By Felicity Bradstock – Jul 15, 2023, 2:00 PM CDT
- Green hydrogen production is costlier than grey or blue hydrogen, with its price as of July 2022 being around $4 to $5 per kilo, while grey hydrogen costs around $2 per kilo.
- Significant investments in green hydrogen production are expected to lower costs in the long term, supported by improvements in electrolysis technology and economies of scale.
- Apart from production costs, the transportation of green hydrogen presents another challenge, requiring dedicated infrastructure and adding to the overall expense of green hydrogen deployment.
There is great optimism around the future of green hydrogen, with many seeing it as a super-fuel that will replace oil-derived options, as well as be highly competitive with electric battery technology. However, we are far from achieving this ambition yet, mainly due to small-scale production operations and high costs. Many companies around the globe have plans to produce green hydrogen, but some are battling challenges that are slowing down the rollout of the clean fuel. Despite improvements in production processes, thanks to greater investment in the sector in recent years, the production and transportation costs of green hydrogen remain much higher than other fuels, including other types of hydrogen.
Producing grey or blue hydrogen, which is derived from fossil fuels, is viewed as relatively low cost, with many companies already relying on this fuel. Grey hydrogen is produced using natural gas. It undergoes a steam methane reforming (SMR) process, which breaks methane apart using high-pressure steam, which creates separate hydrogen, carbon monoxide, and carbon dioxide molecules. This process produces high levels of carbon dioxide, around 9 to 10 tonnes of CO2 for every tonne of hydrogen. But it is also highly cost-effective, so long as natural gas prices remain stable. In July 2022, the cost of grey hydrogen was around $2 per kilo.
In contrast, green hydrogen production methods are more expensive. Green hydrogen is made using renewable energy sources to power an electrolysis process that separates hydrogen from water, producing just steam as a waste product. It is carbon neutral, making it highly attractive for companies looking to decarbonise. However, by July 2022, it cost around $4 to $5 a kilo, or even more, to produce green hydrogen. And some industry experts believe that the high cost of green hydrogen production isn’t going to fall any time soon.
Green hydrogen is viewed by many international agencies, such as the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA), as a solution to decarbonise ‘hard-to-abate’ sectors. As more governments and private companies around the globe pump funding into green hydrogen operations, there are high hopes that the production cost of green hydrogen to fall substantially, to as low as $0.5 per kilo. However, others believe it will be difficult to drive the cost to lower than $3 per kilo.
IRENA published two studies to drive green hydrogen production worldwide: Green Hydrogen: A Guide to Policy Making in November 2020, and Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.5°C climate goal in December 2020. These studies were aimed at encouraging governments and private companies to scale up production, aimed at driving down costs. However, the price of green hydrogen production so far remains elevated, at around 2 to 3 times the cost of grey hydrogen production, when gas prices are stable.
Nevertheless, progress has been seen thanks to greater funding into research and development, with the price of electrolysers falling by around 60 percent since 2010. According to IRENA, they could decrease by a further 40 percent in the short term and by as much as 80 percent in the long term. This cost reduction prediction relies on greater innovation in electrolysis technology to improve its performance, as well as scaling up manufacturing capacity, standardisation, and growing economies of scale.
Another challenge to consider is the cost of transportation. Murray Douglas, the head of hydrogen research at Wood Mackenzie, stated that “Hydrogen is pretty expensive to move… “It’s more difficult to move than natural gas … technically, engineering wise … it’s just harder.” And Douglas is not the only one concerned about this. The U.S. Department of Energy (DoE) has reported challenges with green hydrogen including “reducing cost, increasing energy efficiency, maintaining hydrogen purity, and minimizing hydrogen leakage.” The DoE believes greater research is required to “analyse the trade-offs between the hydrogen production options and the hydrogen delivery options when considered together as a system.”
Companies worldwide are now considering the best locations for their green hydrogen production facilities. While there is great potential for the development of plants in Australia, North Africa, and the Middle East, these could be very far from their principal markets. Douglas highlighted the need for a dedicated pipeline, constructed between the producer and end-user if moving green hydrogen by pipe. Alternatively, green hydrogen could be transported as ammonia with nitrogen, which could be shipped and sold to consumers such as fertiliser producers. Otherwise, users would have to crack the ammonia back into nitrogen, which would increase costs and result in energy losses.
For green hydrogen to be as successful as everyone hopes, it will require significant investment to overcome these challenges. Jorgo Chatzimarkakis, the CEO of the industry association Hydrogen Europe, suggests the need for a certification system, to guarantee that any green hydrogen production was powered by renewable sources. Further, a well-researched delivery strategy needs to be developed to ensure that production facilities are adequately linked with green hydrogen markets. This has been seen in projects such as Cepsa’s green hydrogen corridor between southern and northern Europe.
While transportation costs are high, companies already understand how to move green hydrogen as they have been doing it the same way with natural gas for decades. But some are deterred by high costs. Therefore, the industry must drive down production costs to alleviate some of the pressure on transportation. Although the green hydrogen industry continues to face several major challenges, preventing a wide-scale deployment of the clean fuel, greater investment in the sector over the coming decades will likely fix many of these problems and allow for the deployment of global, large-scale green hydrogen production.
By Felicity Bradstock for Oilprice.com
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Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK.