Hydrogen is considered as a fuel of the future. However, most of the hydrogen production across countries is from a process which uses fossil fuels, leading to pollution. Therefore, the focus is slowly shifting to cleaner alternative- green hydrogen, hydrogen which is produced by using renewable energy. However, currently there are many hurdles to facilitate the greater uptake of green hydrogen. The high cost of technology is the biggest impediment. The International Renewable Energy Agency has recently published a report titled, “Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.5⁰C Climate Goal” which discusses different strategies for reducing costs and also provides policy suggestions. Key excerpts from the report…
As more countries pursue deep decarbonisation strategies, hydrogen will have a critical role to play. This will be particularly so where direct electrification is challenging and in harder-to-abate sectors, such as steel, chemicals, long-haul transport, shipping and aviation. In this context, hydrogen needs to be low carbon from the outset and ultimately green (produced by electrolysis of water using renewable electricity).
In addition to regulations and market design, the cost of production is a major barrier to the uptake of green hydrogen. Costs are falling – largely due to falling renewable power costs – but green hydrogen is still 2-3 times more expensive than blue hydrogen (produced from fossil fuels with carbon capture and storage) and further cost reductions are needed.
The largest single cost component for on-site production of green hydrogen is the cost of the renewable electricity needed to power the electrolyser unit. This renders production of green hydrogen more expensive than blue hydrogen, regardless of the cost of the electrolyser. A low cost of electricity is therefore a necessary condition for producing competitive green hydrogen. This creates an opportunity to produce hydrogen at locations around the world that have optimal renewable resources, in order to achieve competitiveness.
Strategies for cost reduction of green hydrogen
Low electricity cost is not enough by itself for competitive green hydrogen production. The reductions in the cost of electrolysis facilities are also needed. This is the second largest cost component of green hydrogen production. This is the focus of this report, which identifies key strategies to reduce investment costs for electrolysis plants from 40 per cent in the short term to 80 per cent in the long term.These strategies range from the fundamental design of the electrolyser stack to broader system-wide elements, including:
Electrolyser design and construction: Increased module size and innovation with increased stack manufacturing have significant impacts on cost. Increasing the plant from 1 MW (typical today) to 20 MW could reduce costs by over a third. Cost, however, is not the only factor influencing plant size, as each technology has its own stack design, which also varies between manufacturers. The optimal system design also depends on the application that drives system performance in aspects such as efficiency and flexibility.
Economies of scale: Increasing stack production to automated production in GW-scale manufacturing facilities can achieve a step-change cost reduction. At lower manufacture rates, the stack is about 45 per cent of the total cost, yet at higher production rates, it can go down to 30 per cent. For Polymer Electrolyte Membrane (PEM) electrolysers, the tipping point seems to be around 1,000 units (of 1 MW) per year, where this scale-up allows an almost 50 per cent cost reduction in stack manufacturing. The cost of the surrounding plant is as important as the electrolyser stack and savings can be achieved through standardisation of system components and plant design.
Procurement of materials: Scarce materials can represent a barrier to electrolyser cost and scale-up. Current production of iridium and platinum for PEM electrolysers will only support an estimated 3 GW-7.5 GW annual manufacturing capacity, compared to an estimated annual manufacturing requirement of around 100 GW by 2030. Solutions that avoid the use of such materials are already being implemented by leading alkaline electrolyser manufacturers, and technologies exist to significantly reduce the requirements for such materials in PEM electrolysers. Anion Exchange Membrane (AEM) electrolysers do not need scarce materials in the first place.
Efficiency and flexibility in operations: Power supply represents large efficiency losses at low load which limits system flexibility. A modular plant design with multiple stacks and power supply units can address this problem. Compression could also represent a bottleneck for flexibility, since it might not be able to change its production rate as quickly as the stack. One alternative to deal with this is an integrated plant design with enough capacity to deal with variability of production through optimised and integrated electricity and hydrogen storage. Green hydrogen production can provide significant flexibility for the power system, if the value of such services is recognised and remunerated adequately. Where hydrogen will play a key role in terms of flexibility, as it does not have any significant alternative sources to compete with, will be in the seasonal storage of renewables. Although this comes at significant efficiency losses, it is a necessary cornerstone for achieving 100 per cent renewable generation in power systems with heavy reliance on variable resources, such as solar and wind.
Industrial applications: Electrolysis system design and operation can be optimised for specific applications. These can range from: large industry users requiring a stable supply and with low logistics costs; large scale, off-grid facilities with access to low-cost renewables, but that incur in significant costs to deliver hydrogen to the end-user; and decentralised production that requires small modules for flexibility, which compensate for higher investment per unit of electrolyser capacity with reduced (or near zero onsite) logistic costs.
