August 26, 2022

“IPCEI Hy2Tech”,
26 August 2022

The project, called “IPCEI Hy2Tech” Recently, the Commission has approved, under EU State aid rules, an Important Project of Common European Interest (‘IPCEI’) to support research and innovation and the first industrial deployment in the hydrogen technology value chain.

The project, called “IPCEI Hy2Tech” was jointly prepared and notified by fifteen Member States: Austria, Belgium, Czechia, Denmark, Estonia, Finland, France, Germany, Greece, Italy, Netherlands, Poland, Portugal, Slovakia, and Spain. There is global momentum strongly in favor of Green Hydrogen as the next ‘innovation’ in climate mitigation efforts and Carbon Capture, Utilization and Storage (CCUS). Solar-powered hydrogen combines photons (light) with electricity (electrons) in order to produce hydrogen (protons), which is a safe and convenient alternative to fossil fuels.

Its versatility makes it an attractive energy vector for decarbonizing hard-to-abate sectors because hydrogen can be converted into other chemicals (molecules) that can be transported in bulk, as is the case with crude oil, natural gas, and refined petroleum products. Similar to fossil fuels – which are made up of solar energy, biomass, and geothermal heat, hydrogen cell is a form of energy. The cost of producing gray hydrogen and blue hydrogen (grey hydrogen with CCS) is affected by natural gas prices, which are set in regional rather than global markets. The regional gas pricing from early 2020 to April 2022, clearly shows price volatility in the European market from late 2020. Due to geopolitical disruptions, natural gas prices in Europe increased by about $10/kg from late February to early March 2022. It is expected that the price of natural gas will increase in the near-to-midterm, coupled with the rapidly reducing cost of solar energy with scaling up, which has the potential to make solar energy-based green hydrogen commercially viable in some regions. Blue hydrogen scaling also requires significant upfront investments, with a long-term horizon, for creating the necessary infrastructure for transporting and storing CO2 as well as sufficient scale to justify investments in Carbon Capture, Utilization, and Storage (CCUS).

Green hydrogen production via electrolysis of water is possible with off-the-shelf technology. The critical technology is the electrolyzer which splits water (H2 O) into hydrogen (H2 ) and oxygen (O2).

The benchmark or reference cost of production of hydrogen from natural gas is around $2/kilogram (kg), which is based on a natural gas price of $6/ million British Thermal Units (MMBTU) and does not consider greenhouse gas abatement cost or carbon pricing. The cost of green hydrogen depends primarily on three factors: Levelized cost of Electricity (as a corollary to the efficiency of the electrolyzer), Capital Expenditure factor (refer to Figure 2 below).

Achieving the $2/kg cost of hydrogen production from electrolysis requires an electricity input cost of much less than $0.02/kilowatt-hour (kWh) at existing CAPEX levels. Electrolyzers are inherently modular, and as factory mass production ramps up, unit costs will decline, resulting in a lower cost of production of hydrogen. Thus, technology agnostic scale-up of green hydrogen through wind/solar energy would enable a rapid scale-up in electrolyzer production.


Using commercially available hardware, electrolysis of water requires about 50 kWh of electricity to produce 1 kg of hydrogen (or 50 Megawatt_hours (MWh) per ton of hydrogen). Replacing the current 100 million tons/year of fossil hydrogen with hydrogen via electrolysis would require 5000 Terawatt-hours/year (TWh/y) of electricity which is almost 22% of global electricity production and just under 3% of total global energy production. More than 3 TW of solar photovoltaic (PV) capacity would be required to produce 100 million tons of hydrogen per year, with total investment (including electrolyzers and balance of plant) at a maximum cost of $5 trillion7 at current prices, which is just over 5% of global GDP in 2021. The total land requirement (assuming 100% ground-mounted capacity deployment) would be about 5 million hectares (1 MW solar requires about 1.6 hectares). Thus, the deployment of green hydrogen presents a significant opportunity cost in terms of investment needed, which would otherwise go to renewable energy for direct end-users.


A second critical constraint is the availability of sites for GW-scale renewable energy production. Solar resources are available but monetizing that energy in the form of tradable hydrogen, oxygen, and other molecules remains a challenge due to the lack of demand – and more specifically, the willingness to pay – for green hydrogen. Current Green H2 Development as noted above, green hydrogen is commercially viable depending on the offtake price, which is a moving target. The financial viability of green hydrogen depends on several variables, including electricity input cost, electrolyzer cost, capacity utilization factors (CUF) of renewable energy and electrolyzers, cost of financing, etc. Although solar CUF is a rate-limiting factor for solar-based hydrogen production pathway, solar energy remains one of the most attractive RE resources for green hydrogen on account of rapidly falling CAPEX due to scale and, consequent lower cost of electricity. Further, wider geographical availability of solar energy resources, as compared to other resources such as geothermal (with high CUF), enables scaling up. There may be immediate opportunities at older solar power plants which have been fully amortized and depreciated, where the effective cost of electricity production is close to zero and CUF does not matter. Market Evolution in the Next 5-10 Years Hydrogen production from solar and other renewable energy will be constrained by willingness to-pay until sufficient scale drives the cost down to the $2/kg tipping point (or if carbon finance can be mobilized and/or carbon taxes implemented). It is expected that legislation will increasingly address the framework for its adoption, and the increase in patent filings indicates that more will be filed in the future, addressing the urgent need for new ways to reduce electrolyzer cost while increasing technological efficiency and production capacity at the same time. Innovation in the field of electrolyzers is a widely recognized strategy for making the production of hydrogen cost-competitive with other technologies and as green as possible, thus helping to tackle challenges such as decarbonization and accelerating the energy transition.