Green hydrogen production costs in Europe could fall to between €2 (£1.72) and €2.5/kg, but hydrogen produced by grid electricity will drive up costs.
This is according to new research from Aurora Energy Research, which found that electrolyser projects will need to achieve significant cost reductions in order to compete with blue hydrogen on economic terms.
Its analysis suggested that further reductions in the capital cost of both electrolysers and renewables could lead to a significant reduction in the cost of hydrogen production, with it possible to reach those prices of below €2.5/kg.
However, it also found that Great Britain is one of three countries across Europe with the highest additional chargers for grid-connected electrolysers. Hydrogen produced this way will be more costly, with this primarily due to grid fees and environmental levies on electricity bills.
Aurora did note that Great Britain and Germany – both in the highest three along with Denmark – are among a few European countries which have put in place exemption schemes to offset these costs for electrolysers and other large scale industrial users of electricity.
Additionally, grid-connected electrolysers can be operated flexibly to avoid times with high electricity prices and chargers, with Aurora’s research finding that operating a grid-connected electrolyser in this way can significantly reduce its overall operating cost vs an electrolyser which runs in all hours of the year.
Overall, electrolysers paired with onshore wind in Norway will produce the cheapest green hydrogen in Europe in the 2020s, Aurora found, with this closely followed by onshore wind in Spain.
Richard Howard, research director at Aurora Energy Research, said that a variety of business models are emerging for electrolysers, and that key to their success is optimising their business models to minimise costs.
“In certain countries, policy changes to incentivise electrolysers or exempt them from certain grid costs would be required in order to accelerate deployment of this technology,” he said.
Currently, ScottishPower is looking to build the UK’s largest electrolyser as part of its Green Hydrogen for Scotland project, with the 20MW electrolyser to be built close to the country’s largest onshore wind farm, Whitelee, just outside of Glasgow.
Other projects underway include the South Wales Industrial Cluster, which is looking to use solar power and battery storage to generate green hydrogen to fuel steel and other industry in the region, and a project on the island of Eday, Orkney at the European Marine Energy Centre’s (EMEC) tidal energy test site. This is combining tidal power with vanadium flow batteries to produce continuous green hydrogen.