*4.3. Need to Reduce Renewable Hydrogen Production Cost*

Cost-competitiveness of producing renewable hydrogen is key for the wide adoption of hydrogen uses. The upfront costs of renewable hydrogen such as electrolyzers, transport infrastructure, and storage, and the varying costs of electricity tariffs are key factors contributing to the high production cost of renewable hydrogen (Figure 4). 'Green' hydrogen production costs dropped drastically from US\$10–US\$15/kg of H2 in 2010 to US\$4–US\$6/kg of H2 in 2020, with varying assumptions of lower and higher upfront costs of electrolyzers with 20 MW and producing capacity of 4000 normal cubic meters per hour [3,13]. The costs are expected to reduce to US\$2.00–US\$2.60/kg of H2 in 2030, which is competitive with steam methane reforming with CCS.

**Figure 4.** Hydrogen Production Cost Trends with Upfront Cost of Electrolyzers. CCS = carbon capture, sequestration, and storage, SMF = steam methane reforming. H2 = hydrogen. Note: Assumption: 4000–normal cubic meter per hour (20 MW) polymer electrolyte membrane electrolyzers connected to offshore wind. The lower-cost electrolysis case is US\$200/kilowatt (kW). The middle-cost electrolysis case is US\$400/kW. The higher-cost electrolysis case is US\$600/kW. Source: Authors, based on Hydrogen Council [4], DOE [14], and IRENA [15].

Considering the electricity tariffs of up to US\$0.10/kWh with varying load factors of 10–50%, the cost of producing hydrogen ranged from US\$0.90–US\$5.50/kg of H2 to US\$4.20–US\$8.90/kg of H2 (Figure 5), meaning that electricity tariff is the major cost of producing hydrogen using electrolysis. At zero electricity tariff or when VRE is expected to be curtailed, the cost of producing hydrogen can be as low as US\$0.90/kg of H2 at an electrolyzer's load factor of 50%, and US\$5.50/kg of H2 at an electrolyzer's load factor of 10%. The International Renewable Energy Agency's target of cost-competitiveness of producing renewable hydrogen is US\$2.00–US\$2.50/kg of H2 [16]. In this case, an electricity tariff of US\$0.03/kWh with an electrolyzer's load factor of 30% is the most practical given all the constraints.

**Figure 5.** Hydrogen Production Cost with Varying Electricity Cost and Electrolysis Load Factors. H2 = hydrogen, kWh = kilowatt-hour, LCOE = levelized cost of electricity. Note: Assumption: The polymer electrolyte membrane electrolyzer is connected with the grid. Source: Authors, based on Hydrogen Council [4], DOE [14], and IRENA [15].

The solar photovoltaic farm and onshore wind already cost US\$0.02–US\$0.03/kWh in some locations [16]. Even the target cost of US\$2.00–2.50/kg of H2 to produce 'green' hydrogen, however, would not be competitive with low-cost natural gas at US\$5 per gigajoule (GJ) (Conversion factor: US\$0.01/kWh = US\$2.80/GJ.) (US\$0.018/kWh), but would be with natural gas, which costs US\$10–US\$16/GJ (US\$0.036–US\$0.057/kWh).

Technically, if renewable hydrogen production uses only curtailed electricity from renewables, the operating load factor of electrolysis, which contributes the most to the cost of producing hydrogen, will likely be low at 10% or less. According to the Hydrogen Council [4], the electrolyzer will need to run at a load factor of at least 30% or more to lower the cost of producing hydrogen to US\$2.00–2.50/kg of H2, which is competitive with the natural gas grid price.

Electrolysis facilities must have a load factor above 30% to ensure the cost-competitiveness of producing renewable hydrogen, and other capital expenditures such as the electrolyzer's upfront cost must be reduced by 50% from US\$840 today to US\$420 per kilowatt by 2040. As wind and solar energy is expected to increase its share in the power generation mix, expected curtailed electricity from renewables will be higher by 10–30%. By 2030, the share of VRE curtailment will be 10–30% in Sweden, which provides the most incentives for renewable hydrogen [16]. In 2020, Chile, Australia, and Saudi Arabia have achieved the target cost of US\$2.50/kg to produce 'green' hydrogen because of cheap access to electricity from wind and solar energy. The cost is expected to drop further to US\$1.90/kg in 2025 and to US\$1.20/kg in 2030, which is highly competitive with the cost of 'grey' hydrogen production.

Effective policies and incentives to develop and adopt hydrogen can promote economies of scale and cost-competitiveness in producing hydrogen, encouraging investors to manufacture electrolyzers; improve their efficiency, operation, and maintenance; and use low-cost renewable power such as hydrogen to enable scaling VRE penetration of the power grid. 'Green' hydrogen production cost could decline even faster and go even lower than US\$2/kg of H2 if governments, business, and stakeholders

join hands to adopt the wider use of 'green' hydrogen and increase investment and R&D in hydrogen fuels. Australia, Chile, and Saudi Arabia have achieved cost-competitiveness in wind and solar energy generation.

The energy transition will largely depend on the clean use of fossil fuel leading to a clean energy future. Although hydrogen is a clean fuel, the way it is produced matters. Almost 95% of hydrogen production is from natural gas with or without CCS. The gasification of coal can be used as feedstock for producing hydrogen, but it emits roughly four times more CO2/kg of H2 produced than natural gas feedstock does. The production cost of low-carbon 'blue' hydrogen depends on feedstock cost and suitable geographical CCS storage. IRENA (2019a) estimated that 'blue' hydrogen production in China and Austria with current CCS infrastructure could realize a production cost of about US\$2.10/kg of H2 for a cost of coal of about US\$60 per ton. In the US, where natural gas is below US\$3 per million British thermal units and has large-scale CO2 storage such as depleted gas fields and suitable rock formations, 'blue' hydrogen cost could drop below US\$1.50/kg in some locations. If the carbon cost of about US\$50 per ton of CO2 is considered, low-carbon hydrogen could reach parity with 'grey' hydrogen. 'Blue' hydrogen cost in the US and the Middle East could drop further to about US\$1.20/kg in 2025 if economies of scale prevail.

World leaders need to provide a clear policy to develop and adopt hydrogen. The right policy will enable economies of scale for producing hydrogen cost-competitively, inducing investors to explore electrolyzer manufacturing; improve electrolyzer efficiency, operation, and maintenance; and use low-cost renewable power. With the full participation of governments, business, and stakeholders, hydrogen can become the fuel that enables scaling up renewable energy penetration in all sectors, decarbonizing global emissions.
