The idea of a hydrogen-based economy has been around since the oil crises of the 1970s, but it has not materialised up to this point. Yet according to Jan Cihlar of Ecofys, a Navigant company, hydrogen could still become a key enabler of the low carbon transition, if it is produced with renewable electricity. The potential of further cost reductions make this a possibility in some applications in transport and industry.
Most hydrogen produced today is used in the petrochemical sector and for manufacturing fertilizers. 99% of it comes from fossil fuel reforming as this has been the most economical pathway. This does not have any real climate benefits, since CO2 is emitted in the process.
However, a scalable and potentially low greenhouse gas (GHG) emitting alternative is available through water electrolysis. Such “green hydrogen” could have numerous applications ranging from industrial feedstock to fuel cell vehicles (FCVs) and energy storage.
Whereas its use as a chemical feedstock in the industrial sector and as fuel in transport could soon gain momentum, utilization in stationary applications (e.g. in energy storage) is expected to remain modest
The key question is: can it be competitive? Electrolysis production costs are connected to electricity prices,which have prevented widespread application thus far. However, as prices of renewable electricity are falling, as illustrated by recent record-low solar and wind bids between $24/MWh and $53/MWh, the doors could be opening up.
Cost reduction potential
We evaluated various scenarios for the cost evolution of water electrolysis. Data on current production costs are scarce, mainly because few very large electrolysers have been built so far. In the current state of play, electrolyser capital cost (CAPEX) for a typical polymer electrolyte membrane (PEM) electrolyser (1MW) is around $1000/kW. For large alkaline systems it is about $600/kW.
Although PEM technology is more expensive now, it possesses much bigger cost reduction potential than alkaline, if scaled up. The US Department of Energy estimates that electrolyser capital cost can go down to $300/kW. At this level, if optimal electrolyser efficiency (approximately 75% in power-to-gas applications) is realised, prices for renewable energy continue to fall and carbon taxes rise to between $50-100/ton, green hydrogen based on electrolysis can become a cost-competitive option. If we assume a levelized cost of feed-in electricity in the range of $10-30/MWh, green hydrogen could become 45% cheaper than hydrogen derived from natural gas steam reforming.
For the transport sector, this translates to cost of $5-6/100 miles in end-user fuel costs. This compares favourably to fossil fuel alternatives:
End-user fuel cost comparisons in passenger transport
Source: Ecofys – A Navigant Company
Hydrogen has a premium value in transportation as the tank-to-wheel conversion efficiencies of fuel cells can be substantially higher—typically by a factor of two—than those of internal combustion engines (ICEs). This advantage is further emphasised if a carbon tax is added to the price of fossil fuels. These factors are included in the comparison, as are the additional investments needed for hydrogen infrastructure. It is unclear, though, who will finance these.
However, the comparison does not incorporate the difference between purchase prices of ICE vehicles versus FCVs. These currently outdo the cost advantage of using hydrogen instead of gasoline. In other words, even if operating expenses (OPEX) are comparable, the purchase cost of the vehicle (CAPEX) will favour ICE vehicles. In order to make hydrogen competitive, either its retail cost will have to drop way below that of fossil fuels or economies of scale would have to drive down the cost of FCVs significantly. This is certainly not an impossibility.
An uptake of green hydrogen would probably unfold in stages, driven by its different applications. Whereas its use as a chemical feedstock in the industrial sector and as fuel in transport could soon gain momentum, utilization in stationary applications (e.g. in energy storage) is expected to remain modest.
One stationary application is the use of green hydrogen to provide flexibility for the grid via conversion of excess electricity from renewables to hydrogen and back to electricity (power-to-gas-to-power). This could in theory be useful at times of high generation and low demand (or vice versa) for security (e.g. grid stability) or economic (e.g. viable business case) reasons, but the costs are currently prohibitive.
Japan plans to have 5.3 million households using hydrogen-based fuel cell micro combined heat and power systems by 2030
Although green hydrogen, then, is still in early phase, many companies and organisations are seriously engaged in its production. For example, in February 2017, Austrian Voestalpine AG announced it is developing one of the world’s largest polymer electrolyte membrane electrolysers using only green electricity to test hydrogen use in various stages of steel production. A similar initiative will be pursued by a joint venture between SSAB, LKAB and Vattenfall in Sweden.
In January 2017, at the World Economic Forum in Davos, a consortium of 13 companies with cumulative revenue of $1 trillion formed the Hydrogen Council. Its primary purpose is to advance the knowledge and use of hydrogen as an energy source. Japan plans to have 5.3 million households using hydrogen-based fuel cell micro combined heat and power systems by 2030, while the city of Leeds in the United Kingdom has proposed converting its natural gas grid into a hydrogen grid by 2026. In transport, hydrogen-based trains, buses, and trucks are all trying to gain acceptance to fast-track their development.
With a cost potentially as low as $12/GJ (approximately $1.4/kg) for onsite applications and $0.05/mile travelled inclusive of infrastructure costs, the opening is present—first for mobile applications and as a replacement for fossil fuel reforming and other premium applications in industries.
Jan Cihlar is a consultant at Ecofys, a Navigant company. He is an all-round sustainable energy expert and has been advising industrial companies on topics including low-carbon innovations, role of industrial waste in the circular economy or financing models for energy efficiency.
 The difference in total production costs between scenario 1 and scenario 2 is caused by varying electricity cost ($30-10/MWh).
 For comparison, 1 kg of hydrogen (or about 0.12 GJ of potential energy) has about the same energy content as a gallon of conventional gasoline.
 I.e. excluding the cost of compression, storage and dispensing.