matures. Unlocking that demand will require strong policy support, infrastructure investments, and continued cost reductions as production scales.” This situation mirrors a similar choice by Norwegian company Nel Hydrogen, which recently scrapped plans for an electrolyzer plant in Michigan, highlighting the challenges faced by the cleantech industry under changing governmental priorities.

Martin Tengler, leading hydrogen research at BloombergNEF, expressed no surprise at Topsoe's decision. He remarked, “If there is no demand for green hydrogen, then there’s no demand for electrolyzers, the machines used to produce green hydrogen.” The enthusiasm that followed President Biden's signing of the Inflation Reduction Act in 2022, which promised extensive green hydrogen development, seems to have dissipated due to delays in finalizing the 45V guidance, leaving the industry in a state of uncertainty.

The Biden administration's tardiness in issuing crucial guidance has left companies unsure about project eligibility for tax credits, resulting in hesitation and reevaluation of business ventures. Despite a successful lobbying effort over the summer to extend the clean hydrogen tax credit to 2027, the short sunset of the credit has diminished the attractiveness of the U.S. market for green hydrogen, while favoring blue hydrogen, which is derived from natural gas with carbon capture.

In 2022, BloombergNEF reported a dramatic 94% decrease in investments for green hydrogen, and a significant reduction in funding for electrolyzer deployment. This market shift has compelled companies like Topsoe to look toward Europe. The firm plans to inaugurate a 500 MW facility in Denmark, with Texas-based First Ammonia as its first client, signing a deal for a 5 MW electrolyzer. Topsoe remains hopeful about future opportunities despite current difficulties.

Stateside, the company has temporarily halted activities related to the Richmond factory, such as design and supplier arrangements. Topsoe has expressed optimism about the extended tax credit but emphasizes that various global factors are influencing their decision-making process. “Our decision to pause pre-Final Investment Decision activities in Virginia reflects broader global market conditions — including the pace of global demand development, tightening financial conditions, and supply chain complexity — not a single policy outcome,” noted the company.

The absence of clear demand for green hydrogen isn't only affecting European enterprises; American manufacturers are also considering international markets, especially Europe and the Middle East, for their products. Tengler adds, “It is such a difficult environment for electrolyzer manufacturers everywhere, but especially now in the United States.”

In contrast, some companies are forging ahead. California-based EvoloH is progressing with a production line of half a gigawatt of electrolyzers scheduled for 2028 at their Massachusetts facility. While maintaining a few U.S. clients, EvoloH is expanding its search for international partners. EvoloH’s COO, Scott Blanchet, commented to Latitude, “The absence of a clean hydrogen tax credit has cast a cloud over U.S. demand for green hydrogen, but fortunately our business model was not based on government subsidies.”