Green hydrogen future needs to overcome high production and transportation costs

There is a lot of optimism about the future of green hydrogen, which many believe will be a derivative option to replace petroleum and highly competitive with battery technology. However, due to the small scale and high cost of production, we are still a long way from achieving this goal. Many companies around the world plan to produce green hydrogen, but some are dealing with the challenge of a slow rollout of the clean fuel. Despite increased investment in the field and improvements in production processes in recent years, green hydrogen is still much more expensive to produce and transport than other fuels, including other types of hydrogen.

Producing oil-derived gray or blue hydrogen is considered relatively low-cost, and many companies already rely on this fuel. Gray hydrogen is produced from natural gas by going through the steam methane reforming (SMR) process, which uses high-pressure steam to break down methane to produce separated hydrogen, carbon monoxide and carbon dioxide molecules. This process produces a large amount of carbon dioxide, about 9 to 10 tons of carbon dioxide per ton of hydrogen produced. But it is also highly cost-effective as long as gas prices remain stable. Gray hydrogen costs around $2 per kilogram until July 2022.

In contrast, green hydrogen production is more expensive to prepare. Green hydrogen uses renewable energy to drive an electrolysis process that separates hydrogen from water and produces only steam as an emission -- it's carbon neutral, which makes it very attractive for companies looking to reduce carbon. However, until July 2022, the cost of producing green hydrogen is about $4 to $5 per kilogram, or even higher. Some industry experts don't think the high cost of green hydrogen production will come down anytime soon.

Green hydrogen is regarded by many international agencies, such as the International Energy Agency (IEA) and the International Renewable Energy Agency (IRENA), as a carbon emission reduction solution for areas that are difficult to reduce. As governments and private companies around the world put more money into the green hydrogen business, there are high hopes that the cost of producing green hydrogen will drop dramatically – perhaps as low as $0.50 per kilogram, but others believe it will be difficult to get costs below $3 per kilogram.

In November 2020 and December 2020, IRENA released two research reports aimed at promoting global green hydrogen production: "Green Hydrogen: A Guide for Policy Development" and "Green Hydrogen Cost Reduction: Promoting Electrolyzers to Achieve the 1.5°C Climate Target". These studies are designed to encourage governments and private companies to scale up production to reduce costs. However, so far, the production price of green hydrogen is still relatively high, and when the price of natural gas stabilizes, its cost is about 2 to 3 times that of gray hydrogen production.

However, electrolyser prices have fallen by around 60% since 2010 as more money has been invested in research and development; IRENA says this cost could fall by another 40% in the short term and 80% in the long term. This cost reduction forecast relies on more innovations in electrolysis technologies that improve their performance, and can expand manufacturing capacity, implement standardization, and increase economies of scale.

Another challenge to consider is shipping costs. “Hydrogen is quite expensive to transport, it’s more difficult to transport than natural gas, and it’s more complex from a technical and engineering standpoint,” said Murray Douglas, director of hydrogen research at Wood Mackenzie. He’s not alone in his concerns. The U.S. Department of Energy (DoE) cited a number of challenges in its report on green hydrogen, including "reducing costs, improving energy efficiency, maintaining hydrogen purity and minimizing hydrogen leakage." The DoE believes that more research is needed to "combine the trade-offs when considering hydrogen production options and hydrogen delivery options."

Companies around the world are now considering the best locations for green hydrogen production facilities. While Australia, North Africa and the Middle East have great potential to develop such projects, these regions can be quite far from their main markets. Douglas emphasized, “If green hydrogen is delivered by pipeline, dedicated pipelines need to be built to connect producers and end users. Or green hydrogen can be transported in the form of ammonia, which can be transported and sold to consumers such as fertilizer producers after mixing with nitrogen. Otherwise, users will have to crack the ammonia back to nitrogen, which will increase costs and lead to energy losses.”

In order for green hydrogen to be as successful as one hopes, major investments will be required to overcome these challenges. Jorgo Chatzimarkakis, chief executive of industry association Hydrogen Europe, has suggested a certification system to ensure any green hydrogen production is powered by renewable energy. In addition, a well-studied delivery strategy needs to be developed to ensure that production facilities are adequately connected to the green hydrogen market. This is already reflected in some projects, such as Cepsa's green hydrogen corridor between southern and northern Europe.

Although the transportation cost is high, large international companies have mastered the mature technology of transporting green hydrogen like natural gas, but some companies are deterred by the cost. As a result, the industry has had to reduce production costs to relieve some of the pressure on shipping. Although the green hydrogen industry still faces some major challenges, delaying the large-scale deployment of clean fuels, greater investment in the field over the next few decades could resolve many issues and enable large-scale green hydrogen production globally.