Green hydrogen cheaper than grey is a sign to step up investment

Green hydrogen – produced by splitting water with renewable energy – is cheaper than grey – produced from fossil fuels – in Europe, the Middle East and Africa, and China, according to BloombergNEF.

BNEF’s study is not the first to make the claim: consultancy ICIS came to a similar conclusion last November. At the time, there was a sense that this was an interesting anomaly that would soon disappear once winter had passed and supply issues were resolved.

What is becoming clear is that this is likely to become a long-lasting, if not permanent, state of affairs. BNEF’s calculations were made on March 2, before Russia threatened to cut off European gas supplies if it imposed an embargo on its oil imports, pushing prices up by almost 50%.

Specifically, BNEF sees the levelized cost (that’s without subsidies or carbon prices) of green hydrogen in EMEA, made using Western electrolysers, at $4.84-$6.68/kg compared with $6.71/kg for grey hydrogen made from natural gas. In China, the gap is even wider, with green, made with Chinese electrolysers, at $3.22/kg versus $5.28/kg for grey.

Russia have threatened to cut off European gas supplies if Europe impose an embargo on its oil imports, pushing prices up by almost 50%.

While we may all hope that Russia would abruptly reverse policy and pull out of Ukraine, that seems highly unlikely with the bombardment of Ukrainian cities only intensifying in response to resistance. And that means natural gas prices are likely to remain in the stratosphere – they are currently 6 times higher than a year ago in Europe.

“These prices could rise further as the conflict in Ukraine continues,” wrote the authors of the paper Ukraine War Makes Green Hydrogen Competitive. “With Europe looking to wean itself off Russian gas imports, which account for a third of the continent’s supplies, gas markets seem set to face substantially higher prices for the foreseeable future.”

These figures also don’t take into account the expected rapid decline in the price of green hydrogen in the coming years. Wood Mackenzie said in December that some countries would be able to produce green hydrogen for $1/kg by 2030, while US electrolyser maker Ohmium has said it will be able to achieve that price in India by 2025.

Wood Mackenzie said in December that some countries would be able to produce green hydrogen for $1/kg by 2030, while US electrolyser maker Ohmium has said it will be able to achieve that price in India by 2025.

All this adds up to a huge signal to invest in hydrogen production, storage and use. Clean hydrogen was a good idea before natural gas prices shot up in recent months; it is an even better one now.

The Energy and Utilities Alliance, an industry group, yesterday called for the UK to break its reliance on Russian natural gas and accelerate the development of the country’s  hydrogen industry.

We could not agree more.

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