Producing Green Hydrogen With RE Is 6 Times More Expensive Than Traditional Technology

The high cost of green hydrogen compared to fossil fuels shows that critical transition technologies are genuinely competitive and being rapidly deployed. We can have green hydrogen and blue hydrogen, but who is willing to pay the cost?

Unless the carbon pricing could make fossil fuel-based hydrogen more expensive. Or large-scale deployment of green hydrogen could bring the cost per kilo down from $4-$12 to $2 by 2030.

The Global Hydrogen Review is an annual publication by the International Energy Agency(IEA) that tracks hydrogen production and demand worldwide, as well as progress in critical areas such as infrastructure development, trade, policy, regulation, investments and innovation.
According to the IEA, producing green hydrogen – which is made with renewable energy – is between 1.5 and 6 times more expensive than the traditional, most common and polluting way of making it, with unabated fossil fuels.

The IEA’s annual Global Hydrogen Review 2024 shows that as a nascent sector, low-emissions hydrogen still faces technology and production cost pressures, with electrolysers in particular slipping back on some of their past progress due to higher prices and tight supply chains. A continuation of cost reductions relies on technology development, but also optimising deployment processes and moving to mass manufacturing to achieve economies of scale.

Cost reductions will benefit all projects, but the impact on the competitiveness of individual projects will vary. For example, hydrogen production via electrolysis in China could become cheaper than hydrogen produced from unabated coal by 2030, assuming the entire global electrolyser project pipeline of around 520 GW is realised. Industrial hubs – where low-emissions hydrogen could replace the existing large demand for hydrogen that is currently met by production from unabated fossil fuels – remain an important untapped opportunity by governments to stimulate demand.

The report highlights a gap between government goals for production and demand. Production targets set by governments worldwide add up to as much as 43 million tonnes per year by 2030, but demand targets only total just over a quarter of this, at 11 million tonnes by 2030. Some government policies are already in place to stimulate demand for low-emissions hydrogen and hydrogen-based fuels. Examples, such as carbon contracts for difference and sustainable fuel quotas for aviation and shipping, are triggering action on the industry side, leading to an increase in signed agreements between producers and commercial consumers. However, the progress made in the hydrogen sector so far is not sufficient to meet climate goals, the report finds.

The growth in new projects suggests strong investor interest in developing low-emissions hydrogen production, which could play a critical role in reducing emissions from industrial sectors such as steel, refining and chemicals,” said IEA Executive Director Fatih Birol. “But for these projects to be a success, low-emissions hydrogen producers need buyers. Policymakers and developers must look carefully at the tools for supporting demand creation while also reducing costs and ensuring clear regulations are in place that will support further investment in the sector.”

Despite new project announcements, installed capacity for electrolysers and low-emissions hydrogen volumes remain low as developers wait for clarity on government support before making investments. Uncertainty around demand and regulatory frameworks mean most potential production is still in planning or early-stage development, with some larger projects facing delays or cancellations due to these barriers along with permitting challenges or operational issues.

Of the more than 6 GW of electrolyser capacity to reach final investment decisions in the past year, China accounts for more than 40%. The country’s expertise in mass manufacturing of clean energy technologies, including electrolysers, means it is home to 60% of global electrolyser manufacturing capacity, which, at 25 GW per year, is well above the average deployment rate globally.

The writer of this article is Dr. Seema Javed, an environmentalist & a communications professional in the field of climate and energy