Achieving cost-competitiveness for renewable hydrogen production hinges on five factors:
- Capital expenditure, i.e. the price of the electrolyser and balance-of-plant
- Efficiency of the electrolyser
- Renewable power costs, i.e. the raw costs of energy
- Utilisation rates of the assets
- Regulation ensuring a 'level playing field'
Driving down costs of renewable hydrogen therefore requires investments into the electrolyser value chain to reduce capital cost; technology improvements to increase hydrogen output; low costs of power; cost-reflective transmission tariffs; and a high availability of renewable electricity to allow for higher operating rates.
As with all new technologies, scale and number of repeatable units sold are key to bringing down capital costs. Renewable hydrogen can be expected to follow the path of solar, on- and offshore wind generation, all of which saw costs decline rapidly over the past decade, as the global installation base multiplied exponentially.
The same will be the case with the entire power-to-X value chain. Costs of logistics, infrastructure, drivetrains, fuel cells, carbon capture (to obtain carbon) and catalytic reactors (to combine carbon or nitrogen with hydrogen) can be brought down through industrialisation and scale.
Yet, e-fuels based on renewable hydrogen face a unique challenge: whereas solar and wind generation could scale in an energy market with an existing demand and grid, neither demand nor infrastructure for renewable e-fuels are in place today.
Thus, investors on both the supply and demand sides face a dilemma. With future demand uncertain, developers of renewable hydrogen and power-to-X are reluctant to invest in building production facilities. And concerns of short supply and high prices make potential off-takers hesitate to commit.
Experience shows that green technologies can quickly become more cost-efficient with scale
Global green power cost reductions
In short, the overarching challenge is that power-to-X cost-out requires volume and continued developments in electrolyser efficiency. To scale beyond replacement of current fossil-based hydrogen consumption, parallel development of supply and demand is needed – this is especially the case for e-fuels.
Industrial partnerships to ensure demand and supply can grow in tandem
Action-based leadership that connects producers and users of renewable hydrogen and e-fuels can avert the potential supply-demand deadlock. This is already being demonstrated through several joint initiatives. Some initiatives work to facilitate dialogue and knowledge sharing between industries on demands, requirements, standards and barriers to emerging power-to-X applications. Others are concrete projects, in which renewable e-fuels developers work with off-takers to meet a specified need.
In Germany, for example, Ørsted is part of a consortium with the goal of substituting fossil-based hydrogen consumption at the Heide Refinery with renewable hydrogen, and creating large scale supply of renewable e-fuels. In Denmark, Ørsted is working with shipping, aviation and long-hauls land transport companies to develop industrial production of renewable hydrogen and e-fuels.
A third example is the Getting to Zero Coalition, which is comprised of 80 global maritime, finance, energy and infrastructure actors. All are working together to overcome technological and other barriers, with the aim of developing commercially viable deep-sea vessels powered by zero-emission fuels by 2030.
Political ambition needed to unlock private sector capital
Unlocking private sector capital for the development of renewable hydrogen is critical to stimulate innovation and drive down costs. Policymakers must establish effective and ambitious regulatory frameworks that incentivises replacement of fossil-based hydrogen and scale up of renewable hydrogen and power-to-X. This could, for instance, be in the form of blending mandates requiring a certain amount of consumed hydrogen or e-fuels to be renewable. Support for development of the green alternatives, through subsidies and incentives is also important. The combination of regulatory framework, a clear demand pipeline and direct/indirect financial support boosts investor confidence in the merits of developing power-to-X at scale.
In Europe, strong political commitment for decarbonisation of economies has established a supportive environment for renewable hydrogen and power-to-X. With its ‘European Green Deal’, the European Commission has made climate action a key priority, aiming towards 55% emissions reduction by 2030 and for Europe to become climate neutral by 2050. Individual nations, including the UK, Germany, Netherlands and Denmark, have also put national targets in place and formulated ambitious build-out strategies and support schemes forrenewable hydrogen and power-to-X. Taken together, the European region offers:
- A high renewable share of power generation,
- Competitive power costs, and
- Political determination to achieve deep decarbonisation, resulting in explicit support for hydrogen and power-to-X technologies.
Just as Europe was the crucible for developing and maturing renewable technologies, such as offshore wind generation, as the replacement for fossil-based power generation, so it can foster a promising future for renewable hydrogen and e-fuel facilities.