US clean hydrogen producers are unlikely to meet President Biden’s ambitious target of cutting costs of by 80% to $1/kg without subsidy by 2031 — unless they build in additional research and development into their existing work programmes, new analysis from the US Department of Energy (DOE) has found.
Based on current market trends, producers might be able to achieve levelised clean hydrogen costs of $1.5-2/kg by 2035, the DOE said in its latest forecast for hydrogen market, Pathways to Commercial Liftoff: Clean Hydrogen.
Clean hydrogen is defined by the DOE as either electrolytic hydrogen made with electricity or H2 made from fossil gas with carbon capture and storage (CCS).
The reductions would still be significant compared to today’s costs of $3-6/kg — a cut of around 50-60% — and would come about as a result of expected cost declines in renewable electricity and electrolysers, as well as the expected ramp up of reliable hydrogen storage and distribution infrastructure.
The DOE expects the capital costs of (uninstalled) alkaline electrolysers to plummet by 70% to $230-400/kW by 2030, while proton exchange membrane (PEM) electrolysers fall by 60% to $380-450/kW.
Cost reductions are also set to be achieved by research and innovation advances — supported by the DOE’s $750m hydrogen research and development fund, which aims to overcome technical barriers to cost reduction that cannot be achieved by scale alone.
But they would still skim the flagship cost target championed by the DOE, and US President Joe Biden, as part of the country’s so-called Hydrogen Shot, which aims to achieve $1/kg by 2031, a decade after the initiative was launched in 2021.
Reaching the target “would require additional [research and development] compared to what industry players are building into their current forecast”, the DOE said.
But even achieving the 50-60% cost reduction implied by $1.5/kg hydrogen is fraught with uncertainty.
In particular the DOE highlighted the need for renewable energy installations to keep pace with hydrogen production, noting that the US would require 200GW of new wind and solar capacity to meet the country’s 2030 goal of producing 10 million tonnes of hydrogen per year for domestic consumption — effectively doubling the US’s current wind and solar capacity of 226GW — as well as 25 million tonnes of carbon storage capacity to enable blue hydrogen production.
This would enable the US to achieve 90% of its target with green hydrogen, the DOE said, noting that this would also require an electricity price of $20/MWh.
If renewables capacity installations can’t keep up, the US will be forced to rely more heavily on blue hydrogen made with fossil gas and CCS, the DOE added.
The paper broadly outlined three stages of expected hydrogen market development to 2035 and beyond, with near-term expansion to 2026 prioritising the decarbonisation of the US’s current hydrogen usage, mainly in ammonia production and oil refining.
This will depend on the availability of midstream infrastructure to transport H2 to industrial projects that are not co-located with hydrogen production, as well as the availability of long-term offtake contracts to manage volume and price risk and encourage final investment decisions.
The second stage, from 2027 to 2034, forecasts a scale-up driven by research and development and which pushes down costs further. During this stage, the demand base of hydrogen widens to include some new sectors such as transport and power generation, but electrolyser projects will need to scale up significantly during these years if they are to survive without subsidies once the Inflation Reduction Act’s production tax credits end in 2035.
The final stage, from 2035 onwards, envisages a self-sustaining market that operates cost-effectively without subsidies — and will require substantial private funding.