Technological innovation and economies of scale are driving down green hydrogen production costs “more swiftly than previously expected”, investment bank Goldman Sachs says.

Green hydrogen’s levelised cost could fall to parity with grey hydrogen at around $2/kg as early as 2026 in regions including Chile, Mena and China, the bank says in a recent research note. The forecast assumes Chile and Mena have below-average renewable power costs of around $15/MWh. Green will compete with grey in China in 2026 because of higher-than-average natural gas prices of around $10/’000 ft³.

In regions where renewable power costs $30-40/MWh and average gas prices are around $5/’000 ft³, green hydrogen hits parity with grey in 2030 at below $2/kg, the bank’s modelling shows.

“Clean hydrogen has emerged as a critical pillar to any aspiring net zero path, and policy, affordability and scalability are converging to create unprecedented momentum for the clean hydrogen economy,” Goldman Sachs says.

Unique dynamic

In Europe, high gas and carbon prices are creating a “unique dynamic” which already implies green hydrogen costs at parity with grey across key parts of the region, the bank says. This is providing an incentive for the region to escalate its efforts in clean hydrogen.

80GW – Potential installed electrolyser capacity by end-2030

Europe is the leading the growth of the green hydrogen project pipeline, together with Australia, Latin America and the Middle East, Goldman Sachs says.

Installed electrolyser capacity was only around 0.3 GW by the end of 2020 but the current project pipeline—including projects currently under construction, those that have reached FID and pre-FID feasibility studies—suggest an increase to nearly 80GW by end-2030, assuming projects meet scheduled start-up timelines, the bank says.

If the pipeline includes projects in earlier stages of development such as the pre-feasibility study stage, and concept-stage projects, the total rises to nearly 120GW, it says.

The rapid scaling up of capacity has the potential to drive down the cost of electrolysers by 50pc for alkaline systems and by 65pc for proton-exchange-membrane (PEM) systems by 2030, Goldman Sachs says.

“We expect that, longer term, the cost of alkaline and PEM electrolysers is likely to converge to around $300-400/kW,” it says.

Global trade

Goldman Sachs expects a significant internationally traded market for hydrogen to emerge in the coming decades.

“As the energy transition unfolds and hydrogen demand growth accelerates, international trade will likely be an important part of the clean hydrogen economy,” it says. “While we believe that clean hydrogen is likely to first develop locally before becoming a global market, similar to what happened with natural gas and LNG, as demand more than doubles in the coming decades.”

The bank estimates that around 30pc of the physical global hydrogen market could end up being involved in international trade, impacting energy geopolitics. By comparison, about 25pc of physical natural gas is traded internationally, the bank says.

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Author: Stuart Penson