With the recent spike in prices of natural gas across Europe, it is now cheaper to produce green H2 than blue and grey H2. In calculations done and shared by Independent Commodity Intelligence Services (ICIS), the cost of producing grey H2 from methane is relatively higher than the cost of getting green H2. According to the report, that has been the case since September 2021 and the trend seems to continue. In early October 2021, the cost of producing grey H2 hit the highest cost ever (£6 ($8) per kg). This is a sharp increase over a short period bearing in mind that the cost in April was £1.43 per kg.
The cost of producing green H2, on the other hand, has relatively remained at its level of a constant £3.39/kg over the months. This disparity between the two is likely to result in different trends over the coming months. The most likely impact might be a change of focus from blue and grey to green H2 since higher prices of producing the former will be unsustainable if the trend of increase in the cost of production continues going forward.
The surge in prices of gas and power across the region also has other implications for related energy sources. For instance, Jake Stones an editor at hydrogen ICIS argues that since wind and solar power are usually purchased under Power Purchase Agreement (PPA), rather than trading on wholesale markets, their prices will largely be unaffected. So, PPA-driven green hydrogen is going to be competitive when it comes to the cost of production.
Blue hydrogen that is also produced from natural gas is also affected by the surge in prices. It is said that its cost of production is €0.50-€1.50 per kg on top of the already increased price of grey H2. This added price is due to the added costs of carbon capture and storage (CCS) charges. While the price of both blue and grey hydrogen will most likely fall if the cost of natural gas drops, the current prices indicate a high risk of price volatility. That means Europe’s reliance on imported fossil fuels is a great risk to the stability of blue and grey hydrogen prices.
Some other calculations and statistics by an Australian Maths-as-a-service company called Keynumbers also showed the same trend. Its report indicates that by mid-October 2021, it was relatively much cheaper to produce green hydrogen compared to grey and blue H2 across Europe. This further affirms that, indeed, green H2 stands as the best sustainable energy source alternative. Seemingly, once the hurdles regarding production technologies are sorted, green H2 stands a great chance of being the clean energy of now and the future.
Generally, for green hydrogen, if its power is supplied under a PPA, the risk of price volatility will be avoided. It might also help avoid uncertainty, especially at this time when the world is transitioning into the use of hydrogen. In Europe, the areas of focus now are large-scale production and reduction of production costs associated with electrolysis and other processes that are used to produce hydrogen.
