Calculating the Levelised Cost of Hydrogen

Green Hydrogen is a very hot topic right now, and is a vital part of decarbonization, displacing fossil fuels as a feedstock into chemical/industrial processes, and as a fuel for heating, transport, and power.

Green hydrogen is made by using carbon-free electricity to drive electrolysis of water, splitting it into oxygen and hydrogen, courtesy of an electrolyser.

The magic price point for this process, the Levelised Cost of Hydrogen (LCOH), is often said to be about USD$2/kg (AUD$3/kg) to that make it cost competitive with the current approach to producing Hydrogen from steam methane reforming from natural gas.

There are a tonne of green hydrogen projects slated to go ahead in the coming years, many with their own large co-located renewable energy projects, and some of these plan to also be grid-connected. As our grids decarbonise, there’s a question for project developers around if the grid might provide a cheaper source of energy for their project than building out dedicated co-located solar and wind.

To explore that question a little, we’ve used the Gridcog together with wholesale energy and emission forecasts from Endgame Economics and Cornwall Insight Australia, to calculate the LCOH of a 1MW grid-connected electrolyser running in the Australian NEM and the Western Australian WEM over the next 20 years.

Modelling Assumptions

• 1MW electrolyser with efficiency of 52kWh / kg
• Capacity factor of 95%. The electrolyser can flex its performance around that constraint to avoid the most experience wholesale prices
• Hydrogen production of 160 tonnes a year
• 30-min wholesale price forecasts for each NEM region and WEM balancing price out to 2042
• 30-min resolution emissions intensity forecasts for each NEM region.
• A corresponding HV network tariff for the region
• Relevant environmental certificate costs out to 2030

What we found

Based on current forecasts no grid-connected electrolyser achieves the $3/kg target, but NSW and WA get closest.

It was also interesting to see that some of these regions are forecast to have very clean grid energy supply from about 2033. Wholesale prices from 2032 onwards are characterised by low lows but high volatility.

We also found that LCOH is very sensitive to the capacity factor of the electrolyser. In some locations, reducing the capacity factor to 75% (to avoid high price events) reduces LCOH by 50%, with only a 20% reduction in hydrogen yield.

It’s also worth noting that network service costs are a material proportion of the cost stack, and so consideration could be given to how to minimise these costs and/or maximise the value of this network capacity with a hybrid project.

How to think about your project

When you’re considering energy supply options for your Hydrogen project, think about both grid-connected and co-located energy supply, with a realistic view on how electricity markets and the energy mix in the grid will change over the life of your project.

If you’re looking at grid-connected or off-grid green hydrogen projects and interested in understanding your energy supply options, then hit us up!