Opinion

Hydrogen production costs to 2040: Is a tipping point on the horizon?

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2020 may be an inflection point for the emerging low-carbon hydrogen market. When we initially assessed the cost landscape for the market, the project pipeline was sitting at 3.2GW of electrolyzer capacity. Since then, it has quadrupled.

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What else has happened? The European Commission and Germany, Netherlands, Norway, Portugal, Spain released detailed hydrogen strategies looking to scale the hydrogen market dramatically this decade. Elsewhere, the largest announced green hydrogen project of 1.3GWs was launched and BP, Shell, and Repsol made commitments to deploying low carbon hydrogen projects in order to meet their net zero emissions goals.

However, the high costs to produce low carbon hydrogen are the most significant barrier to its mass adoption for use across the global energy market. How quickly will costs fall? And what will drive those cost reductions? Hydrogen production costs: is a tipping point on the horizon examines the production costs of green, blue, grey and brown hydrogen from 2020 to 2040. We use dynamic pricing to assess the competitiveness of green with fossil generation. We also expanded to include both PEM and Alkaline electrolyzers, different deployment sizes, different capex assumptions, plus added Saudi Arabia to our analysis given the activity in solar and grey hydrogen markets there.

Complete the form on this page to download the executive summary and report brochure which includes:

  • Key findings and report overview
  • Table of contents
  • List of figures
  • Information on how to access the report

Subscribers to Wood Mackenzie's Energy Transition Service can access the report here.

Key findings from the report include:

  • Green hydrogen costs will fall by up to 64% by 2040
  • Over the past decade, global demand for hydrogen has only grown by 28%, peaking in 2020 at 111.7 million metric tons or 320Mtoe. Despite the buzz, that is small compared to many other new technologies.
  • The top 10 countries account for 70% of global hydrogen demand. China and the United States each account for 21% and 19% of demand, respectively. Refining and ammonia dominate two-thirds of all demand uses. Despite the continued discussion on mobility, it is a miniscule share of the market.
  • While a few countries and sectors constitute the majority of 2020 global demand, 85 countries require hydrogen. However, individually, 61 countries make up less than 1% of global demand. This shows the potential to make in-roads in many markets at low stage usage.
  • Global production of hydrogen is almost exclusively produced by hydrocarbons. Grey, brown and black hydrogen make up a combined 99.6% of global production. So, although there is a tremendous amount of hype regarding green hydrogen, it barely registers across the full value chain for hydrogen’s uses.