New plants coming online in the US could produce green hydrogen at $3.29/kg, according to analysis by investment bank Lazard.

Lazard has undertaken an analysis of the levelised cost of hydrogen in an effort to provide greater clarity to those in the industry on the potentially disruptive role of the fuel.

There are a number of important factors that affect the cost of hydrogen—the Lazard analysis focuses on electrolysers and electricity, and did not analyse conversion, shipping, transport or additional investment costs.

Electricity represents 40-70pc of the levelised cost to produce hydrogen from electrolysers with a capacity of over 20MW, with the cost and utilisation rate of the electrolyser the second-most significant factor.

$23/MWh – Electricity prices achieved by some PV projects

Lazard’s analysis produced a sliding scale of green hydrogen production costs depending on the electrolyser capex cost and wholesale electricity costs to the plant.

Separate work by research firm BloombergNEF shows the cheapest new renewable energy projects coming online in the US should be able to sell electricity at $40/MWh or less. And non-profit the International Council on Clean Transportation puts electrolyser capex costs at just under $760/KW for 2020.

Based on these inputs, a 100MW alkaline electrolyser could produce green hydrogen at $3.29/kg, the Lazard analysis shows.

Globally, BNEF estimates that some of the cheapest solar PV projects financed in the last six months will be able to achieve an LCOE of $23-29/MWh. The IEA estimates the cheapest green hydrogen could have capex costs of under $500/kW.

Were these two factors to be combined, green hydrogen could today be produced for as cheaply as $2.50/kg or even less, using the Lazard analysis, which does not take into account current or proposed carbon prices.

Grey hydrogen produced with cheap fracked natural gas costs $1.50/kg in the US but more in other parts of the world where natural gas is more expensive.

The US has a goal of producing green hydrogen for $1/kg by 2030, which would require a significant reduction in both electrolyser capex and wholesale electricity costs.

But with larger production facilities, design standardisation and insights from early adopters, these reductions are possible, according to a study by the International Renewable Energy Agency (Irena), titled Green Hydrogen Production Costs.

“In price terms, the resulting green hydrogen could fall below $2/kg mark—low enough to compete [with grey hydrogen]—within a decade,” the report says, noting that national hydrogen strategies could help cut costs by 40pc in the short term and up to 80pc in the long term.

Surging gas

Recent analysis by electrolyser manufacturer ITM Power and price assessment company ICIS found that the recent surge in natural gas prices meant green hydrogen production was already cheaper than grey hydrogen production in many parts of the world.

 “We are now in a position where green hydrogen all over the world is lower cost than blue hydrogen [and] lower cost than grey hydrogen too—forget the carbon capture and storage,” says ITM CEO Graham Cooley.

“We are now in a position where green hydrogen all over the world is lower cost than blue hydrogen [and] lower cost than grey hydrogen too” Cooley, ITM Power

However, natural gas prices are likely to fall from their current highs in the years ahead. And green hydrogen only forms a small fraction—less than 5pc—of global hydrogen production, with the rest being produced from fossil fuels.

Although a number of commercial-scale green hydrogen projects are in the planning stage, most are not expected to come online until 2025 or later.

In regions where a strong carbon price is in place, such as the EU, green hydrogen will become competitive with grey hydrogen much faster.

Seifi Ghasemi, CEO of industrial gases company Air Products recently called for a global price on carbon to accelerate the development of low-carbon hydrogen production methods.

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Author: Tom Young