According to Wood Mackenzie, 2020 could be an inflection point for the low carbon hydrogen market.
The high costs it takes to produce low carbon hydrogen remain the most significant barrier to there being widespread adoption for its use across the global energy market. With this in mind, Wood Mackenzie published a report on 20 August, seeking to explore whether a tipping point is on the horizon for the production costs of hydrogen to 2040 and, should there be cost reductions, what will drive them.
Since its first analysis of the hydrogen market in October 2019, Wood Mackenzie drew on the “wave of change” that has occurred.
It outlined how, at the time of that initial assessment, the green hydrogen project pipeline of electrolyser deployments stood at 3.2GW. It has since grown to 15GWs and counting. Other developments include the announcement of 22 green hydrogen projects over 100MW, which includes targets for 48GW of electrolyser deployments by 2030, while BP, Shell and Repsol have all committed to deploying low carbon hydrogen projects to meet their net zero emissions goals.
There have also been detailed hydrogen strategies released by the European Commission, Germany, the Netherlands, Norway, Portugal and Spain, all looking to scale the hydrogen market dramatically in the coming decade.
Even with a multitude of challenges awaiting in the nascent market, Wood Mackenzie stated its belief there will be some form of low carbon hydrogen economy “in the near future”. It further drew on the explicit policy, corporate and social support that has “blossomed” in 2020, which it believes will enable green hydrogen to successfully scale and realise production cost declines of up to 64% by 2040, equalling fossil fuel-based hydrogen. In some cases, and regions, this will arrive by 2030 with rising fossil fuel prices boosting the competitiveness of green hydrogen. Renewable electricity prices below $30/MWh, as well as high utilisation rates, will be required for competitiveness but should additional explicit policy support come to fruition in the coming months, the report suggested costs could fall “even faster, and more universally” than outlined within the analysis.
With the energy transition proving dynamic, Wood Mackenzie said that if 2020 is any indication, the low carbon hydrogen landscape will be as well.
In contrast, grey hydrogen costs are set to rise by 82% by 2040. While currently the lowest cost of hydrogen colour, forecasted increases in natural gas prices are what will be responsible for such an increase. Saudi Arabia and the United States will still see grey hydrogen continue as the lowest cost colour until 2040. Meanwhile, brown hydrogen costs are set to increase by 35% by 2040. The report noted outside of China, brown is the highest cost fossil fuel alternative to grey. High costs, together with major negative environmental externalities, make it an unlikely option in the majority of markets going forwards.
In the case of blue hydrogen, costs are set to rise by 59% by 2040. However, the report noted more projects need to be deployed to accurately determine the cost trajectory of this colour. Its success will be linked to the success of carbon capture and storage technology, which has been plagued by high costs and project cancellations. Natural gas prices, like with grey hydrogen, are likely to largely determine the forecast cost profile of blue hydrogen.
As it continues its analysis of the hydrogen market, Wood Mackenzie is set to publish at least one more report and dataset on hydrogen this year, with its 2040 Hydrogen Outlook in Q4 2020.