From NOT A LOT OF PEOPLE KNOW THAT
By Paul Homewood
The cost of producing and installing electrolysers for green hydrogen production in China, the US and Europe — three of the world’s biggest markets — has risen by more than 50% compared to last year, research house BloombergNEF (BNEF) has found, rather than the gradual reduction its analysis had previously indicated.
The main culprit for Western manufacturers has been inflation, which has pushed up the costs of materials, utilities (such as water and electricity) and labour in the US and Europe, said BNEF in its new report, Electrolyser Price Survey 2024.
As a result, average system-level cost (including both stack and balance of plant) is now at a mid-range of $600/kW for an electrolyser made in China, while machines made in Europe or the US are around $2,500/kW.
This makes Western electrolysers four times more expensive than Chinese equivalents, a gap that has not closed at all since the previous report, BNEF noted.
The research house had previously predicted that costs would gradually decline over three years from 2022, as more large-scale projects approached completion.
Green hydrogen, once touted as a saviour of Net Zero, seems to have gone off the radar recently. A few years ago there were wild, unsubstantiated predictions that hydrogen would become so cheap and easy to produce that we could all give up fossil fuels.
Instead, as Bloomberg now report, costs of electrolysers are going up, not down. Moreover the real cost of wind power is also much higher than previously thought, so green hydrogen will be much more expensive as a result.
So let’s take a closer look at these costs.
Back in 2018, BEIS published this report:
https://www.gov.uk/government/publications/hydrogen-supply-chain-evidence-base.
I analysed the report here.
It featured this table:
I gather that PEM technology (Proton Exchange Membrane) is the most likely one to be rolled out. The Base Cost in 2025 was predicted at £500/kW.
A study last October suggested a mid-range cost of Eu727, equivalent to about £630/kW. Bloomberg reckon $600, but this is based on ultra-low Chinese manufacturing costs, almost certainly highly subsidised. Significantly they estimate that European made electrolysers are four times the price.
We can reasonably work on a cost therefore of around £600.
The BEIS study assumed 52.0 kWh/kg H2 in 2025. The energy density of hydrogen , however, is 33.3 Kwh per kg, which means that the electrolysis process only works at 64% efficiency. In other words, 36% of the energy input is wasted.
Previous cost estimates have been based on rock bottom costs of renewable energy, particularly offshore wind, which would have to supply most of the power needed for electrolysis in the UK. As we now know, these costs were never realistic. The Administrative Strike Price of offshore wind for AR6 is now £100/MWh at 2023 prices. Allowing for energy efficiency of only 64%, the energy input cost of hydrogen is therefore £156/MWh.
On top of that, are operational costs. BEIS reckoned £21/MWh in 2018, which is probably in the range of £30 now.
Already, therefore, we are up to £186/MWh, before adding CAPEX. BEIS estimated this at about £30/MWh in 2018. But this assumed loan interest rates of 5%. Given interest rate rises since then and general inflation, a CAPEX of £60/MWh is not unreasonable.
This therefore gives us a total cost of £246/MWh.
Wholesale prices of natural gas have been ranging between about 55 and 85p/therm this year. The conversion rate is 29.3 kWh/therm, giving a cost of £23.90/MWh, based on a mid-point of 70p.
Anybody still think hydrogen is a good idea?
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