Learning rates: Several studies show that potential learning rates for fuel cells and electrolysers are similar to solar PV and can reach values between 16 per cent and 21 per cent. This is significantly lower than the 36 per cent learning rates experienced over the last 10 years for PV (IRENA, 2020a). With such learning rates and a deployment pathway in line with a 1.5°C climate target, a reduction in the cost of electrolysers of over 40 per cent may be achievable by 2030.
Figure ES1 shows how up to 85 per cent of green hydrogen production costs can be reduced in the long termby a combination of cheaper electricity and electrolyser capex investment, in addition to increased efficiency and optimised operation of the electrolyser.
Figure ES2 illustrates the potential green hydrogen production cost reduction between 2020 and 2050 for a range of electrolysers cost and deployment levels. In the best-case scenario, green hydrogen can already be produced at costs competitive with blue hydrogen today, using low-cost renewable electricity, that is around USD 20 per megawatt-hour (MWh).
A low electricity price is essential for the production of competitive green hydrogen, and, as illustrated in Figure ES2, cost reductions in electrolysers cannot compensate for high electricity prices. Combined with low electricity cost, an aggressive electrolyser deployment pathway can make green hydrogen cheaper than any low-carbon alternative (that isless than USD 1/kg), before 2040. If rapid scale-up takes place in the next decade, green hydrogen is expected to start becoming competitive with blue hydrogen by 2030 in a wide range of countries (for examplethose with electricity prices of USD 30/MWh) and in applications.
Today’s cost and performance are not the same for all electrolyser technologies (see Table ES1). Alkaline and PEM electrolysers are the most advanced and already commercial, while each technology has its own competitive advantage. Alkaline electrolysers have the lowest installed cost, while PEM electrolysers have a much smaller footprint, combined with higher current density and output pressure. Meanwhile, solid oxide has the highest electrical efficiency. As the cell stack is only part of the electrolyser facility footprint, a reduced stack footprint of around 60 per cent for PEM compared to alkaline translates into a 20-24 per cent reduction in the facility footprint, with an estimated footprint of 8 hectares (ha)-13 ha for a 1 GW facility using PEM, compared to 10 ha-17 ha using alkaline (ISPT, 2020).
Gaps in cost and performance are expected to narrow over time as innovation and mass deployment of different electrolysis technologies drive convergence towards similar costs. The wide range in system costs is expected to remain, however, as this is very much dependent on the scale, application and scope of delivery. Normally, numbers for system costs include not only cell stack, but also balance of stacks, power rectifiers, the hydrogen purification system, water supply and purification, cooling and commissioning – yet exclude shipping, civil works and site preparations.
Notably, the numbers for 2020 are cost estimates for a system ordered in 2020, representing the lowest value the price can be (on the limit of zero profit). As the market scales up rapidly, in the initial phase, the investment in manufacturing facilities must be recovered, therefore the gap between cost and price is currently higher than in 10 or 20 years from now. As a reference, an estimated investment of EUR 45-69 million is required for each GW of manufacturing capacity (Cihlar et al., 2020).
The way forward
Innovation is crucial to reduce cost and improve the performance of the electrolyser. The ultimate goals are to: reduce cost by standardising and simplifying manufacturing and design to allow for industrialisation and scale-up; improve efficiency to reduce the amount of electricity required to produce one unit of hydrogen; and increase durability to extend the equipment lifetime and spread the cost of the electrolyser facility over a larger hydrogen production volume.
Further, governments can support innovation in electrolysers by issuing clear long-term signals that support policy on:
- Facilitating investment in production, logistics and utilisation of green hydrogen, including all areas that will help this low-carbon energy carrier to become competitive; technology cost and performance improvements, material supply, business models and trading using common standards and certifications.
- Establishing regulations and design markets that support investments in innovation and scale-up the production of green hydrogen. This includes approaches such as setting manufacturing or deployment targets, tax incentives, mandatory quotas in hard to decarbonise sectors and other de-risking mechanisms, while enabling new business models that can guarantee predictable revenues for the private sector to invest at scale.
- Supporting research, development and demonstration to reduce the use of iridium and platinum in the manufacture of PEM electrolysers; transition all alkaline units to be platinum- and cobalt-free; and, in general, mandate reduced scarce materials utilisation as a condition for manufacturing scale-up.
- Fostering coordination and common goals along the hydrogen value chain, across borders, across relevant sectors and between stakeholders.
The full report can be accessed by clicking here