The recent spike in European natural gas prices means that green hydrogen derived from renewable energy is currently cheaper to produce than highly polluting grey H2 from unabated methane.
According to calculations by London-based analyst ICIS, the price of producing grey hydrogen in the UK has been higher than green H2 since mid-September — with the former reaching a high of almost £6 ($8) per kg in early October (up from £1.43 in April).
By contrast, the price of green hydrogen under a renewable-energy power-purchase agreement (PPA) of £45/MWh has remained at a constant £3.39/kg. On 8 November, the price of grey H2 was placed at £4.16/kg, according to ICIS figures — just under 20% more expensive.
“The price correlation shown for the UK would also apply to Europe,” ICIS hydrogen editor Jake Stones tells Recharge. “Gas and power prices have surged across the continent, therefore any PPA-derived hydrogen around the region we modelled would likely be competitive now.”
Because wind and solar power tends to be bought under PPAs, rather than sold on wholesale markets, the price of renewable energy has largely been unaffected by the gas-induced increase in wholesale power prices across Europe. To highlight this, ICIS points out that electrolytic hydrogen derived from grid electricity at wholesale market prices would today cost £11.60 per kilogram — up from £4 in April.
Blue hydrogen produced from natural gas with carbon capture and storage (CCS) is said to cost a further $0.50-€1.50 per kilogram on top of the price of grey H2 due to the added costs of CCS.
The oil & gas industry largely believes that blue hydrogen should be produced at scale to offer lower-carbon alternatives to fossil fuels, while acknowledging that this would still result in substantial greenhouse gas emissions — due to upstream methane leakage and flaring, and the fact that CCS technology cannot capture all the CO2 emissions from the hydrogen production process.
Although the price of blue and grey H2 would fall in line with any drops in the cost of natural gas, the price volatility seen this year highlights the risks of continuing to rely on imported fossil fuels for Europe’s energy.
“What this has shown is that green hydrogen can avoid price volatility if power is supplied via a PPA, and the avoidance of risk or uncertainty could build support for the zero-carbon commodity,” Stones tells Recharge.
Calculations by Australian maths-as-a-service company Keynumbers and the Energy Flux newsletter similarly showed in mid-October that green hydrogen was cheaper to produce in Europe than grey or blue H2.