Making Green Hydrogen More Competitive Requires a Multipronged Approach

Green hydrogen can play a pivotal role in the energy transition by helping the industry decarbonize its energy use. However, the long-term success of this technology hinges on a reduction in its costs, which are currently too high to compete with other forms of hydrogen production (most of which rely on fossil fuels).

Guidehouse Insights' recent report Emerging Hydrogen End Uses identifies industrial and chemical markets as the leading end users of hydrogen. However, the fuel can also decarbonize other sectors, including transportation, buildings, the residential sector, and the power sector. Hydrogen production also offers the benefit of reducing renewable energy curtailment.

Cutting Supply and Equipment Costs

While capital costs can vary between electrolyzer types, most of the operating costs associated with green hydrogen production come from the renewable electricity required to operate the water electrolyzer. Solar PV electricity prices fell by 85% between 2010 and 2020, but even lower prices are needed to make green hydrogen commercially viable.

In the meantime, a lot of attention is being paid to the parts, components, and materials that make up the electrolyzer. A plant's stack—where the hydrogen and oxygen molecules from water are split—can account for about 40% of an electrolyzer’s costs. In the case of the polymer electrolyte membrane type of electrolyzer, the use of rare metals such as iridium and platinum also pose the risk of supply squeezes and price spikes.

The balance of plant (BOP) accounts for more than 50% of the electrolyzer's costs, with about half the BOP costs coming from power supplies. The rest of the BOP costs are incurred through the deionized water circulation, hydrogen processing, and cooling systems. One way to reduce costs associated with renewable energy feedstock is to integrate the electrolyzer with the source of renewables—an innovative approach being studied by Siemens with offshore wind.

Learning Curves and Economies of Scale

Power supplies and equipment components are not the only ways to reduce costs for electrolyzers. The industry is also looking to automation, product standardization, learning curves, and economies of scale to further reduce costs. According to the International Renewable Energy Agency, the learning rate for fuel cells and electrolyzers is between 16% and 21%. However, STORE&GO, a partnership of 27 European organizations and companies, estimates electrolyzer learning rates at 15% or lower. This compares well with a rate of 35% for solar power from 2010 to 2020. Nonetheless, the current learning rate for electrolyzers still outpaces the overall median for learning rates for developing energy technologies (about 13%) and could lead to cost reductions of 40% or more in the next 10 years.

Meanwhile, economies of scale also can be used to reduce costs, both through ramping the manufacturing pace and increasing the size of the electrolyzer modules. Norwegian electrolyzer maker Nel said that the planned expansion of its Herøya factory to 2 GW—which would make it the largest in the world—could cut electrolyzer costs by up to 75%. This decrease would occur alongside cutting the levelized cost of hydrogen down to $1.50/kg by 2025, on par with or even below the cost of other forms of hydrogen. Likewise, UK-based ITM Power is working on a 1 GW facility in Sheffield, England, beginning with 350 MW and scaling up as the company receives new orders.

As global electrolyzer capacity scales and manufacturers learn by doing, green hydrogen production is expected to flourish in the coming decade. Along with cost decreases from equipment, these trends are expected to ensure that green hydrogen can compete with other forms of hydrogen production, most of which run on fossil fuels.