As more countries pursue deep decarbonisation strategies, hydrogen will have a critical role to play. This will be particularly so where direct electrification is challenging and in harder-to-abate sectors, such as steel, chemicals, long-haul transport, shipping and aviation. In this context, hydrogen needs to be low carbon from the outset and ultimately green (produced by electrolysis of water using renewable electricity).

In addition to regulations and market design, the cost of production is a major barrier to the uptake of green hydrogen. Costs are falling – largely due to falling renewable power costs – but green hydrogen is still 2-3 times more expensive than blue hydrogen (produced from fossil fuels with carbon capture and storage) and further cost reductions are needed.1

The largest single cost component for on-site production of green hydrogen is the cost of the renewable electricity needed to power the electrolyser unit. This renders production of green hydrogen more expensive than blue hydrogen, regardless of the cost of the electrolyser. A low cost of electricity is therefore a necessary condition for producing competitive green hydrogen. This creates an opportunity to produce hydrogen at locations around the world that have optimal renewable resources, in order to achieve competitiveness.2