Each day, it would take a football field of solar panels to produce 25 kilograms of hydrogen or the equivalent of filling the tanks of just five Toyota Mirai cars.

What the age of hydrogen lacks in energy density will need to be compensated with giga-scale production using vast tracks of sunny, windy and cheap land.

Hydrogen: hype, hope and the hard truths around its role in the energy transition
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Is this possible?

Companies like Intercontinental Energy and CWP believe so.

Recent announcements such as the $70bn, 28GW Western Green Energy Hub in Australia, the 15GW Oman project or the relatively meagre 4GW Helios project in Saudi Arabia have captured the headlines but there is one interesting point they all have in common.

Each project’s estimated levelised cost of hydrogen works out to be about $2.50/kg.

Selected giga-scale project hydrogen costs (based on announced plans)
Project name Location Capex ($bn) Size (GW) Output (tonne/yr) H2 cost ($/kg)
Helios Saudi Arabia 5 4 240,000 2.57
Asian Renewable Energy Hub Australia 36 14 1,750,000 2.55
Western Green Energy Hub Australia 70 28 3,500,000 2.51
HNH Chile 3 1.4 150,000 2.51
Oman (unnamed) Oman 30 14 1,800,000 2.25
Aman Mauritania 40 20 2,450,000 2.22

And that’s because these announcements are aspirational and not possible today.

It’s possible to estimate the cost of hydrogen using three factors: electrolyser capital cost, wind and solar capital cost (based on current projects in those countries), and capacity factors.

Electrolyser costs

Electrolysers are yet to scale into the giga-projects but costs will be expected to come down in the future. Australia’s CSIRO (Commonwealth Scientific and Industrial Research Organisation) calculated current costs at around $1,800/kW.

For a project such as the Western Green Energy Hub, this would mean a current sticker price for just the electrolysers of $50bn out of the $70bn announcement.

Electricity costs

The big cost with hydrogen is the electricity required, with about 50kWh to make each kilogram.

Looking at current projects as a proxy, the Warradarge wind farm in Australia has an estimated capital cost $1,944/kW and the Western Downs solar project was $1,000/kW. This would mean the Western Green Energy Hub, which requires 50GW of renewables, would need to invest $82bn along with the $50bn for electrolysers.

This blows out the announced cost from $70bn to $132bn and would increase the price of hydrogen to more than $3.50/kg.

And these will be some of the cheaper electricity costs.

Europe is attempting to kickstart a hydrogen industry but doesn’t have the land for it. Many power-to-X projects need to rely on offshore wind and the SeaH2Land project is an example of the challenges.

Offshore wind can be double the cost to build compared to onshore wind, while another issue is maintenance costs. Lazard puts operating costs (maintenance, etc) of onshore wind at $40/kW/year with offshore double this. This works out to be $0.65-0.90/kg of hydrogen just to maintain the wind turbines, leading to almost $6/kg in total — and this would be best case today.

Moving away from high cost developed countries, it’s still unexpectedly expensive to build wind and solar.

Oman has cheap solar, but the 49.4MW Harweel wind project came in at $2,500/kW, whereas in remote Mauritania, the 30MW Nouakchott wind farm was $1,700 kW.

While these countries may have cheap labour forces, there are long periods between project announcements, meaning a workforce not benefiting from scale and repetition. But assuming stable governments that encourage responsible investment and invest in a skilled workforce, the potential is there to be even cheaper.

Saudi Arabia, which has the experience of building big energy projects, shows what the future can look like with some of the cheapest renewables — and should be the cheapest hydrogen producer, except for one challenge.

Capacity factor

Historically, solar has a capacity factor of 20-30%, with wind power at 35-45%. That's a lot of expensive capex sitting around doing nothing.

But the big hydrogen projects are estimating an overall capacity factor of 70% where wind and solar complement each other. In this way, they can get hydrogen costs down from $5-$7/kg to closer to $3-3.50kg.

Selected giga-scale project hydrogen costs (calculated by Keynumbers using recent wind and solar cost data)
Project name Location Wind cost ($/kW) Solar cost ($/kW) Electrolyser (% capacity) Hydrogen cost ($/kg)
SeaH2Land Netherlands 2,024 66 5.75
Oman (unnamed) Oman 2,500 790 73 3.70
Asian Renewable Energy Hub Australia 1,944 1,000 71 3.63
Beijing Jingneng China 1,013 726 57 3.53
Western Green Energy Hub Australia 1,944 1,000 71 3.53
Helios Saudi Arabia 1,250 600 34 3.33
HNH Chile 1,153 1,060 61 3.20
Aman Mauritania 1,700 1,060 70 3.18
Grey hydrogen from natural gas

This is where Saudi struggles. The Helios Project in the northwest of the country is calculating a capacity factor of 34%, so although it can build cheap renewables, it needs to build double to compete on price with places like Mauritania and Australia.

This explains how it’s cheaper to produce hydrogen in places like Chile. The HNH Project has an estimated capacity factor of 61% and combined with cheaper wind could drive the price down to $3.20/kg.

There’s only two problems. It’s located at the bottom of the world, and still two to three times the cost of hydrogen produced from fossil fuels.

Fossil-fuel and electric competition

Hydrogen made with natural gas is incredibly cheap with the International Energy Agency estimating the cost at $0.70-$1.60 per kg. Barring an outright ban on natural gas, governments would need to impose a carbon tax of $200+/tonne to make the economics work.

So is it game over for green hydrogen?

For many use cases, such as cars and heating, going electric will be far cheaper, but for the hard-to-abate sectors — including chemicals and steel — we may have to look beyond the simple maths and into the world of decision makers.

There’s one area where the economics doesn’t matter and that’s when you make companies’ boards of directors accountable.

With many in the financial services and resources industries committing to net zero and signing up to frameworks such as the Taskforce on Climate Disclosures, there will be no option. And at that point, whichever country will produce the cheapest green hydrogen will find a lot of demand, and will attract many downstream activities, such as fertiliser production and green steel — and possibly a few legacy Toyota Mirais stored in a museum somewhere!

John Poljak is the founder of Australian maths-as-a-service company, Keynumbers