More and more nations are committing to the promise of hydrogen. That promise cannot be kept unless costs come down. A report from IRENA, ”Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.5⁰C Climate Goal“, breaks down what needs to be done. Two of its authors, Herib Blanco and Emanuele Taibi, summarise the study and point at the more than 20 countries (and companies like Thyssenkrupp, NEL and ITM) committing to doing it. The good news is that the largest cost driver is the green electricity needed to power the process, and dramatic drops in wind and solar prices are expected to continue. That leaves the major challenge of the electrolyser plant. Cost transformations through innovation (efficiency, durability, design), plant size (targeting 20-50MW), component assembly lines and gigafactories will be needed. And important lessons can be learned from existing sectors like chlor-alkali electrolysis and from fuel cells. The goal is to reduce costs by two to three times. The hammer needed to crack the nut will be scale: terawatts of electrolyser capacity, not just the promises so far of hundreds of gigawatts (and today’s global installed capacity is only 200MW). But if rapid scale-up takes place in the next decade, green hydrogen can be competitive with blue hydrogen (fossil-based hydrogen with CCS) by 2030. Studies such as these are essential to answering the difficult question of how much hydrogen we can have in our energy mix.
Commitment to net-zero emissions targets has dramatically increased over the last year. Six countries have adopted net-zero emissions targets in their legislation with another 15 that have proposed the legislation or a policy document. More than 110 countries covering almost two thirds of global CO2 emissions have now committed to net zero targets. Regions, cities and companies have also increased their commitments by nine, eight and three times compared to the end of 2019.
Electrification with renewables and energy efficiency are the key pillars to achieve the largest GHG reductions, but to achieve these net-zero emissions targets, all the sectors need to be tackled. Hydrogen from renewable energy can represent a key pathway to decarbonise those harder-to-abate sectors, particularly from steel, chemicals, long-haul transport, shipping and aviation.
Hydrogen is a trending topic nowadays and it seems a new hydrogen initiative is announced almost daily. Some are future mega initiatives like the Green Hydrogen Catapult that targets 25 GW and USD 2/kg by 2026 and HyDeal Ambition, which is a private initiative that targets 67 GW and EUR 1.5/kg cost for green hydrogen by 2030.
Hydrogen production targets
The hydrogen project pipeline is quickly changing, and it all depends on the type of projects that are included (i.e. how advanced they are). The pipeline was estimated to be about 15 GW last year, more recent estimates are 80 GW or even above 200 GW.
Support for electrolysis comes from both industry and governments. More than 20 countries have issued their strategies by the end of 2020 and 10 more are expected over 2021. In many of these strategies, there are explicit targets of electrolysis capacity. The European Union (40 GW) and Chile (25 GW) are the most prominent examples with specific EU countries already announcing their contribution to the EU goal including France (6.5 GW), Germany (5 GW), Italy (5 GW), Spain (4 GW), the Netherlands (3-4 GW), Poland (2 GW), and Portugal (2 GW).
Targets add up to 105 GW which would be enough to halve the cost of the electrolyser, according to IRENA analysis from the latest hydrogen report, ”Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.5⁰C Climate Goal“.
Why so much emphasis on electrolysis?
- Renewables are the cheapest source of electricity. Electrolysis can take advantage of plummeting renewable costs. In the last decade, renewable electricity cost has decreased dramatically, with cost reductions of 82%, 47% and 39% for PV, offshore and onshore wind respectively. PV and wind auctions around the world have reached prices below 20 USD/MWh in an increasing number of countries, with new records set every year – currently 13.1 USD/MWh for 2020.
- Sector coupling. Electrolysis can enable the use of renewable electricity in sectors that are difficult to electrify.
- Variable renewable integration. Electrolyser facilities can be designed to respond quickly to changes in grid electricity prices and even follow the variable output from wind and solar enabling the integration of more renewable power in both grid and off-grid settings.
- Seasonal storage and system adequacy. Hydrogen has more than 150 times the mass energy density of batteries and only a fraction of the cost in energy terms making it more suitable for long-term storage, decoupling hydrogen demand and, in specific circumstances, electricity demand, from the seasonality solar and wind generation. Hydrogen in this case is complementary to batteries, which are ideal to balance hourly misalignments between demand and supply (e.g. for using PV electricity outside of the central hours of the day or ride through sudden drops in wind while providing grids services such as fast frequency response and in general reserves). See here for a more comprehensive discussion about storage services and their value for VRE integration.
- Zero emissions. Electrolysis does not release any greenhouse gas emissions. The same applies to the use of hydrogen in fuel cells, combustion or other processes. The only emissions are associated to the electricity used – if not renewable – and the construction of the facilities, which will decrease over time as industry is decarbonised.
