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INTERVIEW: Soaring gas prices an opportunity for renewable hydrogen: Nel CEO

Highlights

Generation cost declines trump short-term price swings

High iridium price impact limited to short-term

Green hydrogen competes with fossil fuel at $50/MWh

The green hydrogen market will continue to deliver rapid reductions in production costs, despite soaring energy and commodities prices, the CEO of the world's largest electrolyzer manufacturer Nel, Jon Andre Lokke, told S&P Global Platts.

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Power and gas prices have risen to record highs in Europe, pushing up production costs for gas-based hydrogen, as well as electricity costs for grid-connected hydrogen production from electrolyzers.

S&P Global Platts JKM was assessed at $27/MMBtu Sept. 22, up from around $5/MMBtu in September last year.

The longer-term declining cost of wind and solar generation boded well for the renewable hydrogen market, Lokke said in an interview Sept. 23.

"The fundamental cost of renewables is going down and will continue to do so," he said. "Short-term price swings in power are less important than the fundamental cost of generation."

Soaring gas prices in Europe also buoyed the renewable hydrogen market, Lokke said.

"We always like to see higher prices of fossil energy sources, and look forward to seeing these become even more expensive as cost of carbon is better reflected in the overall price."

Record-high prices for platinum group metals, used as a catalyst in proton exchange membrane electrolysis, have been a concern in the sector, but Lokke said the impact on Nel's operations was limited.

Nel uses small quantities of iridium, and expects to reduce its consumption.

The Platts New York Dealer iridium price was assessed around $4,500/oz in the week to Sept. 16, up from below $3,000/oz at the start of the year, but down from all-time highs of over $6,000/oz in April.

The dramatic decline in the cost of renewable electricity production would continue to boost the green hydrogen market, he said.

"Look at wind and solar, look what happened there," Lokke said.

Solar PV module prices have fallen by around 90% since the end of 2009, while wind turbine prices have fallen by 55-60% since 2010, according to IRENA. S&P Global Platts Analytics forecasts a modest reversal in this trend this year, however, due to rising raw material costs.

"We are just starting on that journey," Lokke said.

Nel, which is targeting renewable hydrogen production at $1.50/kg by 2025, is ramping up its production facility at Heroya, Norway, which will be able to produce 500 MW/year of alkaline electrolyzers, more than five times the total global demand in 2020.

It says green hydrogen could compete with fossil fuels with renewable electricity costs at $50/MWh, and would be competitive in most markets at $30/MWh.

Lokke said he was not concerned about the impact of electricity prices on green hydrogen production costs in the long run. He said that despite the plant's world-leading size, there was scope for rapid expansion in electrolyzer production capacity, and that scale would bring further cost reductions.

"No one talks very much about a 500-MW line in solar anymore. It's gigawatts."

Further cost reductions would be driven by technology improvement, scale and automation, he said.

Furthermore, he saw an evolution in power markets in the future, as electricity costs come down.

"Longer term, you may even pay for the capacity you use, not the actual amount, just like we see on the Internet now," he said. "You used to pay for every megabit you bought. But now you pay for the access, you pay for the capacity. And you could eventually see the same on power."

Hydrogen applications

Lokke said Nel was focused on deploying electrolyzers in sectors that could not be easily electrified. These included areas such as steel, ammonia, methanol, aerospace and shipping.

Nel has customers in the ammonia and fertilizers space, and is working on a project in Spain with Fertiberia and power company Iberdrola. It has partnered with several steel manufacturers to decarbonize their production with hydrogen from their electrolyzers, and is working with Shell to supply renewable hydrogen to one of its refineries.

In heavy road transport, Nel is supplying Transport for London with a hydrogen refueling station for buses, and Lokke also pointed to potential applications in the maritime sector.

Norway is the leading operator of battery electric ferries, and Lokke said electricity grid connections for quayside charging were a significant investment to supply a single offtaker.

Hydrogen could provide an alternative, he said.

"That's the beauty with hydrogen, it's a very democratizing technology, because if you have sun or wind, you can make your own power and fuel."

Large hydrogen facilities also provided the opportunity for sector coupling between industry and transport, he said.

"If you are so lucky that someone is running a steel plant in the area, and they have a huge electrolyzer facility, you can tap into that."

Demand incentives

Lokke welcomed the EU's hydrogen and energy policies, but noted funding decisions to support hydrogen projects were some way off.

The company is monitoring the EU's Important Projects of Common European Interest scheme that clears the way for state funding. Around 140 projects have gone through to the next round, and Nel technology could be applied on around 80 of these, Lokke said.

The EU has put forward a legislative package to reduce CO2 emissions by 55% by 2030 compared with 1990 levels.

"Even though the package itself is extremely ambitious on hydrogen, it will take time before it turns into legislation and law, and that is adopted by the different nations across the European Union," he said.

Rules requiring that the renewable power for hydrogen production should be in addition to existing capacity would hamper the development of the market, Lokke said.

"Tying the two together can potentially work in the longer term and if you allow for some flexibility, but today you risk that the development will stall and grind to a halt."

Production pathways

Norway's Nel produces both alkaline and proton exchange membrane electrolyzers for the production of renewable hydrogen, as well as hydrogen refueling equipment.

Alkaline electrolysis is cheaper and more efficient, but slower to ramp up. PEM's rapid response time is better for deployment with intermittent renewables, though more expensive and less efficient.

However, the picture was changing, Lokke said.

"Alkaline electrolysis is becoming nimbler, and is cutting costs even more. PEM is also cutting costs dramatically, and the cost reduction potential of PEM long term is even higher than alkaline, but it is starting from a high base," he said.

Lokke said both production pathways would be needed for the foreseeable future.

"If there is going to be a winner, it's impossible to say at the moment which it will be."

Platts assessed the cost of producing renewable hydrogen via alkaline electrolysis in Europe at Eur8.60/kg ($10.09/kg) Sept. 22 (Netherlands, including capex). PEM electrolysis production was assessed at Eur10.38/kg.