The commercial cost of hydrogen

Hydrogen production and distribution can be expensive, particularly when produced from renewable sources.

To become a more competitive energy source, and to accelerate the clean energy transition, low-carbon hydrogen needs to be cheaper. Reducing the cost of hydrogen production and distribution is therefore a key challenge.

The cost of hydrogen production varies for the different technologies used. An Australian hydrogen market study found that the cost of hydrogen production in 2020 was $2.20 AUD/kg for grey hydrogen, $3.02 AUD/kg for blue hydrogen, and $3.88 AUD/kg for green hydrogen. When the cost of distribution was included, the cost of Green hydrogen was estimated to be $5.82 AUD/kg.

The cost of producing green hydrogen using electrolysis is higher than other technologies due to several factors, including the higher costs of renewable energy sources (such as wind and solar power) and the efficiency of the electrolysis process itself. However, as the demand for green hydrogen grows, production volumes are expected to increase, increasing cost efficiency and reducing the price.

Over time, the cost of the physical electrolysers (that produce the hydrogen) is expected to decrease, whilst technological advances will make the electrolysis process more efficient. Also, the price of renewable energy generation is expected to continue to decline.

Government policies can also play a role in reducing the cost of green hydrogen by promoting investment in the infrastructure needed for its production and distribution. In 2020, as part of the Australian Government’s Technology Investment Roadmap, an economic goal for hydrogen of ‘H2 under 2’ was set. This refers to the cost of low-carbon hydrogen being at, or under $2 AUD per kilogram and is considered the point at which hydrogen becomes competitive with alternative energy sources.

PwC evaluated the production cost trajectory of green hydrogen worldwide, predicting that hydrogen production costs will decrease by around 50% by 2030, and then continue to fall steadily at a slightly slower rate until 2050. By 2050, green hydrogen production costs in some parts of the Middle East, Africa, Russia, China, the US and Australia will be in the range of $1.7 to $2.5 AUD/kg (€1 to €1.5/kg). These countries are likely to become major exporters of hydrogen.

For countries with limited renewable resources, such as Japan, Korea and several European countries, production costs in 2050 are predicted to be around $3.3 AUD/kg (€2/kg), making them likely importers of green hydrogen.

Your task

Explore the cost-development of renewable hydrogen map and reflect on your findings. Are you surprised by any of the changes to come by 2050?

References

_{Advisian Pty Ltd, (2021) Australian hydrogen market study – Sector analysis summary, Clean Energy Finance Corporation (CEFC), Australia}

_{PwC, (n.d.) The green hydrogen economy – Predicting the decarbonisation agenda of tomorrow, PwC research}