Renewable hydrogen costs could halve by 2030, beating “unabated” fossil fuels

A new report published by the Hydrogen Council predicts that the cost of renewable hydrogen production could halve over the next ten years, putting Australia is in prime position to become a leading global supplier of a green fuel that will beat even “unabated” fossil fuels.

The predictions have been detailed in a new assessment prepared by global consultancy McKinsey, which suggests that modest investment in developing hydrogen technologies could not only see renewable hydrogen bridge the cost gap with “brown” or “blue” hydrogen – produced using fossil fuels but also see hydrogen become cost competitive with conventional energy sources, including oil and gas.

With a 50 per cent drop in hydrogen costs achievable by 2030, McKinsey expects renewable hydrogen would be cost competitive across more than 20 applications, including commercial vehicles, long-range transport, industrial heating, residential heating and cooling currently served by gas and as a “balancing” source in electricity systems.

The continued, and dramatic, falls in the cost of solar and wind technologies are one of the primary drivers in the falling cost of hydrogen production, with further cost savings achievable by rapidly scaling up the number and size of the electrolysers which are used to produce hydrogen using green electricity.

The prediction would be a game-changer for the global energy market, with McKinsey estimating that as much as 15 per cent of the world’s energy consumption could be served at the lowest cost by renewable hydrogen by 2030.

“Based on real cost data from the industry, the analysis shows that a number of hydrogen solutions can become competitive until 2030 already,” McKinsey senior partner Bernd Heid said.

“Out of 35 use cases analysed, at-scale hydrogen can be the lowest cost low-carbon solution in 22 use cases – such as in the steel industry and heating for existing buildings. And it can beat fossil-based solutions at scale in 9 use cases – for example in heavy-duty transport and trains.”

The cost reductions are contingent on the necessary investments being made to scale up the hydrogen supply system, requiring around US$70 billion (A$102 billion) of investment in production equipment, distribution infrastructure and end-use devices and technologies.

McKinsey found that the cost of hydrogen production was already “surprisingly” competitive, but that an additional US$20 billion in investment would allow renewable hydrogen to emerge as a cost competitive source of zero emissions fuel. This would require the deployment of an additional 70GW of electrolyser capacity to produce zero emissions hydrogen from renewable electricity.

The report finds that the biggest investment need is in the end-use technologies and infrastructure, with just less than half of new investment (US$30 billion) is needed to fund the roll-out of refuelling and distribution infrastructure for hydrogen fuelled transport.

An additional US$17 billion would be needed to bridge the cost and technology gap between hydrogen and natural gas, to allow renewable hydrogen to replace the fossil fuel for use in homes and businesses.

While the amount of required investment seems sizeable, McKinsey highlighted that the $70 billion investment requirement was small relative to global expenditure on energy, and would account for less than 5 per cent of annual global energy expenditure.

McKinsey sees Australia is amongst the best placed countries to seize upon the opportunities being created by advancements in renewable hydrogen technologies, with ready access to abundant solar and wind resources that would support low-cost, high-yield, renewable hydrogen production.

“Regions such as Chile, Australia and Saudi Arabia have access to renewables from both wind and solar at low LCOE which enables high load factors for hydrogen production through electrolysis. They thus offer optimal potential for producing renewable hydrogen at minimum costs,” the report says.

“2020 marks the beginning of a new era for energy: as the potential for hydrogen to become part of our global energy system becomes a reality, we can expect fewer emissions and improved security and flexibility. This announces the decade of hydrogen,” CEO of Air Liquide and Co-chair of the Hydrogen Council Benoît Potier said.

“A clean energy future with hydrogen is closer than we think, because the industry has been working hard on addressing key technology challenges. This report shows the path forward to scale-up to fully achieve hydrogen competitiveness and deliver the decarbonisation we urgently need.”

While the concept of using hydrogen as a transport fuel or a source of heat is not new, McKinsey concluded that the renewed focus on hydrogen as a zero-emissions fuel in recent years had been spurred by more recent concerns about global greenhouse gas emissions.

The potential for renewable hydrogen to play a part in the global response to climate change as seen the development of hydrogen technologies accelerate with a new sense of urgency.

“Unlike previous eras in hydrogen’s development, the renewed attention on hydrogen is strengthened by a realisation that the use of hydrogen will be critical if we are to meet the climate objectives,” the report says.

“Governments are recognising hydrogen’s ability to decarbonise sectors that are otherwise impossible or difficult to abate – such as logistics, industrial heating and industry feedstock – and its role in energy security.”

The Hydrogen Council was formed by a global collective of major energy firms, including Shell, BP and AngloAmerican, as well as major technology and equipment manufacturers, in Toyota, Hyundai, Audi and Honda.

In November, German manufacturing giant Thyssenkrupp announced that it had commenced a trial of using renewable hydrogen to supply heat to its steelmaking furnaces, in a first step towards the company’s goal of transitioning all of its steelmaking to using hydrogen.

Several renewable energy developers have commenced studies into the feasibility of launching mammoth wind and solar projects in Australia with an aim to eventually supplying low-cost electricity to hydrogen production, including a 5,000MW combined solar and wind project slated for Western Australia with the backing of leading electrolyser supplier Siemens.