We Need to Change How We Talk About the Business Case for Electrolysis Technologies

In a recent panel discussion, I was asked to explore the commercial viability of electrolysis technologies, and how likely it would be that it could eventually compete with traditional hydrogen production. I wish to share a few of my main takeaways from this discussion, both to share the important insights that were explored on factors that influence this market’s viability, but also to address what is, in my mind, a far more important and oftentimes under-represented angle to this discussion — why electrolysis technologies critically, and without compromise, need to be made viable.

While these two angles may seem more like an unnecessary exercise in rhetorical semantics rather than two different sides of a debate, I believe they actually represent two fundamentally different philosophies on how to view risk, responsibility, and ambition in this industry. So, let’s dive in.

What Will Make Electrolysis Technologies Viable? ?

There are many reasons to believe in the viability of electrolysis technologies and their ability to compete with traditional hydrogen production, but here are a few factors I think deserve particular emphasis:

1.??????Consistent sources of low-cost renewable energy. The largest single cost component for the on-site green hydrogen production is the cost of renewable energy – and this has been dropping for decades.In 1975, the first solar panels cost around USD$115.3 per watt. Today, the cost ranges from around USD$0.90-$1.50 per watt. Over the last decade alone, wind energy prices have fallen 70% and solar photovoltaics have fallen 89% on average, with the latest reports confirming that it is officially cheaper to build new clean energy generation than it is to run existing coal plants.The cost efficiency of electrolysis technology is interdependent with the low cost and consistent sourcing of renewables to power them. The more renewable energy infrastructure is built out, the cheaper it will become. The cheaper renewable energy becomes, the more electrolyzers will be cost-efficient.

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2.??????Continued improvements in electrolyzer design, construction and balance of plants. In our field researchers and engineers are constantly working on improving the efficiency of electrolysis technologies, both in how they operate and how they are manufactured. As we push to increase module sizes and increase stack production, we move closer to optimizing cost efficiencies across operations.

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3.??????Increasing government support, incentives, and legislation. In the past five years alone, more than 30 countries have either developed or started to prepare national hydrogen strategies, and there is no indication that this will slow down anytime soon. The continued support of governments and other regulatory bodies is crucial in achieving the scale needed to make all of this possible. Direct financial support can help offset the initial investment costs of electrolysis projects and make them more financially attractive, but the continued implementation of carbon pricing mechanisms and regulations is equally vital in shaping the market to prioritize low carbon solutions.

Sparked by public support, mass deployment of renewables trigerred a virtous cycle of learning by doing.Between 2010 and 2021, production costs fell dramatically for solar (88%), onshore wind (68%) and offshore wind (60%). Subsidies and advocacy are likely needed to do the same for clean hydrogen.

4. Learning from the renewables ‘learning curve’. The more renewables were deployed and achieved economies of scale, the cheaper and more efficient they became.?

Several studies have shown that the learning rates that are currently measured for fuel cells and electrolyzers are similar to those of solar PVs, with between 16% to 21% cost reduction for every doubling of capacity.

By combining current learning rates with a wider scale of manufacturing, technological improvements and increased module size, IRENA predicts that a 60% electrolyzer cost reduction could be achieved by 2030.This is actually double what they project is needed in order to keep the dream of 1.5 degrees Celsius alive.

5.??????Reforming the conversation around energy subsidies. A crux of the debate around whether green hydrogen and its derivatives will ever be able to compete with its traditional counterpart is getting stuck on the fact that, currently, the success of many green hydrogen projects relies on government subsidies to incentivize initial investment. While this standalone fact does not make it any less likely that this industry will succeed, it somehow implies that green hydrogen is the only side of the debate that requires subsidies to flourish. Last year, fossil fuel subsidies reached a record breaking 1 trillion USD, an 85% increase from 2021.

Green hydrogen projects may rely on subsidies to get a kickstart, but fossil fuels are clinging on them to survive.?No matter what source of energy you look at, subsidies are vital in making the market viable. Subsidies are here to stay; we just need to reinvest and reprioritize our money where it matters. ??

The Case for Why They Need to Be

So, why are the arguments articulated in the first part of this article not enough? While empirically driven conversations that solidify the business case for electrolysis technology and the Power-to-X market are of course necessary, I believe they only cover around 80% of what needs to be addressed in this discussion. The remaining 20% is crucial, and lays in this simple fact:

Regardless of how we build up the business case for green hydrogen and its derivatives, we cannot, on any conceivable metric, afford to keep the status quo of hydrogen production as it is today.

Currently, existing grey and brown hydrogen production methods emit around the same amount of carbon dioxide as a third of the entire European Union. Nearly all hydrogen today is produced by using fossil fuels – a demand that accounts for 6% of global natural gas and 2% of coal used on an annual basis.

As more countries pursue their decarbonization strategies and look to implement energy structures that move away from the direct use of fossil fuels, hydrogen will play an absolutely crucial role. If this hydrogen is not low carbon from the outset, we risk simply displacing our carbon emissions to another, frankly less energy efficient way of powering our societies. This not only misses the grander point of transitioning our energy systems in the first place, but it also dangerously makes net-zero by 2050 a figment of our collective imagination.

If we wish to cut carbon emissions and create clean energy systems, the role of fossil fuels will have to end and be replaced with green alternatives. We cannot effectively build up an alternative business case in this industry without sincerely, and with intent, disavowing the status quo. This is a fact, and a fundamental starting point for how we explore the business case of green hydrogen production.

In a more practical sense, this means we need to bring electrolysis projects to market and start testing this technology in the field. As with any new and emergent technology, being a first mover means taking on a certain amount of calculated risk — more than maybe many of us are comfortable with. But without this leap of faith, we perpetuate the uncertainty of the industry. Large-scale manufacturing facilities, commissioned plants, and first-generation projects — these are the final factors that will improve cost- reduction forecasts, enable transparency, and actually make electrolysis technologies cost-competitive.

To achieve the economies of scale needed to put electrolysis and green hydrogen on the trajectory once taken by wind and solar, we need to put our money where our future is. While the arguments in the first section of this article may help alleviate some of the doubt in this industry and bring more comfort to a board meeting, they will not help us in moving and scaling as quickly as we must in order to meet net-zero — and we must.

To meet this challenge head on, we need to change the ways in which we come to these discussions in the first place. The question is no longer if green alternatives such as electrolysis technologies will become commercially viable, the real question is how are we going to commit, and make it happen now?