Switch to green hydrogen will lead to 'significantly higher energy prices in 2050 than today': analyst

The London-based company, which focuses on the fertiliser, metals and mining industries, states that ”projections of $0.5/kg costs do not stand up to rigorous, techno-economic assessment”.

“Such low-cost projections are misleading because they imply that no great change to the economics of the global energy system is needed and that the energy transition will be easy,” write CRU sustainability analyst Lize Wan and research manager Paul Butterworth.

“While CRU believes that green hydrogen will play a major role in the energy transition, the switch to hydrogen will necessarily lead to significantly higher energy prices and this will have ramifications on the economy, the competitiveness of different sectors and on how consumers spend their money.”

“Green hydrogen cost projections of ~$0.5/kg have been cited by many commentators in recent years and costs below $1/kg routinely proposed, sometimes stated as achievable as early as 2030. However, in our view, costs this low are unrealistic,” the authors write.

“Rather, it is our belief that the $0.5/kg cost aspiration has been put forward less because it is the result of a rigorous assessment of the relevant technologies but simply because it aligns with the pre-energy crisis, steady-state cost of thermal coal (ie, ~$3.5/GJ [gigajoule]).

“That is, hydrogen at this cost level implies that no great change to the economics of the global energy system is needed and so is intended to imply that the energy transition is easy and little sacrifice is required to make it happen. This is untrue — under a decarbonised future, energy costs will necessarily be higher than we have been used to.”

The note says that achieving $2/kg is “already a stretch goal for 2050”, equivalent to a 50-70% fall from current levels, depending on the country, which would require a halving of renewable energy costs and a 75% reduction in electrolysis system costs — and that’s without taking into account hydrogen storage, compression or distribution costs .

“A cost of ~$2.0 /kg, as quoted above, is only applicable if a renewable connection charge is exempted, no storage is required and hydrogen is used directly after production, which itself would engender its own set of challenges.”

CRU predicts that the grid connection charge would amount to about $0.70/kg, on average, with storage costs at $0.30/kg, and compression and short-distance transportation adding a further $0.50/kg.

Getting the production price down to $1.50/kg would require a 65% reduction in renewable power costs and an 80% reduction in system capital expenditure (capex), as well as a 54% utilisation rate (without battery storage).

“To achieve $0.5/kg, even if we assume electrolyser system capex drops to $100/kW in 2050 (ie, by 95%) and other operating costs fall, renewable power costs would have to fall to $5/MWh — a price level that doesn’t cover any of the renewables capex. That is, the renewables capex would need to be zero to achieve a power price of $5/MWh, which is infeasible.”

This means that it will still more expensive globally, on average, than grey and blue hydrogen derived from fossil gas in 2050 — even when including a price on carbon.

But it will become cheaper than grey and blue in the EU after 2035 due to rising carbon prices, the note adds.

However, the CRU analysts give short shrift to blue hydrogen, which includes carbon capture and storage.

“By 2050, based on our forecasts for fossil energy prices, blue hydrogen is expected to have lower cost compared with green hydrogen overall. However, blue hydrogen is not an emission-free hydrogen production route. In fact, the lowest possible emission intensity of blue hydrogen, assuming continued fugitive emissions of methane along the full natural gas supply chain, will be ~30% that of natural gas. That is, 1 t[onne] of blue hydrogen will still be responsible [for] >2 t[onnes] of carbon dioxide emissions.

“If the world is going to rely heavily on green hydrogen to achieve its net zero target, ‘hard-to-abate’ sectors [long-haulage transportation, shipping, aviation, ammonia and steel] will face much higher energy costs in 2050.”