These include higher labour and material costs, and increased interest rates
The cost of producing unsubsidised green hydrogen rose by 30-65% in the 12 months up to June 2023, reaching $4.50-6.50/kg, according to a new report from the Hydrogen Council and management consultancy McKinsey. This compares to figures of $2.50-4.50/kg in the middle of last year.
“Multiple factors have caused this increase — higher labor and material costs, higher cost for building the balance of electrolyzer plants, 3-5 percentage points higher cost of capital, and an increase of renewable power cost by more than 30%,” says the Hydrogen Insights December 2023 Update.
“Other factors driving up costs include… pain points such as rare earth metals as well as (in some jurisdictions) skilled labor shortages and interrupted supply chains.
“The hydrogen sector is not unique in this, with costs increases seen in other sectors.”
The $4.50-6.50/kg reference price is for projects on the US Gulf coast, the report states in the smallprint.
Nevertheless, the Hydrogen Council says that the “outlook remains positive”, and seems confident that the cost of green hydrogen production will still fall as expected.
“[Despite the recent increases] the cost of producing renewable hydrogen is expected to decline to $2.50-4/kg towards 2030, driven by advancements in electrolyser technology, manufacturing economies of scale, design improvements, and reduction in renewable power cost.”
A press release about the report explains: “Reductions in electrolyzer costs of up to 70% through 2050 are considered to be the strongest lever to bring down renewable hydrogen CapEx [capital expenditure] and overall costs.
“However, further measures — such as the standardization of projects — are required to fully optimize renewable hydrogen production CapEx, and while it could fall by 45% through 2030, the report finds that active project optimization could decrease costs by an additional 25%.”
Bernd Heid, senior partner at McKinsey, adds: “Optimizing renewable hydrogen production could cut CapEx by half vs 2023 levels.”
The Hydrogen Council — whose steering members include most of the world’s largest oil companies, such as ExxonMobil, Saudi Aramco, BP, Shell and TotalEnergies — says that the cost of blue hydrogen will be slightly under that of green hydrogen from 2025 to 2050.
