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In addition to the cost of electricity, the price of hydrogen largely depends on the initial investment cost of the electrolyzer. The fewer the number of hours at full load, the greater the impact. Analyst BloombergNEF (BNEF) sees several possible paths for market development.
All electrolyzers have at their core a specific technology stack, in which water is split into hydrogen and oxygen. It consists of welded, gas-tight and carefully stratified bipolar plates and plastic membranes, one of the main cost factors of any electrolysis plant. BloombergNEF analyst Xiaoting Wang spoke to 20 companies around the world as part of his study “Electrolysis System Capex [capital expenditure] could drop 30% by 2025.” 30% by 2025). This allowed him to understand the cost structure of 30 projects and determine the price components of a 10 MW alkaline electrolysis plant in China in 2021, as an example.
According to Wang, the battery accounts for around 33% of total costs, while 40% comes from other technical equipment, such as power electronics, gas-liquid separation, and gas purification. Another 27% of the costs were other project expenses, such as civil engineering, equipment installation and accommodation.
Chinese Alkaline
According to the BNEF report, a 10 MW alkaline system typically consists of two 5 MW cells supplying hydrogen at 16 bars. The manufacturer usually offers a complete solution with all accessories and installation. Chinese developers received such an offer in 2021 for only $303/kW, that is, a total of about $3.2 million. This did not include the grid connection fee, high voltage transformers or other “soft” costs such as development expenses, approvals and financing agreements.
According to Wang, project costs in Western markets with domestically produced electrolyzers are about four times higher. Investment costs average $1,303.25/kW for alkaline electrolyzers and $1,520.46/kW for proton exchange membrane (PEM) electrolyzers.
The cheapest offers, such as $195.49/kW, from Peric for an 80 MW plant in China; or Thyssenkrupps $565.83/kW for a 2 GW plant in Saudi Arabia, do not include all project costs and are therefore not comparable. They do include electrolysis chimneys, the separation and purification of gaseous liquids and the water supply. However, power electronics and control cabinets are excluded.
Wang attributed this large price difference to low labor costs and established supply chains in China, where electrolyzer manufacturers can source materials and components at much lower prices than in the West. So far, the production of most electrolyzers is not automated. Chinese manufacturers were producing megawatt-scale electrolyzers for other industries before there was demand for green hydrogen producers, meaning they benefited from production at scale. Current customers include manufacturers of polysilicon for photovoltaic cells.
Bloomberg analysis, from September 2022, claimed that Western manufacturers could achieve similarly low costs. To do this, they would have to use highly automated production. Wang said he foresees significant price reductions as early as 2025 (see main chart above). Pricing for 2021 also included adequate margins for engineering, procurement and construction (EPC) companies. Long-term developments show that prices for electrolysis projects will converge worldwide from 2035 onwards.
Western investors tend to trust an EPC company to manage an entire project for a lump sum, and trust large, well-known companies. However, these companies usually have little experience in building electrolysis plants, so the security premiums in the overall offer price are high. With increasing experience and the entry of specialized project planners, leading to greater competition, these surcharges should decrease.
Prefabricated containers
Equipment suppliers also strive to offer products that reduce the workload on the construction site and, therefore, costs. A trend in this regard is the development of containerized systems. This means that the various components of the system do not have to be assembled on site, but are prefabricated in a factory, tested and delivered to the intended location. This minimizes sources of error and reduces the time it takes to deploy specialized personnel on site.
In an update to its market analysis, Bloomberg reported offers of this type of containerized solutions for $1,000/kW. According to Wang, some people in the sector have even offered up to $700/kW. One such container solution was presented at a pv magazine Germany webinar in February 2023. The PEM electrolyser from the German supplier H-Tec has a power of 1 MW and produces 450 kg of hydrogen per day.
Those who want to reduce costs by purchasing an electrolyzer in China should keep in mind that exported products are usually sold at a premium of between 20% and 30%, compared to prices in the domestic market, notes BloombergNEF, which means that costs project development and planning costs will continue to be higher. It is important to note that choosing a Chinese brand to supply basic equipment could reduce a projects chances of receiving local grants and could affect funding.
