Cost of electrolysers for green hydrogen production is rising instead of falling: BNEF




Inflation and subsidy delays clobber economics of making and installing renewable H2 equipment


The cost of producing and installing electrolysers for green hydrogen production in China, the US and Europe — three of the world’s biggest markets — has risen by more than 50% compared to last year, research house BloombergNEF (BNEF) has found, rather than the gradual reduction its analysis had previously indicated.


The main culprit for Western manufacturers has been inflation, which has pushed up the costs of materials, utilities (such as water and electricity) and labour in the US and Europe, said BNEF in its new Electrolyser Price Survey 2024report.


But delays to subsidy roll-outs have also slowed the scale-up of green hydrogen projects, meaning that electrolyser manufacturers are unable to benefit from economies of scale, resulting in higher prices for longer.


Based on a survey of more than 50 companies, most of which are located in the US, China and Europe, BNEF’s report processed more data on bigger green hydrogen projects than in its last survey in 2022, which focused predominantly on the smaller developments that were most advanced at the time.


This time around it analysed costs that were not apparent for the smaller projects, such as those related to transformers to provide grid connection, which are important cost considerations for large installations — resulting in a wider scope of analysis.


This is why figures also reveal higher costs from Chinese manufacturers, even though they are less affected by inflation and prepared to manufacture at a loss without subsidies in order to win massive orders.


As a result, average system-level cost (including both stack and balance of plant) is now at a mid-range of $600/kW for an electrolyser made in China, while machines made in Europe or the US are around $2,500/kW.


This makes Western electrolyser four times more expensive than Chinese equivalents, a gap that has not closed at all since the previous report, BNEF noted.


The research house had previously predicted that costs would gradually decline over three years from 2022, as more large-scale projects approached completion.


However this depended on inflation returning to 2% in major markets — which has not happened. Instead, inflation has settled at around 3% in both the US and Europe.


So rather than declining by up to 10% year-on-year, as BNEF predicted in its 2022 survey, the capital cost of installing an electrolysis system has increased by a median of 57%.


“[In 2022] BNEF forecast a 30% EPC-level [engineering, procurement and construction] capex reduction over three years after 2022 with a constant year-on-year rate — or an 8-10% cut on 2023 total system capex compared with 2022 — thanks to economies of scale, technology improvements, vertical integration and lower margins,” the new report explains. “All those factors can only be realised with market scaling.”


In fact, most large projects were still awaiting final investment decision in 2023, with European developers awaiting the results of the bloc’s first subsidy auctions — the EU-sponsored European Hydrogen Bank and the German-government backed H2Global ­— and US developers still waiting on final regulatory guidance on green hydrogen from the government.



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