Bogotá — The cost of producing green hydrogen, which is produced by passing an electric charge through water, will likely drive the race to become a more important energy source by 2030 to decarbonize industry, according to a report by BloombergNEF.
Green hydrogen is held out as a hope amid the race for energy transition in regions such as Latin America, although its high production costs raise questions as more countries move forward with regulations that will facilitate its adoption in the coming years.
Price reductions, but which are not expected to occur until around 2030, could emerge in markets such as Brazil, China, India, Spain and Sweden, which were analyzed for the report.
Costs, an obstacle to green hydrogen production
The cost of production has been a challenge for markets aiming to adopt green hydrogen, as its production cost is higher than gray hydrogen, which is produced from the gasification of hydrocarbons, usually gas and coal, according to the Colombian Ministry of Mines and Energy.
BloombergNEF analyst Adithya Bhashyam says “the problem is that clean ‘green’ hydrogen has always been much more expensive than its dirty ‘gray’ counterpart”.
According to the report by BloombergNEF, Bloomberg’s research service covering clean energy, gray hydrogen costs between $0.98 and $2.93 per kilo to produce. Blue hydrogen, which is produced from fossil fuels, costs between $1.80 and US$4.7 per kilogram.
Green hydrogen is the most expensive to produce however, costing between $4.50 and $12 per kilogram, but the tipping point for the cost of green hydrogen production could come as technologies and regulations contribute to greater efficiency.
2030, a key year for green hydrogen
BloombergNEF projects that this turnaround in the trend could occur as early as 2030 due to economies of scale and policy support, according to the report.
By that date it is estimated that the production of this clean energy could be up to 18% cheaper compared to a gray hydrogen plant in five major economies of the world.
Brazil, China, India, Spain and Sweden, which were analyzed for the report, could be the markets that lead the cost-reduction process for the fuel. “Surprisingly, this is true even for green hydrogen plants built without subsidies,” the report notes.
Green hydrogen could even outperform blue hydrogen in all but a few markets using Western-made alkaline systems, Bhashyam added.
According to the report, green hydrogen is not the first clean technology that is cheaper than existing fossil fuels.
“Solar and wind generation are already cheaper in many markets than fossil fuel-based power. But that hydrogen, which for so long has been the most expensive when it comes to climate-friendly power generation, can join that group is just fine,” Bhashyam added.
Good forecasts
Actions implemented in both the US and the European Union suggest a promising future for green hydrogen, despite the challenges that remain.
For example, the US highlights the clean hydrogen tax credit provided by the Inflation Reduction Act, which has no budget cap and thus “can provide funding for as many projects as meet the emissions criteria”.
For BloombergNEF, this “will likely have a huge impact on green hydrogen production in the country”.
While in the EU, a ‘Hydrogen Bank’ is planned to be created this year, which will serve as a subsidy mechanism for commercial production and with a fixed budget.