Economics of green Hydrogen
Green hydrogen, a clean and renewable source of energy, has become a buzzword in the energy industry. The demand for green hydrogen has been increasing, primarily due to the need for decarbonization in various sectors such as transportation, industry, and power generation. Green hydrogen is produced by electrolysis of water using renewable energy sources such as wind, solar, or hydroelectric power.
The economics of green hydrogen are different from those of traditional fossil fuel-based grey or brown hydrogen. For grey or brown hydrogen, the fossil fuel price is the primary determinant of hydrogen cost, whereas for blue hydrogen, the cost of carbon capture and storage (CCS) is included. In contrast, for green hydrogen, the capital expenditure around electrolysers and associated infrastructure, as well as their utilization and power costs, are the key factors that ultimately decide the production economics.
The cost of green hydrogen production is mainly dependent on the cost of renewable energy sources and the cost of electrolysers. Renewable energy prices have been declining rapidly over the past few years, and this trend is expected to continue as technology matures and deployment takes place. Similarly, as the volume of production and deployment of electrolysers increases, the capital cost of electrolysers is expected to decrease. The International Renewable Energy Agency (IRENA) estimates that green hydrogen costs can decrease by 80% if the electrolyser capital cost falls by 80% and electricity costs drop below $20/MWh.
Several countries are developing strategies to accelerate the adoption of green hydrogen. In Europe, the European Union (EU) has set a target of 40 GW of electrolysis capacity by 2030 and aims to produce 10 million tonnes of renewable hydrogen by 2030. Germany has set a target of 5 GW of electrolysis capacity by 2030 and 10 GW by 2040. In Asia, Japan has set a target of producing 300,000 tonnes of hydrogen by 2030, and South Korea aims to produce 5.5 million tonnes of hydrogen by 2040. China plans to increase its hydrogen production capacity to 1 million tonnes by 2025 and 10 million tonnes by 2030.
The potential market for green hydrogen is enormous. The International Energy Agency (IEA) projects potential hydrogen demand of 528 million tonnes under its net-zero scenario, up from 287 million tonnes as per its sustainable development scenario. This could result in the mitigation of 1.6-3.5 giga tonnes of greenhouse gas emissions annually by 2050. Industrial decarbonization, both in energy and feedstock, is driving near-term hydrogen demand creation. However, longer-term opportunities are emerging in transport, power, and even for the decarbonization of the shipping and airline industry.
In conclusion, the economics of green hydrogen are favorable, and the demand for green hydrogen is increasing due to the need for decarbonization in various sectors. The cost of green hydrogen production is dependent on the cost of renewable energy sources and electrolysers, and several countries are developing strategies to accelerate the adoption of green hydrogen. The potential market for green hydrogen is enormous, and it could play a significant role in mitigating greenhouse gas emissions and achieving net-zero targets.
Table: Green Hydrogen Strategy of Various Countries
|European Union||40 GW of electrolysis capacity by 2030; 10 million tonnes of renewable hydrogen by 2030|
|Germany||5 GW of electrolysis capacity by 2030; 10 GW by 2040|
|Japan||300,000 tonnes of hydrogen by 2030|
|South Korea||5.5 million tonnes of hydrogen by 2040|
|China||1 million tonnes of hydrogen by 202|