LGIM: Falling electrolyser costs lead to a reduction of costs of green hydrogen

LGIM: Falling electrolyser costs lead to a reduction of costs of green hydrogen

26 oktober 2021

Energietransitie
Duurzaam (17) Elektrische auto.png

Comment from Aanand Venkatramanan, Head of ETF Investment Strategies, Legal & General Investment Management (LGIM)

Electrolyser costs should fall primarily due to economies of scale, improvements in technology and better efficiencies.

It is worth highlighting that depending on the electrolyser technology deployed (Alkaline/PEM and Chinese/European manufactured), electricity is the single largest cost factor for green hydrogen (making up around 65%-85% of the total cost). So, a reduction in power prices should have a profound impact on green hydrogen prices. However, a reduction in capex costs for installing new electrolyser capacities could also have a positive impact.

For instance, according to Hydrogen Council, scaling fuel cell production from 10,000 to 200,000 units can reduce unit costs by as much as 45 per cent, irrespective of any major technological breakthroughs. Scaling up to 70 GW of electrolysis will lead to electrolyser costs of less than USD 400 per kW. For comparison, the electrolyser investment cost for 2020 was USD 650-1000/kW (according to IRENA). Cheaper capex costs could provide some flexibility to hydrogen producers by allowing for a reduced utilisation of electrolyser capacity, i.e., the numbers of hours an electrolyser is run per day, but yet remain profitable. For instance, by consuming electricity only during off-peak hours or when electricity prices are cheaper, the cost of green hydrogen can be dramatically reduced even if electrolysers are utilised to produce hydrogen only at certain times of the day.

Existing electrolyser/fuel-cell supply chains have scope for becoming more efficient and addition of further production capacity, will help us achieve that – thereby leading to reduction in costs. Also, more efficient electrolysers, with lower energy wastage in the form of heat, could also lead to a reduction in the unit cost of green hydrogen.

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