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The Path to Price Parity

Many are banking on the potential future of green hydrogen - and for good reason. This green molecule has been hailed as a key solution to reducing and even replacing the use of fossil fuels. While the debate may often revolve around when green hydrogen will reach price parity, it is also important to understand the levers that will accelerate this process.

1. The price of renewable energy remains one of the biggest components in green hydrogen production costs. Electrolyzers consume large amounts of electricity, so minimising this cost will be vital. The continued decline in solar and wind generation costs as an input will be key to lowering production costs. High utilisation rates (or load factors) of electrolyzers will drive the lowest cost hydrogen for the foreseeable future, requiring large amounts of low-cost solar and wind supplied from the grid. The best way to achieve this will be through direct connections to wind or solar farms. If a green hydrogen producer is required to pay electricity grid charges, the cost of green hydrogen is unlikely to become cost-competitive with fossil fuels. Therefore, a favourable environment for the deployment of renewable energy will be vital to ensure that renewable energy costs continue to drop and there is sufficient capacity to support the scale up in the green hydrogen industry.

2. Electrolyzer capital costs will need to fall dramatically. This will largely be driven by global developments through increased research and development spend and value manufacturing at scale. Research forecasts that current electrolyser capital costs of around A$1.1 million/MW would decline to around $0.5 million/MW by 2050, fully installed. Leveraging government incentives to promote and scale up domestic production of green hydrogen equipment across the supply chain will be paramount in this process.

3. Infrastructure to store and transport green hydrogen is currently limited and needs to be rapidly developed to increase production and distribution efficiencies. Transport infrastructure for hydrogen is currently very limited and will require a significant scale up to move large volumes around safely. This will require a large amount of investment into both pipelines, suitable road transport infrastructure to enable consumption of hydrogen, as well as shipping infrastructure for hydrogen export. Hydrogen hubs can also be leveraged to drive economies of scale in a centralised network of suppliers, off takers across industries.

4. Government policies play a crucial role in supporting the driving the demand and adoption of green hydrogen in the short term. Policies such as carbon pricing, subsidies, and mandates can help to reduce the cost of green hydrogen production and increase demand for it. The UK Government’s Hydrogen Business Model scheme is expected to provide support for hydrogen production through contracts for difference.

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