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Green hydrogen costs need to fall over 50% to be viable: S&P Global Ratings

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Green hydrogen costs need to fall over 50% to be viable: S&P Global Ratings

Highlights

Three reasons why steep decline 'possible by 2030'

Simultaneous support for CCS to boost volumes

Pipeline transport ahead of liquefaction

London — The cost of producing hydrogen from renewables will need to fall by over 50% to $2.0-$2.5/kg by 2030 to make hydrogen a viable alternative to conventional fuels, S&P Global Ratings said Nov. 19.

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This could be achieved with solar or wind production costs of $20-$30/MWh, and if the cost of electrolyzers falls by 30%-50%, the agency said in a new report, How Hydrogen Can Fuel the Energy Transition.

"We think steep declines in green hydrogen costs are possible by 2030, with reductions resulting from three factors," the report said.

With the levelized cost of renewable power accounting for up to 60% of green hydrogen costs, a $10/MWh decline in the power price would reduce the cost of hydrogen by $0.4-$0.5/kg.

A $250/kW drop in electrolyzer capital cost, meanwhile, would reduce the cost of hydrogen by another $0.3-$0.4/kg.

Finally, an increase in capacity utilization factors to 50% from 40% would reduce the cost of hydrogen by a further $0.2-$0.3/kg.

"The extent to which zero-carbon nuclear power can fuel electrolysis plants remains to be seen, but raising electrolysis capacity factors to 90% from 50% could cut hydrogen costs by $1/kg," the report noted.

Blue boost

Simultaneous support for carbon capture and storage to help produce blue hydrogen (steam reforming of fossil fuels plus CCS) would boost the supply of more competitively priced low-carbon hydrogen, the report said.

Blue hydrogen is currently cheaper than green hydrogen and, assuming availability of oil and gas deposits or salt caverns for CO2 storage, this method is capable of delivering greater volumes in the short to medium term.

A similar ramp-up in green hydrogen volumes is limited by the fact that most renewable energy capacity over the next decade will be needed to replace conventional generation or meet increasing electricity consumption, the report said.

Replacing coal- or gas-fired generation with renewables is more carbon- and cost-efficient than using renewables for hydrogen production, it said.

As such, Europe in particular is likely to be a net importer of green hydrogen from regions with cheaper, more abundant renewables, prompting the question: how best to transport the gas?

"We see the most potential in pipelines, for instance connecting Europe to North Africa's cheap solar power," the report said.

Building a liquefied hydrogen chain would take a long time, and may not be realistic given steep start-up costs.

However, even if scaling up liquefied hydrogen production appears to be a long shot, "Japan is investing in a hydrogen liquefaction pilot in Australia," the report noted.

Price comparison

Today nearly 73 million mt/year of pure hydrogen are consumed, about half in the oil refining industry and another 40% in the production of ammonia fertilizers. Its production from fossil fuels is extremely carbon intensive, with 1 kg of H2 causing 11 tons of CO2 emissions.

"Consequently, despite being a niche market, hydrogen accounts for 830 million mt of CO2, equivalent to almost 3% of the circa 33 gigatons of global energy-related emissions produced in 2019," the report said.

According to Platts hydrogen price assessments, conventional hydrogen prices in October 2020 averaged $1.25/kg in the US Gulf Coast versus $2/kg in California.

Using spot power prices as input, proton exchange membrane (PEM) electrolysis-based hydrogen price benchmarks would be $2.8/kg and over $4/kg for the Gulf Coast and California respectively.

In the Netherlands, comparable prices for conventional hydrogen were about $1.7/kg, $1.9/kg for blue hydrogen, and $4.3/kg for green hydrogen (PEM-electrolysis).

In Japan, conventional hydrogen prices averaged $2.7/kg, while the PEM-electrolysis hydrogen price indicator averaged $5.3/kg on the basis of spot power prices.