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How can green hydrogen slash costs by 75%?

Today's article by James Fernyhough in the Financial Review ($) confirms exactly what we said last week; 'green' hydrogen is demonstrably too expensive, and the opportunities for meaningful cost reduction are limited.

Fernyhough highlights the federal government's recent call for the private sector to devise ways to slash the cost of renewable hydrogen production by 75 percent to under $2.00/kg.

According to the recent National Hydrogen Roadmap by the CSIRO, hydrogen made using electricity generated by wind and solar costs around $11 per kilogram.

The cost of electricity and the capacity factor of wind and solar generation seem to be the two biggest cost barriers.

Assuming the ambitious $2.00/kg cost target was achieved, Fernyhough makes a sobering observation regarding the viability of hydrogen as a substitute for fossil fuels in certain applications:

"...even with a low-carbon grid and major early-stage government investment, renewably produced hydrogen would only be able to compete with carbon-heavy alternatives if there was a price on carbon, a policy the Energy Minister Angus Taylor again ruled out on Thursday."

How much would that carbon tax need to be to make hydrogen competitive? It depends on the application:

  • Steelmaking: Bloomberg New Energy Finance found even if 'green' hydrogen cost $1.50 per kilogram, there would still need to be a carbon tax of $76 per tonne of carbon dioxide for it to be a more economical alternative to coking coal in steel making by 2050
  • Cement production: $91 per tonne of CO2
  • Ammonia: $119 per tonne of CO2
  • Fuel to power ships: $221 per tonne of CO2

The hydrogen wars are heating up

There's a battle for the hearts and minds of Australians in the quest to position the nation to capitalise on the forecast demand for hydrogen as a clean energy alternative.

On one side, renewable advocates claim 'cheap' wind and solar should be used to make 'green' hydrogen. Yet this 'cheap' electricity doesn't automatically make 'green' hydrogen cheap due to the tyranny of low capacity, which we explain further below.

Meanwhile, CCS hydrogen, which produces hydrogen from coal or gas while capturing and storing ~95% of the CO2 emissions, is already in the 'ballpark', as indicated in the IEA chart below.

The chart also shows the current higher range of 3.00 - 7.50 USD/kg (A$4.61 - A$11.54) for producing renewable hydrogen.


As mentioned, the National Hydrogen Roadmap by the CSIRO shows a dedicated renewable hydrogen production cost of ~$ $11/kg (~USD7.15), which is near the top of the IEA's renewable hydrogen cost range.

The electricity cost challenge

The biggest challenge is the capacity factor, which is determined by when the wind blows and when the sun shines. We'll get to that in a moment.

The second biggest challenge is reducing electricity costs.

Other factors, such as plant size and efficiency, also play a role.

Electricity cost is a result of two things:

  1. The price of electricity
  2. How much electricity is required to make 1kg of hydrogen

In the case of dedicated renewable electricity generation, which sits outside the wholesale and retail market, the price is simply the cost of capital plus the cost of operating, maintaining and financing the equipment.

The amount of electricity required is a function of the well-understood physics of hydrogen production via the electrochemical separation of water.

Current electrolyser efficiencies range between 54 and 58kWh/kg, depending on the technology. It is generally considered that efficiencies better than 45 kWh/kg are unlikely to be achieved.

National Hydrogen Roadmap - Pathways to an economically sustainable hydrogen industry in Australia

Let's assume it takes 50/kWh of electricity to make 1kg of hydrogen.

In the above table, at a cost of 6 cents per kWh, it takes $3.00 of electricity to make 1kg of hydrogen.

Some long-run contracts for recent wind farm projects are as low as 5.3c per kWh. That's for supply to third parties, so it includes profit.

If we stick with dedicated renewable electricity generation solely to power the electrolyser, then we won't be adding a margin internally and can simply apply the 'levelised cost of energy' (LCOE) formula.

Lazard provides one of the most reliable LCOE references:

  • Utility-scale solar PV cost - USD32-42 (AUD49-64)
  • Onshore wind - USD28-54 (AUD43-83)

Let's assume 3c/kWh.

If the $11kg cost of dedicated renewable hydrogen mentioned above includes around $3.00 worth of electricity and a 50% reduction in electricity cost from 6c kWh to 3c kWh can deliver a saving of $1.50 per kg, we're down to $9.50 per kg.

