Green hydrogen production costs, including capital costs, using a power-purchase agreement (PPA) currently average around €6.10–8.15/kg ($5.95–7.94/kg) in Europe, according to analysis by price-reporting agency ICIS.

This is significantly higher than the €4–4.50/kg costs evaluated in early 2021, due to the recent uptick in wholesale power prices.

The EU is still formulating its rules for what can qualify as green hydrogen production. But under the latest version proposed by members of the European Parliament, renewable hydrogen can be produced from grid-sourced electricity as long as developers secure power-purchase agreements (PPAs) from renewable energy installations for the equivalent amount of electricity.

As well as being required to prove that hydrogen production is renewable, PPAs give green hydrogen developers clarity on the cost of production by locking in costs over time.

But despite being less volatile, PPAs are still linked to wholesale power costs, meaning green hydrogen production in Europe has therefore become more expensive over the past two years as wholesale power costs have risen.

Regional outlook

The ICIS analysis looked at the cost of production for PPA-based green hydrogen in five countries: Germany, the Netherlands, the UK, Italy and Spain. Costs were as low as €4.85/kg for onshore wind-based hydrogen in Spain—largely due to the price cap in Spanish wholesale power markets—and as high as €12/kg for solar-based hydrogen in the UK.

Wind PPAs tended to result in lower production costs than solar when accounting for capital cost of recovery.

€6.10–8.15/kg – Average cost of green hydrogen production in Europe

“This is because both onshore and offshore wind would likely result in more hours of generation per year than solar, creating a greater production base over which to spread the income required to cover the capital investment and fixed operating costs,” says the report, titled Renewable PPAs and a review of the commodity price spike on renewable hydrogen production costs.

The price of green hydrogen in Europe will come to be affected by factors other than PPA prices as the market develops, the ICIS paper says.

Periods of excess renewable generation will allow electrolyser owners the chance to secure spot volumes of power, increasing the supply of low-cost green hydrogen.

“Such a development would go hand-in-hand with the emergence of storage and transportation capacity,” says the paper, noting that this would support an over-the-counter (OTC) spot market for hydrogen produced outside of any contractual obligations.

Looking overseas

High domestic production costs have caused the EU to look to meet half of its targeted hydrogen demand—some 10mn t/yr of a total 20mn t/yr by 2030—from abroad. Hydrogen could be delivered to Europe at less than $6/kg, including reconversion, according to analysis by the IEA.

But EU costs are expected to come down as offshore wind technology develops and electrolyser costs fall.

Green hydrogen can be produced for €2-2.5/kg in Europe by 2030 in an optimistic scenario, according to analysis by consultancy Aurora Energy Research. 

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Author: Tom Young