Hydrogen is considered a fuel of the future. However, hydrogen production in most countries is based on the use of fossil fuels. Thus, the focus is slowly shifting to a cleaner alternative – green hydrogen – produced using renewable energy. There are currently many hurdles in the uptake of green hydrogen. Apart from the lack of regulations and policy impetus, the high cost of green hydrogen production is the biggest impediment. According to the International Renewable Energy Agency (IRENA), renewable energy is the largest cost component of hydrogen production, which makes green hydrogen more expensive than blue hydrogen (produced from fossil fuels with carbon capture and storage), regardless of the cost of the electrolyser (the second largest cost component), which converts water into hydrogen and oxygen using electricity. In its recent report, “Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.5 °Celsius Climate Goal”, IRENA mentions that due to falling renewable energy costs, the cost of green hydrogen has also declined. Still, green hydrogen is two to three times costlier than blue hydrogen. In view of this, the report suggests several strategies to reduce the cost of green hydrogen and provides forecasts of future cost trends.
Cost reduction strategies for green hydrogen
To make green hydrogen production more competitive, cheaper electricity and electrolysis facilities are required. While cheaper electricity is already available, strategies are needed to reduce the cost of electrolysers. Increasing the size of the electrolyser can lead to significant cost reductions. Costs can be reduced by a third if the plant size is increased from 1 MW (as is prevalent today) to 20 MW. Further, economies of scale in the manufacturing of electrolysers can lead to a sharp reduction in costs. At lower production rates, the cost of the fuel cell stack is about 45 per cent of the total cost. At higher production rates, its cost can reach 30 per cent of the total cost. For instance, the production of polymer electrolyte membrane (PEM) electrolysers at the rate of 1,000 units (of 1 MW each) per year results in an almost 50 per cent cost reduction in stack manufacturing. The standardisation of system components and plant design can lead to a further reduction in manufacturing costs.
A key challenge in the reduction of electrolyser costs is that scarce materials are needed for its production. Therefore, there is a need to look for feasible alternatives. At present, the production of iridium and platinum for PEM electrolysers will only support an estimated 3-7.5 GW of annual manufacturing capacity. This is a small number compared to an estimated annual manufacturing requirement of 100 GW by 2030. The issue of scarcity of resources can be addressed with the use of different technologies that can reduce the requirement for such scarce materials in PEM electrolysers. Furthermore, solutions that avoid the use of such materials are being implemented by select alkaline electrolyser manufacturers. Meanwhile, anion exchange membrane electrolysers do not need scarce materials at all.
Overall, according to IRENA’s analysis, up to 85 per cent of green hydrogen production costs can be reduced in the long term by a combination of cheaper electricity and investments in electrolysers to increase the production capacity, facilitate gigawatt-scale manufacturing and increase efficiency.
A low electricity cost is a necessary, but not a sufficient condition for the production of competitive green hydrogen. The cost reduction of electrolysers is also important. While cost reductions of electrolysers cannot compensate for high electricity prices, an aggressive electrolyser deployment pathway can make green hydrogen cheaper than any low-carbon alternative before 2040. With rapid scale-up over the next decade, it is expected that green hydrogen (with its different applications) will become competitive with blue hydrogen by 2030 in many countries.
Selecting the most efficient electrolyser technology based on cost, efficiency and carbon footprint is crucial. Alkaline and PEM electrolysers are already commercial. While alkaline electrolysers have the lowest cost of installation, PEM electrolysers have a much smaller footprint, higher current density and output pressure. Meanwhile, solid oxide has the highest electrical efficiency.
