Wood Mackenzie says green hydrogen cost reduction will boost energy transition

Green hydrogen created from the electrolysis of water using renewable energy has a tiny share of the global energy market, Wood Mackenzie said. AP

The hydrogen boom is well under way but the real game-changer for the energy transition will come when the cost of green hydrogen production is reduced, according to a new report from Wood Mackenzie.

Many countries are focusing on hydrogen production to cut emissions to limit global warming and protect the environment.

“Green hydrogen – hydrogen created from the electrolysis of water using renewable energy – has a tiny share of the global energy market today,” Bridget van Dorsten, a research analyst from Wood Mackenzie’s hydrogen research team, said.

“It is currently still largely uncompetitive against fossil-fuelled alternatives. However, the momentum behind net-zero ambitions means that investors are betting on its long-term potential.”

Hydrogen comes in various forms including blue, green and grey. Blue and grey hydrogen are produced from natural gas, while green hydrogen is derived from renewable sources.

Globally, the hydrogen project pipeline has grown sevenfold since December 2020 as the world focuses on energy transition, according to the study. But most projects are at an early development stage, with the bulk of new projects advanced during the second quarter of this year.

“Until 2019, global estimated electrolyser manufacturing capacity was just 200 megawatts. By the midway point of 2021, that had jumped to 6.3 gigawatts of announced capacity, with 1.3GW added in the first quarter alone,” Ms van Dorsten said. “Now, as we reach the end of the fourth quarter, electrolyser manufacturers are dramatically expanding plans for gigawatt-scale factories.”

Wood Mackenzie expects a significant drop in electrolyser capital expenditure by 2025, driven down by a variety of factors, including economies of scale, new entrants to the market and greater automation.

“Capex reduction will help drive down the levellised cost of hydrogen production. Combined with cheap renewable PPAs [power purchase agreements] and good renewable utilisation in many markets, the potential for competitive green electrolysis-based hydrogen really starts to grow,” she said.

Globally, the size of the hydrogen industry is expected to hit $183 billion by 2023, up from $129bn in 2017, according to Fitch Solutions. French investment bank Natixis estimates that investment in hydrogen will exceed $300bn by 2030.

The UAE and other countries around the region have formulated plans to introduce hydrogen into the energy mix and tap into the clean fuel’s potential.

State entities Adnoc, Mubadala and ADQ formed an alliance this year to develop a hydrogen economy in the UAE.