Sourcing low-cost renewable energy and higher capacity factors of renewable technologies are key to cutting the cost of green hydrogen. Lower electrolyser costs are soon expected to contribute to the cost-competitiveness of renewable hydrogen as are impending rises in CO2 costs, according to the conclusions reached at the webinar Reducing the Cost of Renewable Hydrogen
By Jason Deign
Cutting the cost of renewably produced or ‘green’ hydrogen is one of the hottest topics today. Green hydrogen, created through the electrolysis of water using renewable energy, is a key enabler for the energy transition.
But renewable hydrogen is more costly than fossil fuel-based or ‘grey’ hydrogen, created through steam methane reforming (SMR) of natural gas. “Grey hydrogen is priced at between €1.50 and €2.50 per kilo”, said Javier Brey, president of Spain’s hydrogen association, AeH2, in an Ata Insights webinar in March.
This variation is partly due to the price of gas. But grey hydrogen is still way cheaper than green hydrogen, which in Europe costs around €4.30 per kilo. “Economies of scale might bring that figure down to €1 or €2 per kilo by 2030”, Brey said. How do we cut the cost now, though?
To a large extent, green hydrogen costs depend on the price of the renewable electricity used to power electrolysis. The quality of the renewable resource, wind or solar, has a big impact on the cost of energy, since greater resources lead to higher yield and lower energy costs over the life of a renewable energy plant.
Chart 1: Impact Load Factor on Hydrogen Production Cost (EUR/MWH)
Source: AFRY Management Consulting
According to figures presented by John Williams, head of the hydrogen expertise cluster at Afry Management Consulting, at a webinar organised by ATA Insights, low solar energy costs could already allow green hydrogen to compete with grey hydrogen in Chile.
The other factor is the cost of the electrolyser, which currently varies between around €800 and €1,000 per kilowatt of production capacity. As with renewable energy, most of that cost is in the capital outlay for the equipment.
So, again, maximising the capacity of the electrolyser helps bring down the cost of the hydrogen. The capital costs of both renewable plants and electrolysers are coming down, favouring the competitiveness of green hydrogen over time.
Chart 2: Electrolyser Capex Evolution
Source: AFRY Management Consulting
As things stand, solar looks to be the most cost-effective form of renewable generation for the foreseeable future. But its potential as an energy source for green hydrogen is somewhat hampered by its capacity factor, which even in Chile does not exceed around 34%[i].
Offshore wind, in contrast, is more costly but benefits from capacity factors that can be as high as 57%[ii]. Even so, green hydrogen from offshore (and onshore) wind paired with alkaline electrolysis is not expected to become competitive with grey until 2050, based on figures for the Netherlands.
“There are a number of factors that could affect this outlook,” said Williams. “We could see faster reductions in the capex and opex of both renewables and electrolysers. We could see higher gas prices affecting grey hydrogen production. And higher carbon prices also affect grey.”
As well as these variables, he said, the emergence of lower green hydrogen prices might be affected by the appearance of new technologies, reductions in transportation and storage costs and, most importantly, the introduction of regulatory frameworks encouraging a scaling up of the industry.
“Regulatory trends are already pushing the price of carbon emissions towards €100 per ton in Europe”, said Kevin Bär, head of business-to-business sales for Eon in North Germany. “This favours the competitiveness of green hydrogen by increasing the cost of natural gas in SMR”.
And policymakers in many parts of Europe are including green hydrogen support in coronavirus stimulus plans. In the short term, though, the key to unlocking green hydrogen might not be so much about cutting costs as finding customers prepared to pay a premium.
Already, European companies concerned about eliminating emissions might be prepared to pay around €4 for green hydrogen, Eon research shows. In markets with higher benchmark prices than natural gas, “we are able to develop hydrogen projects now,” Bär said.
Request access to the webinar Reducing the Cost of Renewable Hydrogen here: https://bit.ly/3ke8151
This piece was originally published on the website Renmad Hydrogen 2021 https://bit.ly/3dNRjp7