The cost of green hydrogen is expected to see “dramatic cost reductions” this decade as the cost of renewable energy and electrolysers fall — to the point where it can compete with grey hydrogen even without a carbon price, according to climate business think-tank Energy Transitions Commission* (ETC).
“Today, green hydrogen is more expensive than grey hydrogen, but cost trends indicate that green hydrogen can become cheaper than grey hydrogen in the next decade,” ETC director Faustine Delasalle tells Recharge.
“[This is] without a carbon price and obviously, with a carbon price, even faster. But we expect that by 2030, green hydrogen can cost below $2 per kilogram in most geographies and even lower in favorable geographies with very cheap renewables.”
In these favourable locations, such as Australia, the cost of green H2 is expected to fall to $1 per kg by 2030, according to the ETC report, Making the Hydrogen Economy Possible: Accelerating Clean Hydrogen in an Electrified Economy.
The cost of producing grey hydrogen — made from unabated natural gas or coal, and pumping 830 million tonnes of CO2 into the air each year — is currently between $0.70 and $2.20/kg, largely depending on the price of natural gas or coal. This is not expected to change this decade.
The ETC calculates that the cost of blue hydrogen — grey H2 with carbon capture and storage (CCS) — would therefore be between $1.3-2.9/kg per kg today, and this price will only fall slightly by 2030 when CCS is scaled up.
“As a result, green hydrogen costs are likely to fall below blue hydrogen costs in some locations before 2030 and in most by 2050,” the report says. “In many locations, the future cost of green hydrogen could be below today’s grey hydrogen cost, making the eventual cost of decarbonising hydrogen production very small and potentially even negative.
“It is therefore likely that the ‘green’ production route will be the major production route in the long term, though with a significant role for ‘blue’ in transition and in specific locations where gas costs are very low.”
The study adds that its “base case scenario” assumes that by 2050, 85% of clean hydrogen would be green, with only 15% blue.
This could be seen as a major blow to an oil and gas industry that is hoping to decarbonise its natural-gas operations via blue hydrogen, although the ETC points out that the mid-century annual demand for blue hydrogen would be slightly higher than today’s yearly grey hydrogen production — 120 million tonnes versus 115 million.
The report also states: “In all scenarios, blue hydrogen is likely to play a major role in the 2020s, in particular through the conversion of grey hydrogen facilities to blue hydrogen. However, build-up of new blue hydrogen facilities will likely slow in the 2030s as green hydrogen becomes the lower-cost option in most locations.”
By 2050, the global demand for clean hydrogen will reach 500-800 million tonnes per year and account for 15-20% of total final energy demand (including from H2 derivatives such as ammonia and synthetic aviation fuel).
This would require up to 30,000TWh of zero-carbon electricity, on top of the estimated 90,000TWh required for direct electrification — as set out in the ETC’s parallel report, Making Clean Electrification Possible (see separate story here).
Likely usage of clean H2
Clean hydrogen is “highly likely” to be needed for power storage, aviation, shipping and steel production, says the report. But its potential use in heating buildings, non-steel high-temperature industrial heat and long-distance trucking — sectors that many in the hydrogen industry are eyeing — is ‘still unclear’.
The ETC predicts that in 2050, clean hydrogen will account for 80% of the shipping industry’s energy demand — the vast majority of which will be in the form of green ammonia — and 60% of the aviation sector’s final energy demand, mainly in the form of synthetic fuels produced by combining H2 with captured CO2, with pure hydrogen used for some short-distance flights.
Clean hydrogen will account for 50% of final energy demand in the steel industry by 2050, the reports adds, with smaller contributions in other industries: cement (30%), heavy-duty transport (20%), chemicals (20%), heating (15%), and rail (10%).
It says that hydrogen use in light-duty transport, such as cars and vans, will be “minimal”.
And at least 100 million tonnes of green hydrogen will be produced annually for long-term energy storage when there is a surplus of variable renewable energy supply, it adds.
But the priority, the report states, is to replace existing grey hydrogen “as rapidly as possible”, which is used mainly for the production of ammonia-based fertilisers and methanol, as well as crude oil refining.
“The majority (60%+) of the [2030 clean-hydrogen] demand should stem from decarbonisation of existing hydrogen uses, combined with early scale-up of key new uses of hydrogen in mobility (ie, for shipping, long-distance trucking, aviation) and industry (eg, steel),” it explains.
And the study adds: “Early and cost-effective development may best occur within [industrial] clusters which support the simultaneous and self-reinforcing development of hydrogen production and end use.”
Total investment needed
To build a hydrogen economy that is five to seven times larger than it is today will require almost $15trn of investment, the report states — $12.5trn of which would be for the required increase in electricity generation to produce green H2.
The remaining $2.5trn would be for investment in electrolysers, blue hydrogen production and H2 transport and storage infrastructure.
The ETC report lists six “key priorities” in terms of policies that should be implemented to drive the growth of clean hydrogen:
1) Carbon pricing that creates a level playing field between clean H2 and fossil-fuel technologies;
2) Sector-specific policies to support demand growth and compensate the “green premium”, whereby the cost of using clean H2 would be more expensive than existing fuels, for example, in shipping, aviation and steel.
· Mandates and regulations requiring a percentage use of low-carbon energy, such as fuel mandates in shipping and aviation, and lifecycle-emissions standards on energy-intensive materials such as steel
· Voluntary private-sector commitments to purchase low-carbon products and services
· Green public procurement policies such as requiring the use of green steel in construction
· Financial incentives for hydrogen uptake through mechanisms such as Contracts for Difference to help overcome the “green premium” of low-carbon products
3) Targets for large-scale electrolysis manufacturing and installation
4) Public support and collaborative private-sector action to bring to market key technologies such as faster-ramping electrolysers, large-scale transportation and storage of H2, and new usage technologies such as hydrogen-based direct reduction of iron in the steel industry.
5) The development of clean hydrogen industrial clusters through coordinated public and private sector action
6) International rules and standards on safety, purity and clean hydrogen certification.
* The Energy Transitions Commission is a climate business think-tank, which describes itself as a “global coalition of leaders from across the energy landscape committed to achieving net-zero emissions by mid-century”.
It is driven by 48 commissioners who are all senior figures in the energy industry or major energy-consuming sectors such as aviation and steel. Commissioners include BP’s group chief economist Spencer Dale, Shell chairman Chad Holliday, and British businessman Adair Turner, who is a former chairman of both the UK Financial Services Authority and the Committee on Climate Change, as well as a former director-general of the UK’s influential Confederation of British Industry.
For a full list of commissioners, click here.