Green hydrogen cost trends in India
Hydrogen production in India is largely based on fossil fuels. Most of it is consumed by the petroleum, chemical, glass, semiconductor and food processing industries. According to TERI’s report titled “The Potential Role of Hydrogen in India: A Pathway for Scaling-Up Low Carbon hydrogen across the economy”, by 2050, nearly 80 per cent of the hydrogen produced in India is projected to be green hydrogen, which will become the most competitive form of hydrogen production by around 2030. This will be due to a sharp decline in the cost of electrolysers and electricity generated by solar PV plants. According to the report, the cost of alkaline electrolysers is projected to drop from around Rs 63 million per MW at present to around Rs 28 million per MW by 2030. The decline in electrolyser costs, large-scale deployment, policy impetus, improvements in electrolyser efficiency, and the increasing load factor of solar plants will help in reducing the cost of green hydrogen to below Rs 150 per kg by 2030, as against the current cost of Rs 300-Rs 440 per kg. At this price, green hydrogen will easily compete with blue hydrogen. The high cost of natural gas imports and the lack of natural gas reserves will, moreover, facilitate the commercialisation of green hydrogen in India.
As compared to TERI’s analysis, the CEEW’s analysis of green hydrogen cost trends is more conservative. According to the CEEW’s report, “Green Hydrogen Economy of India: Policy and Technology Imperatives to Lower Production Costs”, only an aggressive cost reduction (optimistic scenario) of electrolyser and storage technologies can reduce hydrogen production costs to $3 per kg by 2030 (approximately a dollar more than TERI’s estimate) and $2 per kg by 2040. The cost competitiveness of green hydrogen depends on the price of natural gas, which is volatile (primarily because of the dependence on imports). The cost of blue hydrogen is $3.3 per kg for natural gas delivered at a price of $11.5 per kg, and $2.7 per kg for natural gas delivered at a price of $6.3 per mmBtu.
According to Dr M.R. Nouni, senior consultant, hydrogen energy and solar thermal, National Institute of Solar Energy, the cost of green hydrogen production in various demonstration projects carried out in India has been quite high. The imported electrolyser technology is a major reason for this. Going forward, domestic production of this technology is expected to reduce production costs. Costs are also expected to fall with economies of scale, greater utilisation of hydrogen production-cum-dispensing facilities and declining costs of setting up solar projects.
The CEEW’s report highlights certain barriers in the reduction of green hydrogen costs in India. The first concern is regarding the lack of a detailed analysis to map the relevant sites for storing hydrogen. This is a big concern as the cost of storage will play a critical role in reducing the overall production cost of both green and blue hydrogen in India.
The second concern is the transportation of green hydrogen from the point of production to the point of consumption. Locations with good access to both wind and solar resources are at least 500 km away from the potential demand centres in India. A large volume of hydrogen will make more commercial sense for interstate transportation/distribution.
The third key concern is with respect to the evacuation of excess electricity and grid stability. For developers and industrial consumers, the sale of excess power to the grid will be beneficial. The scale-up of hydrogen production, however, may pose challenges for grid flexibility and stability, more so during peak generation hours.
Interestingly, India’s ambitions to move towards a hydrogen-based economy were announced even before the launch of the National Solar Mission (NSM) in 2010. In 2006, the Ministry of New and Renewable Energy (MNRE) had approved the National Hydrogen Energy Roadmap. The road map set ambitious targets for hydrogen-fuelled vehicles and hydrogen-based power generation. It also identified some pilot projects and different areas of research and development (R&D) related to hydrogen production, storage and application. Following the release of this road map, the MNRE has supported a number of R&D and demonstration projects.
While solar targets under the NSM, and targets for other renewable energy sources have been revised, efforts to meet the targets under the National Hydrogen Energy Roadmap have unfortunately been subdued.
Under the road map, the MNRE had set a target to demonstrate 1 million hydrogen vehicles and set up 1,000 MW of hydrogen-based power generation capacity by 2020. In 2021, the country is nowhere close to these goals. With extensive research already taking place regarding cost reductions, the need of the hour is to have a new hydrogen road map or a policy for India, and a large budget allocation for R&D in hydrogen for power generation, transportation and industrial purposes. The promotion of the fuel source can help achieve energy security and improve the environment. Hydrogen as a fuel source has the potential to bring significant economic change, similar to that of steam engines, canals, railways and the internet.
By Sarthak Takyar