Green hydrogen offers path to cost-competitive climate solution

Hydrogen produced with renewable electricity could compete on costs with fossil fuel alternatives by 2030, according to a new report from the International Renewable Energy Agency (IRENA).

A combination of falling costs for solar and wind power, improved performance as well as economies of scale for electrolysers could make it possible.

The IRENA report looks at drivers for innovation and presents strategies that governments can peruse to reduce the cost of electrolysers by 40 percent in the short term and by up to 80 percent in the long term.

Green hydrogen could play a critical role in decarbonisation strategies, particularly so where direct electrification is challenging in harder-to-abate sectors, such as steel, chemicals, long-haul transport, shipping and aviation. However, regulations, market design and the costs of power and electrolyser production are still major barrier to the uptake of green hydrogen.

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“Renewable hydrogen can be a game-changer in global efforts to decarbonise our economies”, said Francesco La Camera, Director General of IRENA. “Levelling the playing field to close the cost gap between fossil fuels and green hydrogen is necessary.

Cost-competitive green hydrogen can help us build a resilient energy system that thrives on modern technologies and embraces innovative solutions fit for the 21st century.”

Today, green hydrogen is 2-3 times more expensive than blue hydrogen, produced from fossil fuels in combination with carbon capture and storage (CCS). The production cost for green hydrogen is determined by the renewable electricity price, the investment cost of the electrolyser and its operating hours. Renewables have already become the cheapest source of power in many parts of the world, with auctions reaching record price-lows below USD 20 per megawatt-hour (MWH).

While low-cost electricity is a necessary condition for competitive green hydrogen, investment costs for electrolysis facilities must fall significantly too.

IRENA’S new study identifies key strategies and policies to reduce costs for electrolysers through innovation and improved performance aiming to scale up electrolysers from today’s megawatt to multi-gigawatt (GW) levels.

Standardisation and mass-manufacturing of the electrolyser stacks, efficiency in operation as well as the optimisation of material procurement and supply chains will be equally important to bring down costs.

For that, today’s manufacturing capacity of less than 1 GW would have to massively grow beyond 100 GW in the next 10 to 15 years.

In the best-case scenario, using low-cost renewable electricity at USD 20 USD/ MWH in large, cost-competitive electrolyser facilities could produce green hydrogen at a competitive cost with blue hydrogen already today.

If rapid scale- up and aggressive electrolysers deployment take place in the next decade, green hydrogen could then start competing on costs with blue hydrogen by 2030 in many countries, making it cheaper than other low-carbon alternatives before 2040, IRENA’S analysis shows.

The IRENA report outlines strategies to reduce electrolyser costs through continuous innovation, performance improvements and upscaling from megawatt (MW) to multi-gigawatt (GW) levels.

Among the findings:

Electrolyser design and construction: Increased module size and innovation with increased stack manufacturing have significant impacts on cost. Increasing plant size from 1 MW (typical in 2020) to 20 MW could reduce costs by over a third. Optimal system designs maximise efficiency and flexibility.

Economies of scale: Increasing stack production with automated processes in gigawatt-scale manufacturing facilities can achieve a step-change cost reduction. Procurement of materials: Scarcity of materials can impede electrolyser cost reduction and scale-up.

Efficiency and flexibility in operations: Power supply incurs large efficiency losses at low load, limiting system flexibility from an economic perspective.

Industrial applications: Design and operation of electrolysis systems can be optimised for specific applications in different industries. Learning rates: Based on historic cost declines for solar photovoltaics (PV), the learning rates for fuel cells and electrolysers – whereby costs fall as capacity expands – could reach values between 16 percent and 21 percent.

Ambitious climate mitigation: An ambitious energy transition, aligned with key international climate goals, would drive rapid cost reduction for green hydrogen. The trajectory needed to limit global warming at 1.5oc could make electrolysers an estimated 40percent cheaper by 2030.