Hydrogen is poised to move from the sidelines of global clean energy as the industry learns to produce it more efficiently and at lower cost, according to newly published research led by Gunther Glenk, a climate fellow with Harvard Business School’s Institute for the Study of Business in Global Society (BiGS).
Hydrogen is an energy carrier with the potential to power long-haul travel and shipping, or energy-intensive manufacturing—without producing carbon dioxide emissions. The hitch: expanding hydrogen production will likely hinge on substantial cost and efficiency improvements.
Governments around the world have recently introduced sizeable regulatory initiatives and subsidy programs to push companies to develop and manufacture new hydrogen equipment. Policymakers and energy experts see hydrogen as a potentially more reliable decarbonized source that could complement more intermittent power suppliers, such as wind and solar energy installations.
The incentives likely will help drive down production costs as industry players overcome steep learning curves, Glenk says. He predicts that the cost to produce clean hydrogen will start to approach $1 per kilogram by 2030. That’s the target the US Department of Energy’s Hydrogen Shot initiative has set as part of its mission to accelerate the development of clean energy solutions.
Moving closer to ambitious targets
The new paper, “Advances in Power-to-Gas Technologies: Cost and Conversion Efficiency,” was published in the journal Energy & Environmental Science. Glenk coauthored the study with Philip Holler, a doctoral student at the University of Mannheim, and Stefan Reichelstein, a senior fellow at the Precourt Institute of Energy at Stanford University.
The study estimates how long it would take to produce large-scale clean energy at lower cost for different hydrogen technologies. The research is based on the assumption that, with experience, manufacturers and operators of a particular technology learn to become more efficient and reduce costs.
Glenk, Holler, and Reichelstein studied the investment expenditures and energy consumption of power-to-gas facilities, which produce hydrogen without emitting greenhouse gases. The research also captured the capacity of power-to-gas facilities commissioned worldwide between 2000 and 2020.
Based on this data, the authors project that the lifecycle cost of clean hydrogen production will likely fall to the range of $1.60-1.90 per kilogram by 2030 from $3-5 today.
Investors often doubt the ambitious sustainable energy targets that governments and international agencies set in their bids to reach net zero emissions. But this new research shows that industry trends are moving toward the Department of Energy target.
Investors tread cautiously on hydrogen
One major obstacle for hydrogen: high production costs have deterred major investments that would meaningfully increase productivity. So far, private investment in the sector mostly has been limited to smaller-scale and niche projects.
“When it comes to big infrastructure projects, like in the energy sector, you have to make big investments to really bring down costs,” said Hergen Wolf, director of product management at Germany-based Sunfire GmbH, an innovator in hydrogen and alkaline technologies.
Hydrogen projects planned through 2030 have drawn $320 billion in announced investments, up 35 percent since 2022, according to the Belgium-based Hydrogen Council. But fewer than 10 percent of those projects have committed capital. To be on track to reach net zero in 2050, the council notes, announced investments must more than double and all those projects must launch.
It has been difficult to make the business case for large-scale hydrogen production to date, says Wolf, because the cost is too high at the outset—40 percent to 70 percent higher than the 2030 cost forecast in the new research—to justify the upfront expenditure.
Therefore, the industry perceives that big investments suffer from “first-mover disadvantage,” Wolf said. “It is why we need policy support at the beginning, to get over this disadvantage.”
Policy incentives hasten competitiveness
That policy support is starting to help achieve the cost reduction forecast in the paper.
For instance, the year-old Inflation Reduction Act offers a tax credit for clean hydrogen production of as much as $3 per kilogram, and is likely to advance the deployment growth of power-to-gas systems. The European Union, home to the highest concentration of announced hydrogen projects, also is providing incentives to member states to collectively produce 20 million tons of green hydrogen annually by 2030.
“With cost reduction, there’s more deployment because more applications become financially attractive, which then leads again to more deployment and cost reduction.”
In October, the US Department of Energy announced that it would spend $7 billion to launch seven Regional Clean Hydrogen Hubs across the country. These hubs will create “energy ecosystems” with a goal of producing commercial-scale hydrogen that’s economically viable.
“Once you have deployment in place, you get cost reductions,” Glenk said. “With cost reduction, there’s more deployment because more applications become financially attractive, which then leads again to more deployment and cost reduction.”
It is a virtuous cycle, Glenk said, that can change the game entirely.
This article originally appeared in the BiGS Fix.
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