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Hydrogen’s density, potential role in energy storage, and ability to enable low or zero-carbon applications in industry and transportation all point to hydrogen becoming an integral part of the energy mix. The International Energy Agency reports that more than 20 new hydrogen projects have been announced for commissioning in this decade.

But hydrogen’s path is not straightforward, with its growth trajectory and profit pools yet to be determined. Opportunities and timing will vary across regions and industries, depending on offtake potential, supply conditions, and infrastructure requirements. Customer demand will be as or more important than supply availability.

All this may look far away, and many companies have pressing priorities in 2021. Still, given the potential for hydrogen to play a meaningful role in the energy transition, companies should get started now to define how they will participate and take advantage of this massive opportunity. Here are five ways to get started.

1. Think future-back to understand hydrogen’s potential.

For every participant in the market, the first step is understanding which applications across sectors have the greatest potential to adopt hydrogen and recognizing the underlying drivers. This involves looking not only at costs, but also at competitive alternatives, sources of supply, enabling technologies and regulatory policy, both international, federal, and local.

Across applications, demand will be driven in two ways:

1. Hydrogen could be the single best solution to reduce emissions, where customers are willing to pay for it—for example, blast furnace-based steelmaking or cement production. Adoption is predictable, but depends on the business case, ease of transitioning, and asset replacement schedules.
2. Hydrogen will need to be cost competitive against other low- or zero-carbon solutions. Here, adoption speed will depend on factors like the availability of low-cost renewable energy to make green hydrogen and the availability of alternative supply chain infrastructure for hydrogen.

Long-term competitiveness needs to be based on market forces, but in the near-term policymakers can help shape the development of the hydrogen economy by encouraging investment or direct funding that may allow hydrogen to move quicker along the experience curve.

• Choose your focus and participation model.

As the hydrogen market’s value chain develops, so too will supply, production, and logistics chokepoints that influence the pace of adoption. To gain a sustainable competitive advantage, companies need to understand these chokepoints and how they influence the relative attractiveness of participation models.

Industry partners will be important, not only to spread risk but also to share knowledge, avoid high learning costs, and build positions in adjacent fields. Some partnerships are already underway, and four main models are taking shape:

• Define a robust yet flexible execution plan and monitor signposts. 

With a clear view of the potential for hydrogen applications in their industry, companies can begin to form an action plan with no-regrets moves and low-risk options for capital investment. As with any strategy under uncertainty, executives will want to monitor critical signposts to identify market changes early, allowing them to shift directions and make bets more confidently—all while balancing risk profiles and investment intensity with the expected longer-term rewards. Given the uncertainties in the hydrogen market, strategic plans should remain flexible and resilient, with options to scale or pivot if signposts are triggered.

• Choose the best opportunities and launch first projects. 

As with any developing market, hydrogen growth is likely to concentrate around clusters of demand and supply potential, and we expect to see several waves of opportunity. Initial sweet spots are already emerging where existing hydrogen demand can be met with competitively priced supply.

For longer term opportunities, companies can adopt a test-and-learn approach, leveraging early sweet spots to gain a head start. These opportunities will centre around applications where hydrogen helps meet decarbonization ambitions, or where hydrogen uptake may be most significant despite uncertainties.

Where hydrogen costs are competitive, adoption is likely to occur more quickly, allowing those players to develop deep experience with their applications, and possibly to prepare their capabilities and infrastructure for broader markets. Governments will play an important role as catalysts, stimulating demand through emissions rules and pushing down costs with investments and incentives.

• Define the right operating model to align hydrogen within business priorities. 

New initiatives often struggle to find their place within existing operating models, particularly when these new opportunities threaten to cannibalize the current business or promise to upend traditional processes. Three areas of focus can help ensure hydrogen’s place in the organization’s business priorities. 

• Ownership and accountability. Decide who manages the long-term hydrogen roadmap, including collaboration with external partners.
• Long-term investment. Ensure sufficient and sustainable funding to mobilize around the opportunity, nurture hydrogen’s progress, and avoid becoming contingent on other business priorities with shorter payoff. This is more about mobilization than traditional deployment of capital.
• Relationship to core. Determine how the hydrogen effort will work with the rest of the company to ensure its success, including tapping talent and capabilities, mobilizing rapidly, and scaling to achieve efficiencies.

While the path of the hydrogen market is uncertain, it’s uncertain for everyone alike. Companies can begin to build and extend a strategic advantage in hydrogen by developing a greater understanding of market factors and the underlying constraints and opportunities of their specific place in the hydrogen value chain. Leaders will train their focus on the customer and avoid getting distracted by technology. Collaborations with key partners, and subsidized pilot projects can help companies build market position as prices decline.