Spotlight: US Department of Energy joins initiative to lower hydrogen cost

A version of this Spotlight from S&P Global Platts Analytics was first published June 9.

Cost declines are seen as being critical to meaningful penetration of low carbon hydrogen – and this has been leading to ever more ambitious long term targets. In a March 11 Future Energy Outlooks Special Report, S&P Global Platts Analytics discussed challenging industry targets of renewable hydrogen cost of Eur1.50/kg by 2030 in Southern Europe – noting the need for consistently low power prices and a sharp reduction in electrolyzer capital cost. In Asia, Australia policymakers have set a goal of "H2 at $2". The most recent, more aggressive cost targets have just been set in North America, as the US Department of Energy (DOE) on June 7 unveiled a hydrogen initiative geared towards cutting the energy carrier's cost by 80% to $1 per kilogram within one decade or ~$9/ MMBtu.

The initiative, dubbed the "Hydrogen Shot," is the first of the DOE's newly launched "Energy Earthshots" initiative series that aims to advance the development and drive demand of lower-emitting energy sources, according to an agency news release.

The DOE estimates hydrogen from renewable energy currently costs about $5/kg, or roughly $44/MMBtu. By comparison, on June 4, Platts Hydrogen California PEM Electrolysis (including CAPEX) assessment was $34.79/MMBtu. Lower than the DOE estimate but significantly higher than the regional natural gas hub in California, PG&E, which settled at $4.01/MMBtu. (For more on Hydrogen Technology)

Platts Analytics looked at what would need to happen to make renewable hydrogen competitive compared to existing methods of producing hydrogen with gas, referred to as grey hydrogen or blue hydrogen if the facility has a way to capture the CO2 byproduct. The report Despite Steep Electrolyzer Cost Declines, Economics of Renewable Hydrogen Remain Very Challenging, is based on the premise of that there is an inverse relationship between technology production costs and cumulative installed capacity to understand whether the rate of decline in CAPEX costs is enough to make renewable hydrogen competitive.

The main takeaway from the analysis is that in the absence of a carbon price, low-cost power will be required for renewable H2­ to compete economically with incumbent fossil H2 or even with blue hydrogen. Under a 2040 moderate technology paradigm, power prices would need to average as low as $10/MWh for renewable H2 to be cost-competitive with contemporary fossil+CCS H2 production pathways.