So, where do the remaining cost savings need to come from?

To analyse this, the National Hydrogen Roadmap gives this handy breakdown of the current best estimate for the grid-connected scenario savings:

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The electrolysis process and cost are almost identical for either grid-connected or dedicated scenarios. It's just that the cost start point is higher for the dedicated renewables scenario due to the lower capacity factor.

The above includes the following assumptions from page 70 of the National Hydrogen Roadmap:

  • Electricity price drop from 6c to 4c per kWh
  • Capacity factor increased from 85% to 95%
  • Scale increased from 1MW to 100MW
  • Capital intensity decreased from $3496kW to $968kW
  • Opex decreased from $75/kW/y to $19/kW/y
  • Efficiency improved from 54 kWh/kg to 45 kWh/kg
  • Reduced finance and risk rates

The Capacity Factor Challenge

When the above cost-saving estimates are applied to the dedicated renewable hydrogen scenario, the challenge of getting under $2.00kg becomes all too clear.

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As we've mentioned, the main barrier is the low capacity factor of 35% for wind and solar, compared to 85% for the grid-connected scenario.

The capacity factor of wind and solar means the electrolyser is used less often, constraining the potential to derive revenue and pay back the capital investment. Conversely, in the grid-connected scenario, the same-size electrolyser produces 85% of the time.

Plant size may yet provide decreases, with some sources estimating a capital cost as low as $400/kW by 2030. Still, the direct capital cost for the best-case scenario in the National Hydrogen Roadmap is projected to be around $968/kW, assumed in the above chart.

An unforeseen breakthrough must occur to make 'green' hydrogen affordable. That may come as a solar innovation, a new method, or a catalyst.

CCS hydrogen also needs to make some headway in reducing cost, but it's almost there already.

The National Hydrogen Roadmap provides the data that shows just how close:

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So, there you have it.

'Green' hydrogen needs to find a way to reduce its cost by around $9 per kilogram.

CCS hydrogen needs to find savings of less than 75c per kilogram.

While the path to delivering those 'green' hydrogen savings has yet to be discovered, we believe we can help deliver the savings needed to shave a few cents off the brown coal-to-hydrogen cost.

Here at ECT, we see two direct opportunities in the context of the emerging hydrogen industry:

  1. Coldry, our low-temperature lignite drying solution, features zero direct CO2 emissions and can be deployed as the front-end feedstock preparation stage for standard coal gasification technology. This stage is before the standard hydrogen production route known as steam reforming. It’s the gateway enabler for lignite-to-hydrogen production.
  2. COHgen, which stands for ‘catalytic organic hydrogen generation,’ is our novel, low-temperature, low-emissions hydrogen generation technology currently under development. It may provide a low-cost alternative to the steam reforming route to produce hydrogen from brown coal.

There is still much work ahead to develop our COHgen process and confirm techno-economic viability at a large scale. Still, we are engaged with various parties involved with the Victorian HESC project, directly and as a member of the FEnEx CRC—Future Energy Exports Cooperative Research Centre—

We mentioned above that, even at $2/kg, hydrogen isn't economically viable for certain applications. Iron and steel making is an example.

We have a solution for that, too.

HydroMOR, which stands for ‘hydrogen metal oxide reduction,’ is our lignite-based, hydrogen-driven, low-emission primary iron-making process. It enables the use of alternative low-grade and waste resources, improving primary iron production's economic and environmental outcomes. HydroMOR utilises the Coldry process as its front-end drying and material agglomeration stage.

Importantly for steelmaking, HydroMOR is a way to directly harness hydrogen from lignite without the need for a separate hydrogen plant, delivering lower-cost iron and steel compared to traditional coal-based routes.

The hydrogen is generated in situ from the lignite within the reactor, providing outstanding efficiencies and CO2 reductions of ~30% compared to blast furnace production.

Hydrogen is indeed a smart way to transition to lower emissions.

Unfortunately, renewable hydrogen is so far back in the pack when it comes to cost, we need to ensure the right questions are asked and the correct assumptions are used as the nation decides how best to invest taxpayer funds to drive the innovation required to meet the cost target of $2.00 by 2030.