The Rising Costs of Green Hydrogen Dims Hopes for Affordable Energy Revolution

In the world of sustainable energy, green hydrogen has long been hailed as the holy grail to combat climate change and transition to a carbon-neutral future. Many companies and governments have dreamed of this eco-friendly energy carrier becoming a cost-effective solution. However, recent analyses are dashing some of these optimistic hopes.

A report created by German newspaper Handelsblatt suggests that the goal of affordable green hydrogen might not materialize. The study’s estimate predicts that the price of producing green hydrogen will be significantly more expensive than expected. With estimates ranging from 5 to 8 euros per kilogram, the original goal of reaching prices as low as 3 euros per kilogram now appears improbable. This cost increase poses a significant challenge to industries aiming to achieve carbon neutrality by using green hydrogen.

A primary cause of this financial difficulty is the significant quantity of electricity needed for the electrolysis process of producing hydrogen. This process is estimated to require about 55 kilowatt hours of electricity to produce one kilogram of hydrogen. As a result, the cost of hydrogen and power are closely related. Even at a 7 cent per kilowatt-hour average, the cost of power alone adds up to around 4 euros per kilogram. The anticipated 2 euros in capital expenditures must be added to this, meaning that, at the present power rates, the total cost of producing hydrogen in Europe would be about 6 euros per kilogram.

E-Bridge Consulting, responsible for the daily hydrogen index (Hydex Plus), has estimated a full-cost price of approximately 6.20 euros per kilogram. For many local companies, however, the pain threshold for affordable green hydrogen is often set at 4 euros, or at most 5 euros per kilogram.

Consequently, the hydrogen industry is now calling for subsidies on three fronts: generation, infrastructure, and utilization. This three-fold demand for government support was a central focus of the recent industry forum held by the tri-national hydrogen initiative, 3H2, near Freiburg, Germany.

Hydrogen producers are facing a perplexing dilemma. They can secure cheaper electricity rates if they only operate their electrolyzers during periods of abundant renewable energy supply. However, the short operational life of these plants leads to higher capital costs. On the other hand, while economically efficient, running electrolyzers around the clock forces producers to purchase electricity during peak hours when prices are high.

Recognizing that domestic generation alone cannot meet the substantial hydrogen demand, Europe has been looking abroad for solutions. This is particularly important since it is anticipated that only around 30 percent of the hydrogen demand will be covered by domestic production. However, even imported green hydrogen is expected to be relatively costly. Calculations by the Fraunhofer Institute for Solar Energy Systems ISE on behalf of the H2Global Foundation indicate that the cost of producing one kilogram of hydrogen in regions like Brazil, Australia, and northern Colombia ranges between 3.20 and 3.60 euros. Yet, the price will again approach the 6 euro mark when factoring in the expenses of shipping to European nations.

The studies also indicate that only transportation by pipeline offers some cost savings. Regions like Algeria, Tunisia, and Spain could deliver green hydrogen to European nations through natural gas pipelines converted for hydrogen transport at a cost of 4.56 euros per kilogram. However, even this option falls short of the 3 to 4 euros price range hoped for by many industry players.

The initial optimism surrounding green hydrogen as a cheap energy carrier is facing a reality check. Rising production costs, particularly the correlation with electricity prices, pose significant challenges to achieving cost-competitive green hydrogen. As industries and governments seek solutions to meet ambitious climate goals, it is clear that a multifaceted approach involving subsidies, international collaboration, and innovative technologies will be necessary to make green hydrogen a viable and affordable energy carrier for a sustainable future.

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