BiGS Actionable Intelligence:
BOSTON — Hydrogen is poised to move from the sidelines of the global clean energy transformation as the industry finds ways to produce it more efficiently and at lower cost, according to newly published research led by Gunther Glenk, a climate fellow with Harvard Business School's Institute for the Study of Business in Global Society (BiGS).
Hydrogen is an energy carrier with the potential to power long-haul travel and shipping, or energy-intensive manufacturing — without producing carbon dioxide emissions. The hitch: large-scale deployment of hydrogen production generally is expected to hinge on substantial cost and efficiency improvements.
Governments around the world have recently introduced sizeable regulatory initiatives and subsidy programs for the development, manufacturing, and deployment of hydrogen equipment, recognizing hydrogen’s potential as a decarbonized energy source that could complement the intermittent power supply from wind and solar energy installations.
The incentives likely will help drive down production costs as industry players overcome steep learning curves, Glenk told The BiGS Fix. He predicted that the cost of producing clean hydrogen will start to approach $1.0/kg by 2030. That’s the target defined by the U.S. Department of Energy in its Hydrogen Shot initiative that aims to accelerate breakthroughs of more abundant, affordable, and reliable clean energy solutions within the decade.
The Study’s Key Findings
The new paper, Advances in Power-to-Gas Technologies: Cost and Conversion Efficiency, was published in Energy & Environmental Science. Co-authored by Glenk with Philip Holler and Stefan Reichelstein, the paper estimates how quickly production efficiencies are achieved for different hydrogen technologies. Generally, experience gained from each production project for a new technology allows manufacturers and operators of the technology to learn how to become more efficient and lower costs.
Glenk, Holler, and Reichelstein’s new paper is based on global observations of investment expenditures and energy consumption of power-to-gas facilities, which are used to produce hydrogen without emitting greenhouse gases. The research also captured the capacity of power-to-gas facilities commissioned worldwide between 2000 and 2020. Based on this data, the authors project that the life-cycle cost of clean hydrogen production will likely fall in the range of $1.6–1.9/kg by 2030, a decline from about $3-5/kg today.
Investors often are skeptical of ambitious targets for sustainable energy set by governments and international bodies trying to reach net zero. But this new research shows that industry trends are achieving a level approaching the U.S. Department of Energy target.
When it comes to big infrastructure projects, like in the energy sector, you have to make big investments to really bring down costs.
Investors Tread Cautiously
One major obstacle for hydrogen: because of the current high production cost, private investment in the sector mostly has been limited to smaller-scale and niche projects.
“When it comes to big infrastructure projects, like in the energy sector, you have to make big investments to really bring down costs,” said Hergen Wolf, director of product management at Dresden-based Sunfire GmbH, an innovator in hydrogen and alkaline technologies.
According to the Brussels-based Hydrogen Council, total announced investments in hydrogen projects through 2030 increased by 35 percent to $320 billion since 2022. But fewer than 10 percent of those projects have committed capital. To be on track to net zero in 2050, the council notes, announced investments must more than double and all those projects must be matured and deployed.
It has been difficult to make the business case for large-scale hydrogen production to date, said Wolf, because the cost is too high at the outset — 40 percent to 70 percent higher than the 2030 cost forecast in the new research — to justify the upfront expenditure.
Therefore, the industry perceives that big investments suffer from “first-mover disadvantage,” Wolf said. “It is why we need policy support at the beginning, to get over this disadvantage.”
Policy Incentives Hasten Competitiveness
That policy support is starting to help achieve the cost reduction forecast in the paper.
For instance, the year-old Inflation Reduction Act offers a production tax credit of as much as $3.0/kg of clean hydrogen and is likely to advance the deployment growth of power-to-gas systems. The European Union, home to the highest concentration of announced hydrogen projects, also is providing incentives to member states to collectively produce 20 million tons of green hydrogen annually by 2030.
In October 2023, the U.S. Department of Energy announced $7 billion to launch seven Regional Clean Hydrogen Hubs across the country and accelerate the commercial-scale deployment of low-cost, clean hydrogen.
“Once you have deployment in place, you get cost reductions,” Glenk said. “With cost reduction, there's more deployment because more applications become financially attractive, which then leads again to more deployment and cost reduction.”
It is a virtuous cycle, Glenk said, that can change the game entirely.