Green hydrogen is rapidly gaining traction as a potential solution for decarbonizing the energy sector. The demand for hydrogen, especially green hydrogen, is set to increase rapidly in the coming years. However, one of the biggest challenges in scaling up green hydrogen production is its high production cost. In this blog, we will analyze the trajectory of green hydrogen production costs and its potential impact on the market.
According to the report by NITI Aayog, the key assumptions behind the green hydrogen production cost trajectory scenario are as follows: Electrolyzer Capex ($/kW): 500(2020), 125 (2030); Full T&D waiver; GST waiver 18% to 5%); LCOE of solar (INR/kWh): 1.9 (2020), 1.5 (2030); LCOE of RTC renewables (INR/kWh): 3.6 (2020), 2.85 (2030).
Based on these assumptions, the report suggests an aggressive price decline scenario for electrolyzer prices, which is the most crucial determinant of the long-term price trajectory of green hydrogen. The report estimates that the production cost of green hydrogen could decline to $1.4/kg by 2030, assuming an aggressive decline in electrolyzer prices.
However, this estimate is subject to uncertainty and depends on several factors such as the availability of low-cost renewable energy sources, the scale of green hydrogen production, and the adoption of supportive policies. The report emphasizes that aspirational price targets can be conducive to green hydrogen market development and can help to incentivize the development of low-cost renewable energy sources and electrolyzers.
One of the key drivers of the decline in green hydrogen production costs is the declining cost of renewable energy sources. The report assumes that the Levelized Cost of Electricity (LCOE) of solar will decline from INR 1.9/kWh in 2020 to INR 1.5/kWh in 2030, and the LCOE of Round-The-Clock (RTC) renewables will decline from INR 3.6/kWh in 2020 to INR 2.85/kWh in 2030. This reduction in the cost of renewable energy sources will make green hydrogen production more cost-competitive with fossil fuel-based hydrogen production.
In addition, supportive policies such as full Transmission and Distribution (T&D) waivers and Goods and Services Tax (GST) waivers can further reduce the production cost of green hydrogen. These policies can help to reduce the cost of electricity and electrolyzers, which are the major cost components of green hydrogen production.
In conclusion, the production cost of green hydrogen is expected to decline significantly in the coming years, driven by the declining cost of renewable energy sources and aggressive price decline targets for electrolyzers. Aspirational price targets and supportive policies can help to accelerate the development of low-cost renewable energy sources and electrolyzers, thereby making green hydrogen production more cost-competitive with fossil fuel-based hydrogen production. This, in turn, can help to drive the adoption of green hydrogen and accelerate the transition to a low-carbon economy.
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