Green hydrogen could as soon as 2023 be competitive with grey H2 made using fossil fuels thanks to US wind power that’s as cheap as $5/MWh, said finance giant Morgan Stanley.

Steep falls in clean generation costs mean at $1.53/kg, hydrogen produced via electrolysis sited at “best in class” US renewable projects is already competitive with so-called blue H2, made using abated gas, said Morgan Stanley in a note to clients.

By 2023/24 continued falls in onshore wind costs that are already often as low as $20/MWh – and, crucially, a further extension to key renewable energy tax credits – could drive LCOE in regions such as Texas and the Midwest as low as $5-7/MWh, Morgan Stanley’s analysts reckon.

That would make green hydrogen from wind competitive with new grey production “much sooner than appreciated” at about $1/kg, said the note, adding that the price of renewable H2 is “highly sensitive” to generation cost falls, with a $2/MWh reduction driving it down by $0.10/kg.

The US offers one of the biggest potential markets for green hydrogen to act as a key driver of the energy transition by displacing fossil fuels, Morgan Stanley said. As elsewhere in the world, grey hydrogen produced via unabated fossils currently dominates the US market with a price of about $0.30/kg that excludes the capital cost needed to bring new capacity online.

The Morgan Stanley analysts admit the dramatic fall depends on ongoing reductions in the costs of electrolyser technology, and subsidies to support green H2 electrolysis, as well as an extension of the wind power production tax credit to 2024, but said they see both “as highly possible”.

“Regarding the wind PTC, we note that this subsidy has been extended many times, including in December.

“Regarding potential US federal support for electrolyser technology, presumptive Democratic presidential nominee Joe Biden's recently released clean energy plan includes a goal to drive dramatic cost reductions in (and commercialisation of) critical clean energy technologies, including renewable hydrogen.”

Key corporate winners from competitive green H2 could include “leaders in wind power with excellent sites” such as NextEra, AES and Duke Energy.

“We believe there is the potential for wind leaders and companies that seek to generate and use green hydrogen to form strategic alliances to bring all of the necessary skillsets together and allow green hydrogen to be competitive at a far more rapid rate than appreciated,” said the Morgan Stanley team.

The US Department of Energy recently announced a $64m programme to help scale-up hydrogen production.

The surging interest in the US was matched by a major strategy announcement by the EU earlier in July over the bloc’s support for hydrogen, which will prioritise green H2.