Energy price surge puts grey hydrogen at premium to green

ICIS assessed the price of grey hydrogen derived from steam methane reformation (SMR) using the British NBP front month contract at £1.43/kg of H₂ on 1 April 2021.

By 8 November the price has almost tripled to £4.16/kg. Baseload-generated electrolytic hydrogen using the UK power front month would cost around £11.6/kg on the same date, up from £4.00/kg on 1 April, ICIS data showed.

Input costs for hydrogen can be protected via PPAs with fixed electricity prices.

Graham Cooley, ITM CEO, said: “We’re now in a position where green hydrogen all over the world is lower cost than blue hydrogen, lower cost than grey hydrogen too, forget the carbon capture and storage (CCS).”

Given a nominal power price of £45/MWh supplied under a PPA, the price of green hydrogen would be £3.39/kg. This means that when the NBP front month climbed above £52/MWh, green hydrogen became cheaper than grey.

Baseload electrolytic hydrogen cannot always be considered green. This is because the mix could contain fossil fuels for generation, meaning the power would have an associated carbon footprint.

“Of course, you wouldn’t want to use grid electricity of average carbon intensity, which includes a power price resulting from natural gas generation that you’re trying to replace. You have a direct PPA with a wind farm,” Cooley said.

An electrolyser operator could also be subject to grid charges, which would further lift the final price of hydrogen, another point made by Cooley.

Energy security

A key aspect of domestically-produced green hydrogen is that it can offer energy security, Cooley said.

Hydrogen can be produced from excess supply of offshore wind within the UK and then stored for either power generation or heating, Cooley noted.

“If we’re going to have 40 GW of offshore wind, we will need a lot of storage capacity. The only way to store electrons for a long period of time is to turn them into molecules. If you don’t build capacity, you’ll be turning down a lot of wind power,” Cooley said.

“The price protection for renewable energy companies against negative prices is being removed from offshore wind contracts for difference (CfD). So they [producers] will need to find a way into turning those electrons into something useful, or they will be turned down,” he added.

The UK has a number of potential hydrogen storage projects currently under planning and review. Centrica’s conversion of Rough could amount to 10 TWh of hydrogen storage, while projects from Storengy, SSE, Equinor, and INOVYN could add a further 2.4 TWh.

Further cost reductions

Although the key driver of final price for electrolytic and natural gas-derived hydrogen will continue to be the price of power and gas, technology advancements will play a key role.

ITM recently announced it was expanding its electrolyser production capacity from 1 GW/y to 5 GW/y following the successful raising of £250 million. The new production capacity is expected to be online by 2024 with 2.5 GW/y based in the UK.

The expansion will support cost reductions for ITM’s electrolysers, therefore reducing the final levelised price of hydrogen.

“We’re looking at full system costs of around £400/kW, having been at around £800/kW. Roughly a 50% cost reduction (between 2022 and 2031),” said Cooley.

PPA-derived hydrogen at this cost would drop to £3.14/kg H₂, roughly a 7% reduction in final price.

However, with the expansion of renewable capacity there will be an overall reduction in power prices if supported by electrolysers for grid balancing, Cooley outlined.

This means by 2030, when the UK government targets to have 40 GW of offshore wind online, power prices could drop if backed by green hydrogen to avert price volatility during periods of low renewable output.

Read the article online at: https://www.energyglobal.com/other-renewables/18112021/energy-price-surge-puts-grey-hydrogen-at-premium-to-green/