RenewableUK and Hydrogen UK have launched a joint report Splitting the difference – reducing the cost of green hydrogen to accelerate deployment outlining how to lower green hydrogen production costs to drive demand.
The recommendations from the trade associations could take the cost of hydrogen from £241 per MWh, which was achieved in the first Hydrogen Allocation Round in 2023 to less than £100MWh, if they are fully implemented.
The report sets out strategic measures designed to make the most of the UK’s massive potential to use renewable electricity to produce hydrogen in electrolysers, unlocking significant economies of scale and technological advancements.
Affordable green hydrogen will be an essential tool for building the energy system of the future, providing long duration storage for surplus electricity, and also for decarbonising sectors such as steel, chemicals and shipping.
For hydrogen to realise its full potential in helping the UK to decarbonise, it must become more affordable as it gets deployed at scale, according to the trade bodies.
As the UK scales up production with the help of the recommendations identified in the report, the cost of electrolytic hydrogen production is expected to drop dramatically, they said.
The price of electricity used in the process of electrolysis currently represents around 70% of the final cost of green hydrogen, so reducing this price is seen as an imperative.
The report contains eleven key recommendations to pave the way for a more cost-effective electrolytic hydrogen industry by lowering electricity costs for electrolysis.
These include a call for the Government to reform the hydrogen production business model (HPBM) with realistic strike prices to secure the maximum amount of investment by companies entering this new market.
They also recommend incentivising electrolysis to happen at the time and place when electricity is cheapest, to bring wider benefits to our energy system and avoid wasting electricity due to grid limits.
In addition, the report suggests removing barriers to enable hydrogen producers to co-locate their projects with renewable energy generators which already have planning consent.
It also calls for an ambitious strategy to enable the development of a hydrogen transmission network, with pipelines linking Scotland to England and Wales to optimise the availability of green hydrogen; and reducing the charges which project developers have to pay for access to the electricity grid.
Clare Jackson, chief executive of Hydrogen UK, said: “This report, a combined effort from the trade associations, marks pivotal steps towards achieving our national goals in energy security and clean energy transition by making hydrogen an economically viable option.”
Dan McGrail, chief executive of RenewableUK, said: “Green hydrogen generated from renewables will play an important role in helping the Government to achieve its clean power mission.
“It can add vital flexibility to our energy system, as it can be stored and used whenever it’s needed.
“This report shows that to realise this strong potential, the Government will need to work with RenewableUK and Hydrogen UK to establish innovative business models to attract private investment, including strike prices which reflect the fact that this technology is still at an early stage, and incentives for developers to build electrolysers alongside wind and solar farms to cut costs.
“Enacting the key measures set out in this report will enable the UK’s nascent green hydrogen industry to build on its global lead in this technology, driving down costs significantly in the long term, creating thousands of new jobs and generating billions of pounds in economic activity before the end of this decade.”