Hydrogen Can Power Towards Cost Competitiveness Faster than Expected

This article was first published in H2 View.

By Guillaume De Smedt, Director, Strategy Hydrogen Energy & Energy Transition at Air Liquide, Hydrogen Council team lead; and Stephan Herbst, Technical General Manager at Toyota Motor Europe, Hydrogen Council team lead

Until now, the biggest challenge preventing hydrogen energy from going mainstream has been its price tag. Although it has been effectively used to produce energy for various applications for over a hundred years, the costs associated with hydrogen solutions for everyday use has until now put it out of reach compared to other – cheaper – options. Today, however, we may be standing on the cusp of a major energy transformation with hydrogen at the core, due to three key factors finally aligning: 1) real demand for clean energy solutions in response to the climate emergency, where renewables alone can’t solve the problem, 2) renewed political appetite for investing in change, propelled by the rising expectations for action, and 3) increasing viability of hydrogen and other “alternative” solutions thanks to rapidly decreasing costs of technologies used to harness their power.

Over the past year, as members of the Hydrogen Council, we’ve been working to bring new data to the table to demonstrate what our industry has believed for a long time: hydrogen solutions not only have huge environment benefits, but also substantial economic potential. This data is now available in the new report, titled Path to hydrogen competitiveness: a cost perspective, which shows that by massively scaling up hydrogen production, distribution, equipment and component manufacturing, the cost[1] of hydrogen solutions is projected to decrease by up to 50% by 2030 for a wide range of applications, making hydrogen competitive with other low-carbon alternatives and, in some cases, even conventional options. Simply put, scaling up the hydrogen value chain will unlock cost reductions far sooner than anyone previously expected.

This cost trajectory can be attributed mainly to scale-up that positively impacts the three main cost drivers:

• Significant fall in the cost of producing low-carbon and renewable hydrogen;
• Lower distribution and refuelling costs thanks to higher load utilisation and scale effect on infrastructure utilisation; and
• Dramatic drop in the cost of components for end-use equipment from scaling up of manufacturing.

To illustrate with just one application: at a manufacturing scale of approximately 0.6 million vehicles per year, the total cost of ownership (TCO) per vehicle will fall by about 45 per cent compared to today. 30 percentage points of this cost drop is attributed to manufacturing scale up, 5 percentage points to the fall in low-carbon and/or renewable hydrogen production costs and 10 percentage points to the scale-up of hydrogen refuelling infrastructure deployment.

Achieving cost competitiveness across the more than 20 applications outlined by the Hydrogen Council repot through scaling up is expected to unlock market for hydrogen and equipment, which would be worth $2.5 trillion [2]. But this will not come automatically. A significant effort to capture the opportunity and raise the necessary funds to scale up and drive down costs will be needed. This will require investment from various sources of $70 billion in the lead up to 2030. And though this might seem like a sizable figure, it accounts for less than 5% of annual global spending on energy. For comparison, annual spending on energy globally comes to $1,850 billion and support provided to renewables in Germany totalled roughly $30 billion in 2019 alone.

This is a pivotal moment for our industry, in which getting the right investments in place, aligning global and national policies, and creating the market are key. A society where hydrogen is firmly placed in the energy mix and delivering wide-reaching, long-term benefits is closer than we think, but we can’t look past the economics. We know we have a powerful solution, but our focus must be on continuing to drive down the cost for specific applications where only hydrogen makes sense: through innovation, multilateral partnerships, and most importantly, scale up.

[1] The report refers to Total Cost of Ownership (TCO), which defines the total costs incurred by a consumer over the lifetime of using an application, including capital, operating, and financial costs.

[2] Hydrogen Council Scaling Up! November, 2017