Green H2 to Become Low-cost in 12 Markets by 2030; Brazil, Chile to Lead

The hydrogen boom is well underway, but not all hydrogen is created equal. A spectrum of hydrogen colours are in play – but the real game-changer will come when low-carbon green hydrogen costs become competitive in major markets, states Bridget van Dorsten, Hydrogen Research Analyst, Wood Machenzie.

In a recent report by WoodMac, “Hydrogen Costs 2021: Getting Ready to Scale,” Dorsten studies the economics of green, grey, brown and blue hydrogen, concluding that green hydrogen has some catching up to do, but the project pipeline is gathering pace.

Green hydrogen – hydrogen created from the electrolysis of water using renewable energy – has a tiny share of the global energy market today. It is currently still largely uncompetitive against fossil-fuelled alternatives. However, the momentum behind net zero ambitions means that investors are betting on its long-term potential.

“As a result, the hydrogen project pipeline has grown seven-fold since December 2020. We’re tracking more than 560 low-carbon projects in our database with a minimum of 180 GW total electrolyser capacity designation. Most projects are still at early development stage, with the bulk of new projects advanced through Q2 this year,” says Dorsten.

Hydrogen manufacturing companies are scaling up

Until 2019, global estimated electrolyser manufacturing capacity was just 200 MW. By the midway point of 2021, that had jumped to 6.3 GW of announced capacity, with 1.3 GW added in Q1 alone.

Now, as we reach the end of Q4, electrolyser manufacturers are dramatically expanding plans for gigawatt scale factories, as per WooodMac. In recent weeks, Ohmium, Clean Power Hydrogen, Green Hydrogen Systems, Sunfire and FFI have all announced large-scale factories, joining Cummins, Haldor Topsoe, ITM, Nel, McPhy, Siemens, Thyssenkrupp and Plug Power.

Electrolyser capex is falling fast

WoodMac expects a significant drop in electrolyser capex by 2025. Costs are being driven down by a range of factors including economies of scale, new entrants to the market, greater automation and increased modularity.

Cost drivers differ for different electrolyser types. According to WoodMac, reductions for solid oxide electrolysers are set to be the most dramatic in the next 6-8 years; but alkaline and polymer electrolyser membrane (PEM) costs are forecast to fall 35-50% by 2025.

Capex reduction is expected to help drive down the levelised cost of hydrogen production (LCOH). Combined with cheap renewable PPAs and good renewable utilisation in many markets, the potential for competitive green electrolysis-based hydrogen really starts to grow, as per Dorsten.

At the same time, as the world adjusts to high commodity prices while demand bounces back from Covid-19 lows, the economics of blue, grey and brown hydrogen have become less favourable than they were a year ago. (Though the world of blue hydrogen – which pairs natural gas reforming with carbon capture and storage (CCS) – is also expanding with a rapidly increasing project pipeline for CCS projects linked to hydrogen.)

This combination of forces means that we believe green hydrogen will be competitive in 12 markets – those with the highest utilisation rates and lowest renewable electricity prices – by 2030. Brazil and Chile are amongst the front-runners of harnessing cheap renewables to produce green hydrogen off-grid. And by 2050, 20 of the 24 countries in WoodMac’s analysis see very competitive green hydrogen costs.