‘Green hydrogen will cost $2/kg by 2030 — but only from producers with dedicated renewables supply’: DNV

The levelised cost of green hydrogen can be expected to fall to $2/kg by 2030, down from around $5/kg today, on the back of massive reductions in the cost of wind, solar and electrolyser equipment, according to a new report from Norwegian maritime standards firm DNV — but only for projects using on-site renewable electricity supply.

This is because a greater portion of these projects’ cost profiles are related to prevailing power prices which will not start to reduce until after 2030.

These projects can also expect to benefit from improvements in turbine size and solar panel efficiency, increasing operating hours by 10-30%, depending on the technology and region.

Electrolyser capex costs can also be expected to decrease by up to 30% due to “reduced perceived financial risk”, DNV said, indicating that financing costs will come down as the technology becomes more established.

The capex cost of electrolyser installations is widely expected to come down in the next few years as manufacturers scale up, as technology improves and as equipment makers move away from bespoke installations and towards standardised machines.

But according to DNV, these capex reductions will not translate to the same level of reductions in green hydrogen costs for projects with grid-connected electrolysers, which are more exposed to the cost of grid electricity, which makes up a significant portion of the levelised cost of hydrogen (LCOH).

Most installations will buy renewable energy via a power purchase agreement (PPA), either at a fixed price which is influenced by the prevailing cost of power across the rest of the grid, or at a price indexed to settled daily prices on the local power exchange.

“In the long term, the proportion of VRES [variable renewable energy supply] in power systems will be the main factor influencing future electricity prices, with more VRES leading to more hours of very cheap or even free electricity,” the report read. “However, before 2030, the penetration of VRES in power systems will not be sufficient to significantly impact electricity price distribution.”

“For grid-connected electrolysers, the primary cost component is electricity, particularly the availability of affordable electricity,” it continued. “Therefore, any cost reduction in grid-connected electrolysers in the next few years will primarily result from government support and declining capital expenditures.”

“As VRES becomes more prevalent in the energy system, the number of hours when hydrogen from electricity and electrolysis is cheaper than blue hydrogen will increase,” the report said. “Consequently, grid-connected green hydrogen is expected to claim a similar market share as blue hydrogen [by 2050].”