Companies dithering on hydrogen investments are in for a rude awakening as the cost of electrolysers used to produce green hydrogen plummets 85% by the end of the decade, according to the latest analysis from Rethink Energy.
Economies of scale for producers, the continued decline in the cost of renewable energy and the rising price of carbon will mean green hydrogen (created by splitting water with renewable electricity) will be cost competitive with grey hydrogen (produced from natural gas) within two years, Rethink Energy analyst Harry Morgan wrote in a report. That’s earlier than predicted by any other major forecaster.
Rethink sees the cost of green hydrogen falling from about $3.70/kg today to just over $1/kg in 2035, and around $0.75/kg by 2050, it says in the report, Hydrogen to Clean Up Energy with $10 Trillion Spend.
The so-called learning rate for electrolysers, i.e., how much the cost per unit falls every time global manufacturing capacity doubles, will be 14%, it predicts. That will bring the capital cost of electrolyser units down from about $1,400/ kW today to $340/kW by 2030.
If that sounds like a lot, the learning rate of the solar sector is 23%. Analysts, including those at the International Energy Agency (IEA), routinely underestimated the pace at which renewable energy costs would decline and capacity would grow over the past 20 years with only a few bullish outliers, such as Bloomberg New Energy Finance, getting close.
If Rethink Energy is right, the implications will be momentous.
“This will see a violent shakedown of industries that have plodded on with a business-as-usual approach to decarbonization, without innovation,” Morgan wrote in the report.
With hydrogen taking such a dominant role in an increasingly decarbonised economy it’s no surprise that UK based hydrogen-focused fund HYCAP have got ahead of the pack.
“People don’t know how to invest in this sector, and this fund focuses entirely on hydrogen”, says founder Jo Bamford, Chairman of Wrightbus and Ryze Hydrogen and heir to JCB, whose chairman, Sir Anthony Bamford, is a major investor in HYCAP. Approximately 75% of the fund’s investments will be made in the UK, spread across production, supply and end use.
“While laggards continue to push CCUS (carbon capture) approaches or complain about a ‘chicken-and-egg’ problem for hydrogen demand, the companies making the zero-regret investments in green hydrogen now will dominate the hydrogen supply for existing ammonia and oil refining sectors by 2035, with an overall demand of 73 million tons by 2050,” says Rethink Energy analyst Harry Morgan.
Much depends on the cost of grey and blue hydrogen’s biggest input, natural gas. Thanks to the recent surge in European natural gas prices, it has been cheaper to produce green hydrogen since September, according to London-based ICIS. Grey hydrogen cost as much as $8/kg to produce in October, up from about $2 in April.
Renewable energy costs do however vary wildly from country to country.
Some nations, such as Brazil and Chile, will be able to produce green hydrogen for $1/kg by 2030 with many more able to achieve $2/kg, according to a December report by Wood Mackenzie.
The message is clear: clean hydrogen costs are falling fast. Companies that start to embrace the fuel of the future now will be leaders of the coming industrial revolution, while those that don’t risk playing an expensive game of catch-up.
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