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Gas price spike puts green hydrogen at cost parity with fossil fuels

Highlights

Aker Norway projects could achieve $4/kg hydrogen

Current gas prices make green hydrogen competitive

Renewable PPAs beat gas prices: ITM's Cooley

Green hydrogen in Europe, produced by electrolysis of water powered by renewable electricity, is already competitive with hydrogen produced from fossil fuels in the current natural gas market environment, leading companies in the sector said.

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Tight gas supplies have sent European prices soaring in recent weeks, feeding into the costs of producing hydrogen by steam methane reforming, so-called grey hydrogen.

Norway's Aker Clean Hydrogen said in a results statement Oct. 22 that the cost of hydrogen production from its projects under development in Norway were now competitive with grey hydrogen production.

"We have made further progress to make hydrogen affordable," Aker Clean Hydrogen CEO Knut Nyborg said in a statement.

"Some of our Norwegian projects under development show hydrogen cost levels of $3.5-$4.5/kg," Nyborg said.

"In the current market environment, with very high gas prices, this matches the cost levels for grey hydrogen."

S&P Global Platts assessed the cost of producing hydrogen from unabated fossil fuels at Eur4.93/kg ($5.74/kg) Oct. 21, including capex and carbon.

CEO of electrolyzer producer ITM Power Graham Cooley told S&P Global Platts that power purchase agreements locking in lower prices for renewable electricity were making renewable hydrogen production cost-competitive with fossil fuel-derived production.

"The cost of green hydrogen is now lower than the cost of grey hydrogen in most places around the world, because of the increase in the cost of natural gas," Cooley said in an interview Oct. 21. "If you link an electrolyzer to a PPA with a wind farm, [the power price] doesn't fluctuate at all, for the whole of the duration of the PPA."

Conventional hydrogen producers are unlikely to be directly exposed to the sharp rise in natural gas prices, though any sustained rise in prices will be passed through in the longer term.

Speaking ahead of a planned January hydrogen auction, Portuguese Environment Minister Joao Pedro Matos Fernandes said current gas prices made renewable hydrogen theoretically cheaper, meaning green hydrogen projects would not necessarily need financial support. The comments came in an Oct. 21 interview with Portuguese publication ECO.

Project pipeline

Aker Clean Hydrogen, an integrated clean hydrogen producer that develops, builds, owns and operates facilities, has a project and prospect portfolio of over 1.8 GW of capacity, with projects and prospects in Norway, Chile and Uruguay.

It is targeting 5 GW of installed clean hydrogen capacity by 2030, reducing CO2 emissions by 9.4 million mt/year.

In the third quarter, the company secured a long-term power agreement for its 40-MW Rjukan project in Norway. It expects to take a final investment decision in the second half of 2022, and is in discussions with potential customers for offtake agreements.

It also signed a memorandum of understanding with TuNur to establish a commercially viable clean hydrogen and ammonia value chain in Tunisia, and is exploring ammonia opportunities for offshore supply vessels with Aker BP.

Aker Clean Hydrogen is partnering with Yara and Statkraft to develop a 480-MW green ammonia facility at Yara's fertilizer plant in Heroya, Norway, with a final investment decision expected in early 2024.

The company said the project would remove around 800,000 mt/year of CO2, and help establish decarbonized value chains in shipping and agriculture.