Paris-based energy watchdog the IEA has lifted its estimates for future renewable hydrogen production costs and said it expects only Chinese projects to achieve levelised costs of less than $2/kg by 2030.
Over 22mn t/yr of renewable hydrogen production capacity has been announced with a targeted commissioning in 2030, the IEA said in its Global Hydrogen Review 2024. But even in the watchdog's net-zero (NZE) scenario — which assumes the steepest reductions in renewable electricity costs — less than 1mn t/yr of that could be produced at a cost of less than $2/kg and all of this would be located in China.
This is based on analysis with German research institute Forschungszentrum Julich which takes into account specific configurations for all announced projects and "optimal oversizing of the renewable plant in each location".
In last year's Global Hydrogen Review 2023, the IEA had said production costs based on solar photovoltaic (PV) "could fall to $1.60/kg by 2030 in regions with excellent solar irradiation, such as Africa, Australia, Chile, China and the Middle East".
Based on the new analysis, some Latin American projects could keep production costs below $2.50/kg in the NZE scenario. Under this scenario, around 8mn t/yr globally is produced for less than $3/kg, with much of it coming from Australia. But over 9mn t/yr still costs more than $4/kg to make.
In the NZE scenario, only around 1mn t/yr of global output is "produced at a cost below the unabated natural gas route [for making hydrogen] by 2030", and some 12mn t/yr is at least $1.5/kg more expensive to make than conventional hydrogen, the IEA said. This highlights the need for "adequate support" to close the cost gap, it said.
In the less optimistic stated policies (STEPS) scenario, less than 500,000 t/yr of global output is produced for under $3/kg and only around 6mn t/yr is made for $4/kg or less. Roughly half of the over 22mn t/yr renewable hydrogen is produced for $5/kg or more.
Argus calculates prevailing renewable hydrogen production costs in northwest Europe at an average of over $8/kg, but costs are close to or below $6/kg in some locations, such as China, India, the Middle East and Australia.
Up and down
Capital costs for renewable hydrogen projects have climbed recently as inflation has driven up costs for materials and labour and interest rates have risen.
Costs for an installed electrolysis system of non-Chinese origin reached around $2,000/kw for alkaline technology last year and $2,450/kW for proton exchange membrane (PEM) equipment, representing increases of roughly 20pc on the year, the IEA said. Chinese systems are still considerably cheaper than this at around $750-1,300/kW, it said.
But the IEA still expects electrolyser costs to decrease sharply over the coming years. This — together with reductions in the price of renewable electricity — will help drive hydrogen production costs down. In the STEPS scenario, installed costs fall to roughly $1,250-1,450/kW by 2030, while they dip below $1,000/kW in the NZE scenario.
These cost reductions will be reached through technological progress and economies of scale, the IEA said. Electrolyser manufacturing capacity reached 25 GW/yr by the end of 2023 "based on the nominal facility size from company announcements," with 60pc of this in China, the IEA said. Only around 10pc of this capacity was utilised last year, with output reaching 2.5GW.
Based on all announcements, 165 GW/yr of nameplate electrolyser manufacturing capacity could be online by 2030, although 30pc of this "has been announced with a target year for starting operations", the IEA said. Some 50 GW/yr of capacity has already reached a final investment decision, the watchdog said.
