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Business Hydrogen LCOE Renewables

Will green hydrogen ever be competitive?

Hydrogen is emerging as one of the most important sources in “upscaling” energy, increasing both the share of renewable energy supply and the scope of decarbonization. One driving factor is that hydrogen provides easy and effective storage and transportation options. Perhaps the biggest challenge that remains is hydrogen’s cost effectiveness, which is what we look at more closely today. 

Three crucial factors contribute to hydrogen’s overall viability: (i) the initial capital expenditure for the electrolyser, (ii) the cost of input electricity to be used for the process (renewable or not), and (iii) the base load (number of operating hours per annum). With the costs of wind energy and solar PV energy having decreased enormously over the past decades, green hydrogen production is more economically feasible than ever, as input energy costs play a significant role in its production. 

By looking at the formula for calculating levelized cost of energy (LCOE), we can see that the load factor of the electrolyser reduces hydrogen’s overall costs. Conversely, a higher price for the electrolyser will increase the levelized cost (part of the initial investment capital costs) as well as the cost of energy input, the latter of which can be included in the cost of fuel. 

LCOE = [Stn=1 (It + Mt + Ft) / (1+r)t] / [Stn=1 E/ (1+r)t

where Iis the invested capital in period t, Mare the costs of maintenance in period t, Fsymbolizes the cost of fuel in period t, and Et is the energy output in period t.

For reasons of competitiveness, renewable hydrogen costs should not exceed USD 2.5 per kilogram (kg). This can be achieved today on a smaller scale with wind power tariffs of between USD 20 and 40. Further, low-cost solar photovoltaic (PV) projects have the ability to make green hydrogen competitive with hydrogen produced from fossil fuels. With low-cost sources of energy input available, the next challenge will be to provide a low-cost electrolyser and a base load factor of at least 50%.[1]

In addition, logistics costs also affect hydrogen’s overall cost. They do not play a direct role in the LCOE’s themselves as they are not part of the production process, but they do play a significant part when calculating the overall costs of using hydrogen as a renewable energy source. For example, transporting hydrogen to demand centers offers a level of flexibility that is a big advantage compared to traditional energy sources as well as other renewable sources that need to be grid connected.[2]

Storage costs for hydrogen need to be looked at as well. Hydrogen storage seems to have little fluctuation between storing large amounts versus storing smaller amounts. Hydrogen storage for as long as a few weeks represents a competitive solution to other storage options like lithium-ion batteries, compressed air energy storage, above ground tank farms, pumped hydropower, salt cavern and storage, and even combined cycle power plants.[3]

Overall, we see that hydrogen, especially green hydrogen, is becoming more competitive, especially as feed in tariffs for solar PV and wind energy are decreasing. Green hydrogen may never be as low cost as wind and solar energy, primarily because it requires input energy as part of its production process. However, its ability to be transported and in multiple physical states and properties compensates for the higher cost structure. 

Do you see any other way that green hydrogen can be produced at lower rates than solar PV and wind energy? 


[1] https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2019/Sep/IRENA_Hydrogen_2019.pdf

[2] https://www.hydrogen.energy.gov/pdfs/progress10/vii_6_steward.pdf

[3] https://www.sciencedirect.com/science/article/pii/B9780444626165000097

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