Taking the High out of Green Hydrogen Prices
Taking the High out of Green Hydrogen Prices

Green hydrogen is critical to our collective future, but it needs to be more affordable to encourage the industrial sector to transition away from fossil fuels. Technological improvements and cheaper renewable energy can drive down costs and pave the way for a green hydrogen transition.



By Runeel Daliah, Lux Research



Hydrogen and hydrogen-based fuels will very soon need to fill the gaps where electricity cannot easily or economically replace fossil fuels. This will mean using hydrogen in the transport sector, say for ships and planes, as well as in energy-intensive industries like steel and chemicals.


However, despite a growing appetite for hydrogen, more than 95% of the roughly 120 million metric tons (MT) of hydrogen produced in 2019 came from fossil fuel sources such as natural gas and coal, commonly known as grey and brown hydrogen. In the global hydrogen market, the amount of green hydrogen derived from renewable energy remains a drop in the ocean.


The main reason for this is the sky-high cost of production. Green hydrogen therefore needs to be more cost-competitive to help the industrial sector reduce reliance on fossil fuels for both energy and feedstock. This article will describe two ways to drive down the cost of green hydrogen.


Balancing different formulas

Generating green hydrogen through water electrolysis involves the decomposition of a water molecule into hydrogen and oxygen gases using electricity from renewable resources. When a direct current (DC) power source connecting two electrodes is immersed in either pure water or an electrolyte, hydrogen forms at the cathode while oxygen forms at the anode.


Current configurations of water electrolysis are categorised as alkaline electrolysis cell (AEC), polymer electrolyte membrane electrolysis cell (PEMEC), and solid oxide electrolysis cell (SOEC). These electrolyser units can be deployed in standalone facilities or integrated into refineries and chemical plants where hydrogen is in constant demand.


  • AEC is mature and already commercially deployed. The advantages of AEC are durability and relatively low system costs due to the absence of noble metal electrocatalysts. However, the technology also suffers from low current density and poor dynamic operations, which limits the use of AEC with intermittent renewable sources.

  • PEMEC is less mature than AEC and is currently only deployed on a small scale. The technology has high current density and operates well with flexible power loads, which is advantageous for renewable energy sources. However, PEMEC technology uses platinum electrocatalysts, resulting in high system costs. An electrocatalyst is a catalyst which can be used for electrochemical reactions to increase the rate of the reaction.

  • SOEC is the least developed electrolysis technology and is deployed only on a laboratory scale. Unlike the other two electrolyser units, SOEC operates at high temperatures ranging from around 650–900°C, and water enters the system as steam. The efficiency of SOEC technology is higher than that of AEC and PEMEC by up to 25%, but the technology currently has a low lifetime due to severe material degradation because of the high operating temperatures involved. 

Making green energy affordable

There are two approaches to bring down the cost of green hydrogen: technological improvements and cheaper renewable electricity. In the following graph, current and projected costs for green hydrogen production are shown in comparison to natural gas steam methane reforming (SMR).


SMR is a process where methane from natural gas is heated with steam, usually with a catalyst, to produce a mixture of carbon monoxide and hydrogen. In energy, SMR is the most widely used process for the generation of hydrogen.

Green Hydrogen Cost Projections from System Improvements
Source: Lux Research



Currently, the production costs of green hydrogen range from US$3,011 per MT for AEC to US$3,570 per MT for SOEC. This is more than four times the price of SMR syngas production at US$706 per MT. Even with the addition of carbon capture, green hydrogen is still nearly two-and-a-half times as expensive.


If AEC becomes at scale by 2050, costs will drop by up to 11%. PEMEC and SOEC are then also expected to see significant reduction in costs by up to 21% and 36%, respectively. Even after these cost reductions, however, all three options will come at a premium compared to SMR.


While technological improvements alone will not substantially bring down the cost of green hydrogen, lower electricity prices – specifically cheap renewable electricity – will play a key role. At approximately US$0.02 per kilowatt-hour (kWh), all three options will become more cost-competitive and even cheaper than SMR with carbon capture. With the cost of electricity dropping to US$0.01 per kWh, all three options will become the most economically viable choice. 

2050 Green Hydrogen Production Costs by Electricity Price
Source: Lux Research



With a cheap source of electricity vastly improving the cost-competitiveness of green hydrogen production, it is inevitable that capacity scale-up will coincide with the growth of renewable electricity around the world. In the global push towards decarbonisation, many countries will, unfortunately, find it difficult to produce renewable electricity at such low prices because of a lack of solar irradiation and wind activity, or limited capacity because of restricted land space.


This will lead to the development of a global energy trade — analogous to the oil and gas trade that exists today — and will intensify the coupling between the power sector with adjacent industries, such as the industrial and transport sectors, as the hydrogen economy emerges.