Avoiding grid fees and environmental levies is key to reducing the cost of producing ‘green’ hydrogen via electrolysis of water, according to a new report from Aurora Energy Research, as well as having a good green energy resource. But in ‘islanded’ use falling equipment costs could allow green hydrogen to compete with ‘blue’ hydrogen from gas and CCS by the mid 2020s in some areas, it concludes.
The analysis examines electrolyser business models in search of a method of producing hydrogen for less than €2.5/kg, below the price of blue hydrogen. It found pairing electrolysers with onshore wind in Norway or Iberia will produce the cheapest green hydrogen in Europe in the 2020s. In an scenario where installation costs of electrolysers and renewables fall, green hydrogen costs could fall to between €2 and €2.5/kg by 2030.
The report says that hydrogen produced using grid electricity will be more costly – and high carbon unless the grid supply has high renewables content – and some countries are exempting electrolysers from paying grid fees and levies to accelerate the uptake of hydrogen.
Aurora examined four ways of producing hydrogen with electrolysers to find out how costs of producing green hydrogen could come down to compete with blue hydrogen, which has a cost of around €2.5/kg. Despite rapidly falling capital costs for equipment, the major cost driver for hydrogen production via electrolysis remains the cost of electricity, and developers and investors are seeking ways to minimise this potentially prohibitive production cost, particularly where there is a lack of planned incentives.
In a model where an electrolyser is paired with an on-site renewable electricity generator and operated without a grid connection (island mode), it found that Norway’s excellent onshore wind resource paired with electrolysers resulted in the lowest overall cost of hydrogen. Outside of Scandinavia, the lowest costs were achieved by electrolysers in Spain paired with onshore wind.
Optimising the electrolyser size relative to the renewable asset reduced the cost of hydrogen production by up to 40%, compared to building an electrolyser of the same nameplate capacity as the renewable plant. Co-locating electrolysers maximised sustainability and could make such schemes eligible for government support in some European countries.
Anise Ganbold, Global Energy Markets Lead at Aurora Energy Research said: “The cost of producing hydrogen will fall quickly over the next two decades but reaching €2/kg in Europe will be a challenge. In our analysis we found that only in an optimistic scenario, with much lower costs and a higher electrolyser efficiency, can costs fall to that level. In order to encourage costs to fall faster, and help make green hydrogen cost competitive with blue hydrogen, governments can support renewables buildout and exempt electrolysers from paying grid fees and taxes.”