Why Is Hydrogen More Expensive in Practice Than Often Assumed?
Green hydrogen is considered one of the key technologies for a sustainable energy future. But its true production costs have long been underestimated. An FfE discussion paper sheds light on the factors that factors that make the difference in a realistic assessment.
Green hydrogen is considered a key technology for a sustainable energy future. However, the actual cost of its production has long been underestimated. This discussion paper, “From Theory to Practice: Why Green Hydrogen Is More Expensive Than Expected”, highlights various factors that, when assessed realistically and based on practical experience, lead to significantly higher costs.
For a long time, the production costs of green hydrogen have been substantially underestimated in public reports. Several factors contribute to this. Firstly, investment costs were often set too low. Expenses for detailed planning, procurement, installation, and project development were frequently not fully accounted for. Total costs include not only the physical components of hydrogen production but also the planning and execution of the project — often complex and expensive. These impacts can be particularly significant for electrolyzers in the low double-digit megawatt range: the smaller the project, the more significant the planning and procurement costs become.
Finally, the cost of electricity procurement has often been underestimated. A key factor here is the opportunity cost for electricity producers, who could instead sell their power on the market or via the Renewable Energy Sources Act (EEG). These opportunity costs represent the potential earnings producers forego by using electricity for hydrogen production rather than selling it. Only in exceptional cases is electricity offered below market price. If calculations are based on electricity generation costs, which are often significantly lower than the opportunity cost, this leads to a considerable underestimation of electricity expenses. Furthermore, if the produced hydrogen is to be eligible under the greenhouse gas quota and recognized as “green” according to the EU Renewable Energy Directive, criteria such as additionality, as well as geographic and temporal correlation, must be met — all of which further increase costs.
These factors contribute to the fact that green hydrogen production is, in reality, much more expensive than frequently claimed. Figure 1 illustrates the effects of the three points mentioned on the components of the levelized cost of green hydrogen that meets the criteria of the EU Renewable Energy Directive (for details, see [1]). Under idealized assumptions, the levelized cost is €4.10/kg. The realistic cost, however, is €9.80/kg — more than twice as high.
A realistic cost basis for green hydrogen is crucial — for project developers, investors, policymakers, and buyers alike. This discussion paper offers a simple proposal for estimating actual costs and thus contributes to the ongoing debate on the availability of green hydrogen. Access to the full study is available via this link: Access to the full study
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