Which horse to bet on? Key Electrolyser Technologies and their Role in the Future Green Hydrogen Project Landscape.

• Demand for green hydrogen is set to rise, but understanding the strengths and weaknesses of each electrolyser solution will be key to making smart investment decisions.
• Alkaline and PEM are the most mature electrolyser technologies, but other types will be suitable in specific environments.
• Stakeholders must move rapidly to achieve 2030 deployment targets, especially considering that less than 5% of announced projects have reached final investment decision.

Driven by the decarbonization needs of industry, we suggest guidelines of annual demand for green hydrogen to grow from around 1 Mt in 2023 to 15-25 Mt by the end of the decade. If supplied from renewable electricity (i.e., green hydrogen), this requires 190-320 GW of electrolysis capacity. Assuming the availability of sufficient renewable energy capacity, this is a challenging but feasible target considering today’s total project pipeline of ~200 GW and a projected total cumulative manufacturing output of 270 GW by 2030. Yet, all stakeholders must move rapidly considering that less than 5% of announced projects have reached the final investment decision.

A key prerequisite to passing this milestone, however, is the selection of the most suitable electrolyser technology, which is predominantly based on economic drivers, namely the levelyzed cost of hydrogen. The technologies available provide different characteristics and their cost figures depend on their specific project set-up. Understanding how each’s distinct advantages and disadvantages fit into the future green hydrogen project landscape is key to identifying technology trends and facilitating the right investment decision.

This article explains the differences and optimal environments for four mature electrolyser technologies: alkaline, proton exchange membrane (PEM), alkaline membrane, and solid-oxide.

“The workhorse”: Alkaline electrolysers provide low-cost hydrogen when operated under a steady load

Alkaline electrolysers produce hydrogen from a potassium hydroxide solution which enables the use of a low-cost, porous diaphragm-separator and abundant catalyst materials (e.g., nickel). This comes at the cost of limited operational flexibility: the diaphragm is permeable to gases dissolved in the electrolyte, limiting the lower operational load to ~20% of the nominal load of the stack. Lengthy gas purging cycles are required during cold starts, which results in long start-up times. The limited effectiveness of the separator as a gas barrier further limits the hydrogen output pressure of the electrolyser. Today, alkaline electrolysers are selected particularly for their record-low investment cost of 600-1000 $/kW for MW-scaled systems installed. The ideal project environment for alkaline electrolysers is large-scale industrial installations requiring a steady H2 output at relatively low pressure. In this scenario, the electrolyser is typically grid-connected and operated with a high utilisation and steady load. The levelyzed cost of hydrogen is dominated by electricity cost.

“The race stallion”: Proton exchange membrane (PEM) can flexibly react to variable renewable energy

In contrast to alkaline, proton exchange electrolysers use a polymer electrolyte and produce hydrogen from pure water. The acidic environment of PEM entails the need for costly materials such as platinum- and iridium-based catalysts, a perfluorinated ion exchange membrane, and titanium-based electrodes – driving investment cost to 700-1500 $/kW (installed system). The key advantages of PEM electrolysers result from the membrane’s high gas barrier properties that enable elevated output pressures, a rapid cold-start, and a wide operational load window. Another benefit of using pure water instead of an alkaline electrolyte is the reduced stress it places on critical equipment (e.g., pumps, valves, tubing) resulting in longer service intervals and operational cost savings. The energy demand of PEM electrolysers is 1-2 kWh/kg higher due to ohmic losses of the stack, however, this is often compensated by a lower compression demand.

PEM electrolysers are well suited for off-grid installations powered by highly variable renewable energy sources (e.g., wind turbines). The fast start-up and wide operational load window enable an increased utilisation compared to an alkaline system. The co-location, close to the renewable power plant and dynamic operation mode, often entails a need for compression to transport and store hydrogen allowing monetisation of PEM’s ability to produce hydrogen at elevated pressure levels of up to 50 bar. Levelyzed costs of hydrogen are mostly driven by electrolyser CAPEX and hydrogen logistics making utilisation and production pressure key cost levers.

PEM electrolysers are thus particularly well-suited for projects directly connected to intermittent solar PV plants: The 20 MW PEM electrolyser acquired by Spanish utility Iberdrola co-located to a 100 MW PV plant in Puertollano to produce green fertilizers is one example. Another sweet spot for PEM electrolysers is projects powered by intermittent wind power, particularly if the electrolyser is located offshore: the high load variability combined with the demand for elevated output pressure, a small footprint and limited maintenance needs, create an ideal environment for this technology.