Bringing down the cost
What are the enabling conditions required for scaling up electrolysis? They include standards, certification, infrastructure, regulatory framework, among others, but the most prominent obstacle is cost.
Green hydrogen is still 2-3 times more expensive than fossil-based hydrogen with carbon capture and storage (CCS). The largest cost driver is the electricity used to split water into hydrogen and oxygen. However, low electricity cost is not enough by itself for competitive green hydrogen production. Reductions in the investment cost of the electrolysis facility are also needed if green hydrogen is to become competitive with fossil-fuel-based low-carbon alternatives.
Figure 1 illustrates the potential green hydrogen cost reduction between 2020 and 2050 for a range of electrolysers cost and deployment levels. In the best-case scenario, using low-cost renewable electricity (USD 20/MWh) and an aggressive deployment pathway (5 TW of installed capacity by 2050), green hydrogen can become competitive with fossil-based hydrogen with CCS (< USD 2/kg) already today and cheaper than any low-carbon alternative (< USD 1/kg) before 2040.
If rapid scale-up takes place in the next decade, green hydrogen is expected to be competitive with blue hydrogen by 2030 in a wide range of countries and applications.
Key message: Most attractive renewable locations could produce competitive hydrogen already today, if combined with large scale electrolysis facilities
The ”Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.5⁰C Climate Goal“ report identifies four key strategies to achieve 40% reduction in the short term, and up to 80% reduction in the long term, of the investment cost for electrolysis plants.
First, innovation will be crucial to reduce cost and improve the performance of the electrolyser. The ultimate goals are:
1) to improve efficiency, to reduce electricity consumption and the share of electricity in hydrogen production cost;
2) improve durability, so that the equipment lifetime is longer and the cost of the electrolyser facility is spread over a larger amount of hydrogen produced;
3) simplify the design and reduce the use of costly and scarce materials, not only to achieve a lower cost but also ensure more sustainable growth for the market. Not all the parameters can be improved at the same time and there are trade-offs (see Figure 2).
Key message: One parameter can usually not be improved without a detrimental effect in another one, which leads to optimizing design based on trade-offs and applications
Increasing in the electrolyser facility size
Second, an increase in the electrolyser facility size allows achieving economies of scale and enables procurement from established suppliers of equipment for the balance of the plant, such as power supply, hydrogen compression and water pumping systems.
Going from a 1-MW plant, typical today, to a 20-MW plant could already reduce the cost by over a third and reap the largest benefits by around 50 MW. Each manufacturer has its own design, and the optimal system design depends on the application
Economies of scale
Third, economies of scale can also be achieved in stack manufacturing. The more units are produced, the lower the cost-share from items such as assembly lines, staff and buildings. Furthermore, going from a few units to tens of thousands also allows a step-change in production cost by going for automated production.
Reaching the “Gigafactory” scale in a single plant could lead to automation and could halve the manufacturing cost of the stacks. At smaller production volumes, the stacks (i.e. core electrolyser components) represent about 45% of the total cost. At higher production volumes, the stack contribution is reduced to about 30%.
This GW-scale market is not yet a reality today, but it might not be too far away. Thyssenkrupp expanded its capacity to the GW-scale in 2020, NEL announced the expansion to 2-GW slashing costs by 75% and reaching USD 1.5/kg by 2025, ITM announced that the expansion plan for the “Gigastack” project had been completed and that this would help in cutting costs by 40% in the coming 3 years.
Fourth, many lessons can already be drawn from chlor-alkali electrolysis that has the same technology principles and greater experience, with an estimated cumulative capacity of 20 GW. This is useful not only for the experience but also to build upon the same value chains and suppliers to scale water electrolysis faster.
Similarly, electrolysers could also benefit from fuel cell deployment (the reverse process of electrolysis going from hydrogen and oxygen to water to produce electricity). Several studies have looked into the potential learning rates for fuel cells and electrolysers with most of them reaching a value between 16 and 21%. This is still significantly lower than the 36% learning rates experienced over the last 10 years for PV. With such learning rates, reaching 2030 capacities that are in line with a 1.5 °C world could already halve electrolyser cost.
The strategies above are highly interrelated and pursuing a single one has inherently some spill over and synergistic effect over the others. While the overall cost reduction journey will probably be a gradual process, certain milestones identified in this report could help to measure the progress achieved in these four strategies. Pursuing and achieving these milestones, across three stages of deployment, electrolysers cost can be reduced by 40% in the short term and up to 80% in the long-term.
- All the targets mentioned are for 2030 ↑