Cost of producing green hydrogen has risen by 30-65% due to multiple factors

Several factors, including heightened labor and material expenses and increased interest rates, have contributed to a notable escalation in the production cost of unsubsidized green hydrogen. According to a recent report by the Hydrogen Council and McKinsey, the cost surge amounted to 30-65% in the 12 months leading up to June 2023, reaching a range of $4.50-6.50 per kilogram. This represents a significant increase from the $2.50-4.50 per kilogram figures recorded in the middle of the previous year.

The Hydrogen Insights December 2023 Update attributes this cost hike to various factors such as elevated labor and material costs, a 3-5 percentage point rise in the cost of capital for building electrolyzer plants, and a surge of over 30% in the cost of renewable power. Additional contributors include challenges like rare earth metal procurement, skilled labor shortages in specific jurisdictions, and disruptions in supply chains. The report clarifies that the reference price of $4.50-6.50 per kilogram pertains to projects on the US Gulf coast.

Despite these challenges, the Hydrogen Council remains optimistic about the future outlook, expressing confidence that the cost of green hydrogen production will decrease as anticipated. The report suggests that the production cost is expected to decline to $2.50-4 per kilogram by 2030. This reduction is attributed to advancements in electrolyzer technology, manufacturing economies of scale, design enhancements, and a decrease in the cost of renewable power.

The report underscores the pivotal role of reducing electrolyzer costs, projecting potential decreases of up to 70% through 2050, as a primary driver for lowering renewable hydrogen capital expenditure and overall costs. However, the Hydrogen Council emphasizes that additional measures, such as project standardization, are essential for fully optimizing renewable hydrogen production capital expenditure. Active project optimization is projected to potentially decrease costs by an additional 25% through 2030.

Bernd Heid, a senior partner at McKinsey, highlights the potential for optimizing renewable hydrogen production, stating that it could halve capital expenditure compared to 2023 levels. Notably, the Hydrogen Council, comprised of major oil companies like ExxonMobil, Saudi Aramco, BP, Shell, and TotalEnergies, forecasts that the cost of blue hydrogen will be slightly below that of green hydrogen from 2025 to 2050.