“Cross country horse”: Solid-oxide electrolyser and “New colt”: Alkaline membranes provide attractive advantages for niche applications

Solid-oxide electrolysers leverage high temperatures to increase the system efficiency above 80% and to enable the use of abundant low-cost catalyst materials. This requires a heat-resistant ceramic separator (solid-oxide) mediating the transport of ions at temperatures typically between 500-900°C. The high operating temperatures compromise flexibility and create additional stress on all heat-exposed materials limiting the lifetime. Solid-oxide electrolysers require low-cost heat to maximize the conversion efficiency and to unfold a competitive advantage over PEM and alkaline limiting their commercial potential. The world’s first MW-scale system was installed by Sunfire at Neste’s refinery in Rotterdam using off-heat to preheat the water steam entering the electrolyser.

Alkaline exchange membrane electrolysers combine an ion exchange membrane with an alkaline electrolyte. This allows the combination of the key advantages of alkaline and PEM: a low-cost catalyst material and the operational flexibility resulting from gas-impermeable polymer membranes. The commercialisation and industrial deployment of alkaline exchange membrane electrolysers are still limited mainly by their low stack lifetime as a result of the limited durability of ion exchange membranes in alkaline environments.

PEM and alkaline dominate the near-term project landscape with no clear winner in sight

Approximately 10% of projects of the ~130 GW project pipeline for 2030 have selected and announced the type of electrolyser resulting in a high degree of uncertainty in the realised projects. Currently, Alkaline and PEM are projected to split the total market potential almost equally while solid-oxide maintains a niche technology.

Alkaline electrolysers are expected to have an average project size of 120 MW, while PEM electrolysers are expected to have an average project size of around 70 MW, almost half as small. This trend can be explained by the specific technological characteristics of both technologies.

As mentioned above, alkaline electrolysers are well suited for large-scale industrial H2-supply often located close to the demand center with no need for high compression and a connection to a stable power source. Looking at the future project landscape, alkaline electrolysers have been selected for all projects connected to – and powered by – the grid. Grid-connected projects have an added risk of lower-than-expected utilisation rates due to strict regulatory requirements in certain jurisdictions to ensure electrolysers are run on “green” electrons from renewables. In contrast, PEM provides a potential cost advantage when directly connected to distributed intermittent renewable energy sources. For PEM, ~60% of the announced projects are planned to operate with a direct connection to renewables (either installed onsite or offsite via PPAs) while this proportion drops to ~40% for alkaline. Favorable electricity costs and regulatory frameworks provide strict definitions for green and low-carbon hydrogen (e.g., Europe’s delegated act) and could drive the share of new projects with a direct connection to renewable power plants to ~90% by 2030. This supports the growing need for flexibility and the potential competitiveness of PEM despite its high investment cost. Whether or not PEM enables a reduction of the levelyzed cost of hydrogen compared to alkaline depends on many project-specific factors that need to be carefully examined, among which is investment cost for the given project size and anticipated utilisation rate. This can be illustrated by an iso-cost curve for different utilisation rates and system CAPEX. As an example, to maintain the levelyzed cost of hydrogen at 5.9 $/kg a utilisation benefit of ~10% points can justify a higher investment cost of up to 15-25% points, for a 10 MW reference project with a baseline utilisation of 70% and a system CAPEX of 1,000 $/kW. The maximum difference in CAPEX that can be offset by increased utilisation would be 50% for the same reference project.

To defend its market potential, PEM must maintain its flexibility advantage and reduce its investment cost in line with alkaline in the future. However, significant improvements can be expected for both technologies: Future advanced alkaline electrolysers will provide extended load ranges and shorter start-up times by incorporating next-generation separators with improved gas barriers and enhanced electrolyte circulation protocols. At the same time, future PEM electrolysers will likely be able to operate with lower amounts of platinum-group metals reducing their investment cost.

For the next decade, both technologies are projected to coexist given their complementary advantages. In the long term, hybrid systems are expected to be introduced combining alkaline-based electrolysis stacks operated with a baseload with additional PEM stacks to absorb temporary power peaks. Stakeholders must carefully follow the further developments of technology, regulatory frameworks and hydrogen applications to identify the most promising trends – and to decide which horse to bet on.

How Apricum can support

Apricum provides advisory services along the entire hydrogen value chain, leveraging a unique blend of expert strategy consulting, investment banking proficiency and deep technology & market know-how. Our support helps drive the global renewable energy transition by answering the key strategic questions faced by both established market players and new entrants with market assessments, strategy and business model development and review, competitive screenings, fund raising, M&A (sell-side, buy-side), due diligences and project finance.

Article written by:
Apricum Partner Florian Mayr and Apricum Senior Advisor Fabio Oldenburg, with valued input from Elian Pusceddu, project manager and Joseph Ciccone, consultant.

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