Reducing green hydrogen costs hangs on gov’t support

Hydrogen has the potential to transform the global energy landscape, but in order to fully tap into this potential, governments must implement policies such as tax or benefit schemes that support investment and lower production costs. Whilst it may take up to five or 10 years for these efforts to significantly reduce costs, according to ERM Partner Justin Payne, it is crucial for governments to act now in order to fully realise the potential of hydrogen in the energy transition.

According to Michael Ottaviano, Managing Partner, Asia Pacific Renewable Energy at ERM, said the majority of the approximately 100 million tonnes of hydrogen produced annually is created through carbon-intensive processes. Only less than 1% of which is low-carbon or “green” hydrogen produced through the process of electrolysis using renewable energy, the International Energy Agency (IEA) explained.

The International Renewable Energy Agency (IRENA) reported that the cost of generating low-carbon hydrogen depends on the cost of renewable input, which is the major cost driver, the electrolyser and the cost of capital.

As renewable energy is the main input required in producing green hydrogen,

Payne said bringing down the green electricity cost will be crucial in reducing the cost of green hydrogen.

Increasing the adoption and deployment of electrolysers will also help in reducing the cost of green hydrogen. Decarbonisation will come at a cost, he said, but it can be supported by the governments through tax or benefit schemes.

“Once you get to a critical mass of projects up and running, then its support is no longer required because the established supply chains are in place, and then the market dynamics will function without direct incentives,” he said.

The cost of producing green hydrogen is currently $5 per kilogram (kgH2) and is projected to reach below $1/kgH2 along with solar photovoltaic for most regions by 2050, according to IRENA.

For green hydrogen to play its role in achieving net-zero emissions, almost 14 terawatts (TW) of solar, 6TW of onshore wind, and 4TW to 5TW of electrolysis will be needed, it said. Hydrogen can contribute to the energy transition and meet 12% of the final energy demand and reduce 10% of the total emissions under a scenario in line with the climate targets.

However, for markets with lower installed renewable energy capacity such as Asia with around 5% to 10% renewable penetration, the immediate focus should be on ramping up the renewable energy component of grid supply to 30% of the total mix, Ottaviano said.

“Other countries that are wealthier and are already advanced on renewable energy deployment should be the ones leading the way on de-risking green and blue hydrogen,” he said.

“For the moment, the low-hanging fruit in many Asian countries is deploying wind, solar, and offshore wind. You can do that without having to really change the grid fundamentally or adding any other infrastructure associated with hydrogen. That will give some time for hydrogen to scale elsewhere, Ottaviano said, adding that hydrogen should be used initially for harder-to-abate sectors.

According to the IEA, hydrogen use is mostly dominated by industries such as oil refining, ammonia, methanol, and steel production. It can also be used in transportation and buildings, as well as for power generation as it is an option for storing renewable energy.

Hydrogen and ammonia can also be used in gas turbines for increased power system flexibility, whilst ammonia can help reduce emissions in coal-fired power plants, it said.

Driving hydrogen investments

Payne said policy announcements at the country level play a crucial role in initiating hydrogen-related projects. An example of a policy backed by the government is Singapore’s National Hydrogen Strategy for its net-zero emissions target by 2050. A part of this strategy is importing hydrogen