Cost of green hydrogen production remains higher than expected – analysts

In 2024, a number of green hydrogen projects were abandoned as expectations of a sharp drop in costs did not materialise, Bloomberg reports.

Governments and large energy companies have touted green hydrogen as a way to reduce emissions in a range of industries. However, the high cost of its production has forced many developers to abandon their plans.

According to independent hydrogen analyst Gnevomir Flis, there has been a collision with reality in terms of costs. The industry has made a lot of promises but failed to deliver on them, so it is natural that there is a kind of backlash.

The development of such initiatives remains more expensive than previously expected. BloombergNEF analysts have increased their estimates of the cost of green hydrogen projects in the US and EU by 55% this year compared to their forecasts for 2022. This is due to design and engineering processes that have proven to be more complex than originally anticipated. The jump in electricity prices in Europe has also led to higher production costs.

As a result, according to BloombergNEF (BNEF), hydrogen produced using clean energy is four times more expensive than that produced from natural gas. It is not surprising that most projects have no buyers.

The Danish multinational Orsted A/S cancelled plans to build a $175 million Swedish plant to produce hydrogen transport fuel because it was unable to conclude long-term contracts for its supply at affordable prices. Other projects that have fallen by the wayside include more than a dozen early-stage developments planned by British oil company BP.

In the United States, projects worth billions of dollars have been put on hold while the Biden administration unveils the final rules for a tax credit designed to boost production.

However, there are signs of moderate growth in the sector. Production of pure hydrogen is expected to triple this year compared to 2023. Most hydrogen is currently produced from natural gas or coal, which generates carbon emissions, so the sector has a lot of work to do after the hype.

The higher cost of producing clean hydrogen without any subsidies or incentives means that decarbonising hard-to-reduce industries will continue to be a challenge, says Payal Kaur, an analyst at BNEF.

The chemical industry, oil refining, metallurgy, and power generation have been identified as possible end users of hydrogen. However, this will require new expensive equipment, the demand for which has fallen.

According to BNEF, only two markets – China and India – are likely to see green hydrogen become competitive. There, the cleaner fuel will reach a price comparable to grey hydrogen by 2040.

As GMK Center reported earlier, EuRIC, the EU Confederation of Process Industries, warns that European steelmakers should reconsider their approaches to the transition to hydrogen-based steel production and direct reduction of iron. These recommendations are based on rising energy prices and the lack of readiness of the hydrogen infrastructure.