Production

Blue hydrogen cheaper than green H2 in all markets except China amid falling gas prices: BNEF

Green is not due to undercut blue in all markets until 2033 if using Western-made electrolysers — but could compete on cost years earlier if using Chinese tech

Hydrogen storage tanks at Sinopec's 260MW Kuqa green hydrogen project, the world's largest, in Xinjiang, China.
Hydrogen storage tanks at Sinopec's 260MW Kuqa green hydrogen project, the world's largest, in Xinjiang, China.Photo: Sinopec
Blue hydrogen is currently 59% cheaper to produce than renewable H2, on average, when not factoring in subsidies or carbon prices, according to a recent update from research house BloombergNEF (BNEF).

Stay ahead on hydrogen with our free newsletter

Keep up with the latest developments in the international hydrogen industry with the free Accelerate Hydrogen newsletter. Sign up now for an unbiased, clear-sighted view of the fast-growing hydrogen sector.
Sign up now

BNEF’s previous update in the second half of 2022 suggested that due to high fossil gas prices, green hydrogen financed that year was “temporarily competitive” with gas in Europe.

But “this is no longer the case in 2023”, the research firm says, as the price of fossil gas is expected to drop to around $10 per MMBTU (million British thermal units) across all countries this year — 64% lower than the research firm’s estimate last year.

And this is projected to follow through over the coming years. BNEF’s forecast for gas prices up to 2030 is 23% lower than in its update in the second half of last year.

As such, depending on the market, the levelised cost of producing grey hydrogen from unabated fossil gas this year ranges from $0.98-2.93/kg while blue — where most of the CO2 produced is captured and stored (or used) — costs between $1.80-4.68/kg.

The levelised cost of green hydrogen ranges from $2.38-5.89/kg if using cheap Chinese alkaline electrolysers, $4.18-11.07/kg from Western-made alkaline equipment, and $4.57-12/kg with proton exchange membrane (PEM) technology.

As such, China is the only modelled country where green hydrogen already undercuts blue hydrogen on price. This is because alkaline electrolysers are already extremely cheap in this market at around $360/kW on average — 71% cheaper than Western equivalents at $1,270/kW — which allows projects in the country to produce renewable H2 at a little under $3/kg, while blue hydrogen costs in that market are a little higher.
BNEF also adjusted its assumptions from the previous update to increase construction timelines for both blue and green H2 to two years in every market except China, which stayed at one year, “to better reflect current lead times for equipment” — which raised the modelled capex for Western alkaline electrolysers by 17%.

China also benefits from a projected fall in the country’s wind turbine prices, which are expected to help bring average cost of wind energy down 8% over 2024-50.

The new update also aligns the operation years of the hydrogen project and upstream renewable assets, to account for longer construction time for onshore and offshore wind compared to solar, which increases the modelled cost of electricity from the previous update.

However, while new renewable H2 plants will not have a cheaper cost of production than existing grey hydrogen facilities until 2050, the year in which green hydrogen is cheaper to produce than blue has moved forward by one to three years in all modelled markets — although some markets will close this gap earlier than others.
BNEF anticipates that markets using Western-made electrolysers will only reach cost parity between green and blue hydrogen by 2033, while those already using Chinese alkaline equipment will have cheaper renewable H2 by 2028.

However, the research firm notes that a switch to Chinese electrolysers might not necessarily drive down costs earlier, since the markets currently using Western technologies are still likely to be subject to higher installation costs and a lack of access to Chinese equipment in the short term.

BNEF has also differentiated assumptions of financing costs between markets, which bumped up the average levelised cost of green hydrogen by 14.5% compared to a uniform cost of capital.

When different financing costs are factored in, even without accounting for longer construction timelines, some markets such as Japan have a cheaper levelised cost of hydrogen (LCOH) than previously estimated, falling from around $4.72-9.80/kg to $4.36-8.90/kg.

Other markets are now expected to have higher LCOHs. The cost of green hydrogen production in Turkey originally ranged from around $2.36-4.36/kg but is now estimated to be $3.08-8.18/kg. Vietnam meanwhile is now expected to produce green hydrogen at $5.44-10.72/kg, where it had previously ranged from $4.18-7.80/kg.

And BNEF calculates India will have an LCOH of $3.08-6.72/kg when financing costs in that market are accounted for, compared to $2.54-4.54/kg in the previous model.

(Copyright)
Blue H2Green H2alkaline electrolysersPEM electrolysersChina
Published 13 July 2023, 12:38Updated 13 July 2023, 12:41