Cost-competitive green hydrogen: how to lower the cost of electrolysers?

24th January 2022


As a fuel source and an energy storage solution, hydrogen (H2) has a critical role in enabling countries to achieve net-zero carbon targets. H2 is one of the serious long-term, scalable, and cost-effective options for the deep decarbonization of hard-to-abate sectors such as steel, maritime, aviation, and ammonia where it can replace fossil fuels as the main source of energy.

The key challenge however is how to produce hydrogen in a decarbonized and cost-efficient way. Most of the globally generated H2 is currently produced from fossil fuels. In this sense, while H2 per se can address a number of decarbonization challenges, hydrogen production with high carbon footprints cannot form the basis of the future decarbonized economy. Instead, ‘green’ hydrogen – H2 generated with renewable electricity through electrolysis that splits water molecules into hydrogen and oxygen – is well in line with net-zero objectives.

While research and development into electrolysers – the technological devices producing H2 via electrolysis – is actively being promoted around the globe, ‘green’ hydrogen is still less competitive than other ‘colours’ of H2 which have higher carbon footprints. In fact, according to IRENA’s 2020 report, ‘green’ hydrogen is around 2–3 times more expensive than ‘blue’ hydrogen, produced from fossil fuels in combination with carbon capture and storage. Therefore, a fundamental cost decline is needed to make a real impact on the growth of ‘green’ hydrogen so that it turns into a serious competitor on the market.

Electrolyser technologies

From a technological standpoint, electrolysers are on a spectrum ranging from mature to very nascent. Of the existing technology types, only alkaline and proton exchange membrane (PEM) systems have already been commercialised. At the moment, PEM electrolysers represent the most suitable option for the integration of intermittent renewable energy sources such as solar PV and wind power. Nonetheless, their high cost – due to the use of platinum group catalysts as well as because of expenses associated with membrane production – is likely to challenge the growth of these systems, if measures are not taken to address their key cost drivers.

The solid oxide and anion exchange membrane (AEM) technologies have been trying to catch up with alkaline and PEM electrolysers. However, neither system has yet been made widely available. This is so because, apart from possessing relatively high minimum load, AEM installations have not been successfully scaled up and thus remain primarily low-capacity systems. Solid oxide electrolysers, in turn, are closer to commercialization, and are simultaneously more suitable for coupling with intermittent renewables, but they have quite low production capacity available.

Cost components and areas of potential improvements

Stack cost represents the lion’s share in the cost of alkaline and PEM electrolysers. Its importance as a cost component of solid oxide and AEM systems, however, is less significant. In these systems, power electronics, gas conditioning, and balance of plant are playing a more substantial role. Nonetheless, as these systems need their size to be significantly increased, the share of the stack’s cost can simultaneously rise with system’s scale-up. That is why further research and development are needed to minimize the cost of stack across all systems. This can make ‘green’ hydrogen produced by each of these types of electrolysers more competitive while simultaneously contributing to the successful market entry of the yet-to-be-commercialized installations.

Another important area is the minimization of use of scarce materials, which currently has a significant impact on the expenses associated with PEM and solid oxide systems. Though substantial efforts have been made to find a suitable replacement for such materials, most of the suggested alternatives have so far been proven to be a relatively poor substitute. This area requires further research and development not only because of its cost implications for especially PEM electrolysers but also because the use of scarce elements makes the deployment of such electrolysers dependent on the supplies of critical materials from a very limited number of countries.

There are also a range of other possible improvements in electrolysers. For example, alkaline electrolysers need to become tolerable to greater load range and solid oxide systems should shorten their cold start-up time.

Even though addressing all these issues will definitely take time, experience in the development of renewable energy sources demonstrates that intensified production of electrolysers is likely to help with their cost reduction, as they may generally follow similar learning curves to those of onshore wind and solar PV generation technologies.

Support policies

In general, policies that governments can apply to foster electrolyser research, manufacturing, and market performance differ in their intensity based on the variety in technological maturity levels (TRLs) of different types of electrolysers. For instance, out of the three main types of support mechanisms (fiscal incentives, direct financial support, and capacity targets), only grants and loans for research and development, being part of the direct financial support for R&D, are usually most active and abundant at the early stages of the technology research (TRL 1–3). As the research idea gets more mature and reaches the level of technology development (TRL 4–7), the magnitude of this support goes down, while finally retaining the least impressive force from the point when the entire electrolyser system is certified (TRL 8) to the product’s highest commercial readiness level. This should be no surprise, as commercialized electrolyser producers are more likely to be able to substitute governmental financial support with investors’ funds.

Fiscal incentives to support electrolyser research and production, in turn, build up momentum alongside the maturity of the actual product – namely electrolyser systems. In fact, being quite insignificant at the stage of basic academic research (TRL 1–3), they intensify alongside technology development before reaching their maximum by the time the system is certified and then commercially scaled-up (TRL 8). After this, they subside because they are supposed to target primarily investors in electrolyser technologies. Just like any other new technology, investors are usually more active in investing in further development of the project once an actual prototype is obtained and tested (i.e. at TRL 6–7).

Setting capacity targets and introducing financial support for the production of electrolysers only makes sense once a viable product is achieved (i.e. at TRL 8–9). That is why these support policies should be of greatest magnitude right after the market entry and scale-up. In other words, they should be implemented until the economies of scale begin to work and the product becomes fully competitive with the rival ones.

This article was selected from the CGLN news network.
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