The price of low-carbon hydrogen for delivery in 2024 is close to parity with grey hydrogen in Europe due to the recent spike in carbon prices, according to analysis by price reporting agency ICIS.

Over the course of 2021, front-month prices for Dutch hydrogen produced using unabated steam methane reforming (SMR); SMR with carbon capture and storage (CCS); and authothermal reforming (ATR) of natural gas with CCS all rose to five times their previous value. Hydrogen produced using SMR with CCS rose to the highest level—hitting €8.93/kg ($10.1/kg) on 17 December.

Front-month prices were much lower in 2020, partly due to lower gas and carbon prices and partly due a Covid-induced demand slump. The lowest price recorded by ICIS in 2020 for any form of grey hydrogen was €0.75/kg for Dutch unabated SMR.

Hydrogen contracts for 2024 also rose over 2021—although not to the same degree as that of the more prompt contracts—in line with the trend on the gas and power curves. 

“2024 is a key year for hydrogen as it is the date by which the European Commission aims to complete phase one of its hydrogen strategy and have 6GW of installed electrolysis capacity for the production of green hydrogen online,” ICIS says in a report titled Hydrogen prices sky-rocket over 2021 amid tight power and gas supply.

€24.3/kg – Highest assessed price of green hydrogen in 2021

Contracts for 2024 delivery of all types of hydrogen derived from natural gas gained around €1/kg during 2021. Unabated SMR rose the most—to €2.5/kg—following higher carbon prices.

But low-carbon SMR and low-carbon ATR premiums over unabated SMR narrowed substantially for 2024 delivery and came close to parity at some points.

“The key driver behind the lower premium for low-carbon hydrogen delivering in 2024 has been the carbon price,” says the ICIS report.

The December 2024 EU allowance contract settled at €34.71/t CO₂e on 4 January but rose progressively over the year to reach record levels, peaking on 8 December at €91/t CO₂e.

Electrolytic hydrogen

However, despite the falling premium of hydrogen produced from low-carbon SMR and low-carbon ATR—commonly known as blue hydrogen—over grey, the premium for baseload electrolytic hydrogen over grey did not narrow over the year.

In fact, the cost of baseload electrolytic hydrogen rose from €4.16/kg—on a levelised cost of hydrogen basis—to a high of €24.3/kg on 16 December.

This was due to high gas prices lifting power prices, which in turn increased the cost of baseload electrolytic hydrogen production. Electricity costs account for roughly 50pc of baseload electrolytic hydrogen production overheads. 

One means of avoiding this volatility would be for baseload electrolytic hydrogen projects to secure long-term power-purchase agreements (PPAs).

An ICIS analysis in November 2021 showed that, had baseload electrolytic hydrogen producers secured such contracts, their hydrogen production costs would have been cheaper than front-month unabated SMR hydrogen by around the third quarter. 

“However, market information on PPAs indicates that such long-term contracts are also rising in price amid the commodity price spike,” ICIS says.

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Author: Tom Young