Driving the hydrogen revolution towards a more sustainable future
Authored by the global hydrogen team at Wood Mackenzie
Exploring how hydrogen costs are changing is another key challenge in our journey towards a sustainable energy future. One of the biggest cost drivers is the evolution of electrolyser technology, a major driver in the hydrogen landscape. But there’s more to cost than technology alone – we need to think about how we procure the power that creates electrolytic hydrogen and what it really costs.
As technology improves, and we transition towards gigascale hydrogen projects, the costs of making hydrogen are also changing. Traditional engineering, procurement and construction (EPC) cost environments face a new level of complexity and therefore uncertainty.
Unlike industries with established cost benchmarks like oil, gas and LNG, the hydrogen world is new and different. We don’t yet have any defined cost benchmarks, which makes it even more important to understand what it really takes to make hydrogen work financially.
On top of this, hydrogen as a solution looks different for each use case. Trying to optimise the entire value chain is more complicated for hydrogen than it is for solar, for example, as there is no standardisation across different electrolyser offerings yet. As different electrolyser technologies scale, they combine different technologies – which is not always the most efficient – and everything has to be manufactured, tested and scaled.
For developers and investors to understand the costs associated with hydrogen production, they need to be able to analyse specific real-world projects, see how they’re structured, identify where the costs are (along with the specific components of cost), and work out where costs can be reduced. A cornerstone of this analysis needs to be the concept of Levelized Cost of Hydrogen (LCOH), the point at which a project breaks even at the country level.
It’s important to bear in mind that all hydrogen projects are unique, and there is no one-size-fits-all when it comes to hydrogen costs. As the hydrogen industry grows, we might see a few dominant ways to make hydrogen more efficiently, which will also affect costs.
As the industry works towards greater efficiency, optimal cost structures and increased competitiveness, utilities and investors need to arm themselves with data to make informed decisions, driving the hydrogen revolution towards a more sustainable future in a cost-effective way.
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