06

2024

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06

Green hydrogen 'significantly more expensive to make' in the Netherlands than previously thought: government-funded study

Author:

Hydrogeninsight


Generally speaking, green hydrogen costs would need to fall to around €1-2 per kilogram to compete with grey and secure offtake.

 

But a recent report by Dutch research institute TNO, funded by the Ministry of Economic Affairs and Climate Policy, has found that based on actual project data, the average levelised cost of large-scale production facilities built today would be more than €13 ($14.15) per kilo of H2.

 

This is not only much higher than the cost required to compete with fossil H2, but one of the highest recent estimates to date of what renewable hydrogen will cost to produce in the Netherlands — TNO points out that previous estimates ranged between €5.98-12.14/kg.

 

The report pulled on data from 14 projects being developed by 11 different companies. Although these had been anonymised, TNO thanked 13 developers for data and “contributions”: Shell, Uniper, BP, Air Products, Air Liquide, Engie, Eneco, Hygro, HyCC, Orsted, RWE, Vattenfall, and VoltH2.

 

From this, TNO calculated a base-case levelised cost of €13.69/kg H2. While the lowest cost of hydrogen production from the surveyed project sat at around €9/kg, the research institute also noted an outlier of more than €21/kg, which was excluded from the base case calculation.

 

The survey found that the average unit capital cost — which covers electrolysers, balance of plant, compressors, and indirect, ownership, or contingency costs — was €3,050 per kilowatt of electrolysis capacity, although to maintain anonymity, it did not subdivide alkaline or PEM technologies.

 

For comparison, the Dutch government’s SDE++ subsidy scheme estimated from its own market survey that capital costs were €2,200 per kilowatt of capacity in 2023.

 

TNO suggested that one reason for this apparent sudden increase is that data is being pulled from specific projects, meaning costs that fall outside of what would be directly paid for equipment are factored in.

 

Another factor is that participants in the SDE++ market survey were also seeking subsidies per tonne of CO2 avoided, so it was in their interests to state as low a cost as possible to win financial support — and that it was now in their interest to be honest because higher-than-expected costs could bring increased financial support from the government.

 

TNO also noted that electrolyser costs are only 30% of the system capital costs, which means that even if prices for this equipment were halved as manufacturing capacity scales up, it would only slightly decrease the overall levelised cost of hydrogen.

 

The system capital cost only accounts for €4.92/kg of the base case €13.69/kg cost. The largest share of costs is electricity: €5.19/kg to purchase power, topped up by another €2.07/kg in tariffs to connect to the grid.

 

TNO assumed that renewable electricity would be covered by a power purchase agreement, with costs for offshore wind put at €75/MWh, and onshore wind and solar at €80/MWh.

 

However, it also noted that as the share of renewables on the grid increases, there will be longer periods of high wind or solar power generation that would reduce electricity prices—which could reduce this cost for hydrogen production significantly.

 

In the short term, TNO argued in favour of an exemption of large-scale electrolysers from grid tariffs, which it noted have already increased in recent years and could continue to rise.

 

Uniper had earlier this year cited rising grid charges as one of the factors behind its decision to delay the first 100MW of its H2Maasvlakte green hydrogen project.

 

However, even a 50% exemption from the grid tariff would only knock around €1 off per kilogram of hydrogen produced, according to TNO calculations.

 

Other contributors to how expensive a kilogram of hydrogen is to produce include the cost and combination of financing (given equity is much more expensive than debt) and how many hours an electrolyser can be operated at full capacity.

 

TNO did not include exit charges from hydrogen pipeline networks in its analysis, assuming these would be borne by customers.

 

However, it noted that if projects are slow to come on stream and only 1-2GW is operational by 2030, hydrogen pipeline operators could end up doubling or quadrupling the €42.27/kW-per-year provisional tariff set in 2023 once regulated network tariffs kick in from 2031.

 

TNO calculated that the lowest possible cost for a hypothetical renewable hydrogen project — with 200MW of capacity, the highest possible full-load hours, an exemption from grid tariffs, financed with 70% debt, and built in one year rather than three — would be €9.16/kg.

 

This is still higher than the €8/kg cost of hydrogen that TotalEnergies CEO Patrick Pouyanné cited earlier this year as the average in his company’s ongoing tender for 500,000 tonnes a year of H2, although this could also be reduced by the competition effect and geographic distribution of suppliers.

 

Source: Hydrogeninsight

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