The first green hydrogen projects were, and continue to be, designed primarily to draw electricity from the grid, with electricity consumption from electrolyzers balanced monthly or annually with renewable electricity generation from suppliers. In this case, the technical disadvantage of alkaline electrolysis in terms of flexibility would not bother operators.
However, after 2030, most new green hydrogen projects will have to ensure timely correspondence between electricity generation and electricity consumption from grid-connected electrolysis systems, leading to more projects being developed without grid connection, Wang said. This trend is not only due to the need for a clearer definition of green hydrogen. A direct connection to renewable energy generation plants should also improve economic viability in the future. After all, using the grid to move large amounts of electricity will cost more in the future. Therefore, electrolysis with stable grid electricity will not be able to produce hydrogen cheaper in the future than with solar and wind energy, with their low electricity generation costs.
Cost reduction
This is where PEM electrolyzers come into play. These can better track power supply fluctuations and also operate efficiently in part-load or off-grid operation. However, this technology still needs to significantly reduce its dependence on expensive platinum group metals, especially iridium, to gain dominant market share, Wang said. Plug Power of the United States and ITM Power of the United Kingdom , use between 200 and 300 grams of iridium per megawatt of capacity.
Current global production of iridium is around seven metric tons per year. Even if the entire volume were used to produce catalysts for PEM electrolysis, this supply chain could only support a maximum of 35 GW per year. PEM will only be able to dominate the green hydrogen market if manufacturers manage to significantly reduce per-unit iridium consumption this decade or achieve an equivalent effect in parallel with improved metal recycling. Wang said Electric Hydrogen, a new U.S.-based PEM electrolyzer manufacturer, has already reported that it uses significantly less iridium than its competitors.
There is also the possibility that anion exchange membrane (AEM) electrolysis will replace PEM after 2030 because it does not use expensive metals. This means that manufacturers must manage to develop batteries suitable for large-scale projects. Enapter is a pioneer in AEM, building small cells and assembling them into units larger than 1 MW, which are still small compared to other electrolyzers. The Californian company Verdagy has just started selling 20 MW modules, each consisting of two 10 MW stacks.
Larger cells
Producing more hydrogen from a single cell is another way to reduce costs. One way to achieve this is to increase the size of the stack itself. The largest commercial stack, 15 MW, which hit the market in September 2023, comes from Longi, according to Wang. Although increasing the stack size seems simple, it has several drawbacks. First, it is more difficult to move large units, especially for international sales. Secondly, with larger units, mechanical forces and stresses become more unequal, which affects safety and is associated with lower efficiency.
More performance can be achieved by increasing the current density. Simply put, the more electrons that pass through the cell, the more hydrogen can be produced. Simply applying a higher voltage can increase current density, but has a detrimental effect on efficiency. The strategy to maintain or even increase efficiency is to review internal structures and introduce advanced catalysts and membranes.
In the long term, it is preferable to increase the current density, says Wang. Plug Power and ITM Power are leading the way in this regard, with a current density of more than 3A/cm2 (amperes per cm2), followed by AEM manufacturer Verdagy , with 2A/cm2. Most Chinese alkaline electrolyzers have only 0.3A/cm2. Wang, for his part, has learned from Electric Hydrogen that his product would have an even higher current density than Plug Power and ITM Power. He estimates that by 2030, current densities close to 10 A/cm2 will be typical for all other PEM electrolyzer manufacturers.
More competition
In principle, the costs of Western products could decrease by around 30% by 2025. In addition to technological progress, competition is also likely to increase. Manufacturers around the world have announced production capacity of 52.6 GW for this year, while deliveries are optimistically at just 5 GW, according to BloombergNEF forecasts. In China, where there is already fierce competition for orders from project developers, manufacturers margins are slim. Furthermore, developers cover their risk to the manufacturer by paying only up to 85% of the agreed price at the time of delivery and the remainder once commissioning has been completed and performance is still good after 18 months.
The pressure is not yet as strong in Western markets, since investors and project promoters in Europe and the United States can count on relatively high subsidies. However, production capacities are also increasing here and factories must be used to the fullest. If Chinese manufacturers also seek salvation in exports, it is foreseeable that the price war will increase in all markets. |
