2.2.3 Costs moving towards commercial level
The main cost drivers for green hydrogen production include electrolyser CAPEX and efficiency, electrolyser full load hours, cost of renewable electricity, and cost of system integration.
Electrolyser system investment costs and efficiency largely depend on the technology used and are independent of the location within the EU (see Table 2.4).
Table 2‑4. Overview of the current 2020 technology cost parameters of green hydrogen production technologies (LHV). Source: (Hydrogen Europe, 2020)
|Technology||Capital costs 2020 (€/kWin)2|
Although comparing electrolyser costs can be challenging due to often different cost estimation scopes, compared to 2017 estimates show to be increasingly optimistic about the short- and long- term costs of electrolysers49, 82; Bloomberg New Energy Finance83, for example, quotes a potential decrease from €500/kW today to €115/kW and €80/ kW in 2030 and 2050, respectively, and Hydrogen Europe49 recently specified system cost targets of €480/kW by 2024. With the announced plans for electrolyser manufacturing capacity expansion by thyssenKrupp, Nel, and ITM Power, cost projections are expected to decrease in the coming years.84 These cost reductions can be realised by economies of scale in the manufacturing part of the supply chain, which can be enabled with electrolyser capacities of over 10 MW, R&D, and standardisation and automation of production.85 All technologies are, furthermore, expected to experience further improvements in efficiency, although PEM technology is expected to make the largest progression in efficiency over the coming years.
Although future reductions in electrolyser CAPEX will make a low capacity factor or full load hours less detrimental to the economic performance of hydrogen production, the capacity factor is key as long as capital costs make up a significant part of the levelised cost, in particular, optimising renewable electricity sourcing to maximise full load hours.
With the expected decrease in investment costs, renewable energy will constitute an increasingly large share of production costs. This cost can be the levelised cost of energy (LCOE) in the case of dedicated renewable power production coupled to hydrogen production, or the electricity price in the situation where renewable energy plants serve both electricity and hydrogen markets. The evolution of electricity prices varies by location and remains uncertain because it depends on various external factors, including the evolution of policies, the power generation mix, and the power demand in end-use sectors.
System integration cost factors to deliver green hydrogen include grid injection costs, transport and distribution costs, and storage costs. Typical hydrogen delivery systems consist of a conversion unit (e.g. compression, liquefaction), transmission and distribution components (e.g. long distance, high pressure transport pipeline infrastructure, [see section 4.5], local low pressure distribution network), and inter-seasonal and intraday storage capacities.71
Green hydrogen production cost in the EU ranges from about €70/MWh to €130/MWh (Figure 2.24).86 Small-scale pilot projects can show a much higher cost.87 The production cost depends on the project scale, electrolyser cost, and varying electricity cost. Production costs are expected to reach similar levels as grey and blue in the coming decades. Estimations for green hydrogen production costs for 2050 range between €17/MWh and €84/MWh (Figure 2.24).2, 88
Current production costs for blue hydrogen are estimated to be between €37/MWh and €41/ MWh, depending on the technology. While improvements in industrial symbiosis, natural gas pyrolysis, project size, CO2 capture technology, and transport and storage infrastructure may bring down costs, the price of natural gas futures are likely to continue to dominate the trend.
With natural gas futures reaching historical lows of below €10/MWh in 2019, production costs for blue hydrogen have significantly decreased over past years.89 Assuming a slightly more conservative €15/ MWh, current costs for SMR with CCS are estimated at €41/MWh, whereas ATR is estimated at €37/ MWh (Figure 2.24).90 Besides fuel costs, other key cost drivers for blue hydrogen production include CAPEX for the hydrogen production and the carbon capture units, the production scale of the plant, and electricity prices in the case of ATR.
Capital costs of SMR and ATR plants with CCS (Table 2.5) are dominated by hydrogen-related units like the reformer and water-gas shift reactor but highly depend on the plant capacity. The carbon capture equipment, transport/storage infrastructure, and the air separation unit (ASU; in case of ATR) also take a large share. Auxiliary components like water systems, heat integration, and power and engineering costs can account for about 30% of total costs.73 Future projects should demonstrate the possibilities for industrial symbiosis between ATR plants and electrolysis; this is currently investigated in the Hydrogen Accelerator project.91
Carbon capture technology is rapidly developing. Some capture technologies are specifically relevant for hydrogen plants as they are integrated with existing technical units in the plants.92 One example is the sorption-enhanced water-gas shift, where the existing water-gas shift reaction is combined with in-situ removal of CO2. The integration increases the conversion of CO to almost 100%, while reducing the energy intensity of CO2 capture by nearly 20% compared to default amine capture technology.92 Another innovation relates to the hydrogen purification step.74 Replacing the existing CO2 capture equipment with a single VPSA is expected to lead to reduced process complexity and potentially reduced capital cost. VPSA technology can also be retrofitted to existing hydrogen production facilities by reusing existing equipment based on experience from operating PSA units for hydrogen purification.74
Table 2‑5. Overview of the current 2020 technology cost parameters of blue hydrogen production technologies. Source: (ASSET study, 2020)
|Technology||System investment cost (LHV) (€/kWH2-out)|
|SMR, retrofit with CCS||700|
|SMR, new with CCS||790-1650|
|ATR, retrofit with CCS||690|
|ATR, new with CCS||950-1500|
The production scale for blue hydrogen significantly impacts the production cost. Production costs are estimated to decrease by 20%-30% when production capacity is increased from 100 tonnes H2/day to 500 tonnes H2/day (i.e. 60 MWin to 300 MWin).73 ATR plants benefit more from economies of scale compared to SMR, given that SMR encounters manufacturing limitations at lower scales. Air Liquide quotes that its SMR technology can scale to a capacity of 350,000 Nm3/h syngas, whereas their ATR technology scales up to 1 million Nm3/h.93
Green and blue hydrogen production costs are still relatively high compared to the price of incumbent fuels or feedstocks like natural gas and oil. However, certain consumers may want to pay a premium for green or blue hydrogen—firstly, by complying with increasingly stringent regulation following RED II80 and secondly to achieve their corporate emissions reduction targets or to obtain round-the-clock green energy. Several governments also promote the development of green and blue hydrogen production through subsidy schemes and the Innovation Fund.94 The expected increase in EU ETS CO2 prices will contribute to closing the gap. However, at current allowance prices the cost of grey hydrogen will only add about €300 of carbon costs per tonne H2, or around €10/MWh.95