- Cost reduction will only become a reality if sufficient projects get off the ground. And companies only invest when there is clarity about the costs.
There is much debate about the actual costs of producing renewable hydrogen via electrolysis. These costs have risen considerably in recent years. The question is whether and how far costs will fall in the coming years. There is still little transparency about how these costs are structured and what amounts are realistic. TNO has processed information from eleven market parties about fourteen of their current or planned electrolysis projects into a calculation model. The report on this was sent to the House of Representatives by Minister Jetten for Climate and Energy with a hydrogen letter.
The study ‘Evaluation of the levelized cost of hydrogen based on proposed electrolyser projects in the Netherlands’
Download the report (pdf)(opens in new window)
Brake on investment decisions
“That cost reduction will only become a reality if sufficient projects get off the ground. And companies only invest when there is clarity about the costs. The government also wants to have better insight into this. Uncertainties and differing assumptions complicate discussions between companies and the government and hinder the necessary investment decisions. We have found a large group of involved companies willing to provide data on the costs of their projects. This way we have been able to provide a good picture of the cost components in this emerging hydrogen production market ,” says TNO expert Marcel Weeda.
“Parties shared electrolysis project data with TNO, which resulted in a useful dataset for cost estimates and valuable discussion information between the market and government.”
Marcel Weeda, Senior Consultant
Good basis for conversation
“Parties have been open towards TNO. They have provided extensive data on their current and future electrolysis projects. As a result, for the first time we now have a much more concrete picture of the costs. We processed all the data into an anonymous dataset and then analyzed it. This is valuable information in discussions between market parties and government. It provides support for both sides. You have a good basis for conversation,” says Weeda.
Realistic overview
In the study, TNO provides the most realistic possible overview of the most important cost components for the production of renewable hydrogen through electrolysis. The results reflect an adjustment of the figures from the penultimate market consultation SDE++ (Sustainable Energy Transition Incentive Scheme), in which electrolysis is evaluated as one of the supported technologies. That consultation showed that the investment costs of a 100 megawatt (MW) electrolysis installation were 2,200 euros per kilowatt. In the last market consultation, the parties indicated that the costs are now higher, but there was no sufficient substantiation for adjustment. Based on the data that TNO has received from market parties, this amount for a 100 MW reference installation would amount to more than 3,000 euros per kilowatt.
Costs can be reduced
Renewable hydrogen from electrolysis is an essential part of the energy transition. Costs have risen sharply in recent years as energy, materials and labor have become more expensive. Interest rates and the connection and transport costs charged by grid operator TenneT also increased. However, costs can be reduced if more electrolysis projects are realized . This leads to the formation of supply chains and increased competition. Standardization of components and systems, increase in demand and exploitation of economies of scale will also further reduce costs.
Substantial contributions needed
According to TNO, substantial support from the government is necessary to accelerate the realization of projects. If domestic production of hydrogen does not get off the ground sufficiently, this could have all kinds of negative consequences, such as slowing down the rollout of offshore wind and greening the industry. It could also lead to slower development of the national hydrogen network or its underutilization. This can create more uncertainty and increase costs, which will not make project development any easier. In order to gain support in society for the large public investments in sustainable hydrogen, it is important that the knowledge acquired is shared as much as possible between parties and becomes available to others in order to accelerate the transition.
Companies that contributed to the TNO study are:
- Air Liquide
- Air products
- BP
- Eneco
- Engie
- Hygro
- HyCC
- Ørsted
- RWE
- Shell
- Tata, Uniper
- Barrel trap
- VoltH2
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