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Renewables growth may close green hydrogen cost gap

Published by
Energy Global,

Research by global natural resources consultancy Wood Mackenzie indicates that green hydrogen production can compete with fossil fuel-based hydrogen by 2030 in Australia, Germany, and Japan, should renewable power prices reach US$30 per MWh.

Wind and solar power purchase agreement (PPA) prices currently range from US$53 -US$153/MWh in those markets. Wood Mackenzie’s research shows that less than 1% of all hydrogen produced today comes from renewable electricity, relying instead on natural gas and coal.

Switching to hydrogen produced by wind and solar via electrolysis, which splits water molecules into hydrogen and oxygen atoms, offers a significant opportunity to decarbonise its production and reach emissions targets. According to Wood Mackenzie, from 2000 to the end of 2019, 252 MW of green hydrogen projects will have been deployed worldwide. By 2025 this will increase by 1272%, with the deployment of a further 3205 MW of electrolysers dedicated to green hydrogen production.

Ben Gallagher, a Senior Analyst at Wood Mackenzie, said: “The large increase in the 2019 - 2025 period is partially due to the nascency of the market. But aggressive targets in East Asia and increased interest from major international stakeholders will drive deployment in the near term. “While cost-competitiveness might be out of reach in most scenarios by 2025, national targets and pilot projects will produce enough volume to realise substantial CAPEX declines beyond 2025,” he added. Gallagher said that as renewable energy deployment grows, the green hydrogen market will grow also.

However, there are challenges; while green hydrogen has made gains in a number of key markets, including Japan, Germany, and Australia, at present it cannot compete with the low costs of locally produced coal and natural gas-produced hydrogen in China and the US, for example.

On top of this, it remains unclear whether renewable PPA prices worldwide will fall fast enough to make green hydrogen production competitive. Yet, Gallagher is optimistic about the green hydrogen sector’s future.

“We are just embarking on the energy transition,” he said. “There are several unknowns that would further spur adoption of green hydrogen such as changing policy dynamics, new carbon regimes, new ways to monetise grid flexibility and lower-than-expected costs of renewables.”

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