Blow for hydrogen growth: cost of electrolyzers soars

Hydrogen, regarded as one of the critical energies for decarbonizing heavy road transport and the steel industry, faces a new hurdle. The cost of its quintessential production tool, the electrolyzer, is rising steeply instead of reaching affordability. That’s not according to plan.

A recent report by Bloomberg New Energy Finance (BNEF), the 2024 Electrolyser Price Survey, highlights how rising costs for materials, utilities, and labor in Europe or the United States have become a significant challenge for the hydrogen industry. The cost of installing electrolyzers has risen by more than half. This could hamper the rollout of a hydrogen refilling network.

Higher barrage

Hydrogen as an energy carrier can only become a viable solution for road transport when produced green, using renewables to drive an electrolyzer that splits water into H2 and oxygen. If the abundance of green electricity already poses an obstacle for the go-to-market, the new cost analysis of its primary production tool is heightening the barrage even further.

The 2024 survey from Bloomberg researched 50 companies across continents. It points to inflation as the main culprit but has also widened its scope to include previously overlooked costs, such as those for transformers essential for grid connection in larger installations – the downscaled projects featured in previous editions often benefit from more sophisticated development. This explains why prices of Chinese electrolyzers are rising likewise, despite less exposure to inflated material costs.

Europe is four times costlier

Meanwhile, the geographical differences in inflation reveal a stark price disparity: the average cost for a Chinese-made electrolyzer is around $600 per kilowatt, in contrast to the $2,500 per kilowatt for devices produced in the US or Europe. This gap, which shows Western electrolyzers are four times costlier than their Chinese counterparts, has not narrowed since BNEF’s last report.

BNEF had optimistically forecasted a gradual cost decline over three years from 2022. However, with inflation rates stabilizing around 3% in the US and Europe, the capital costs for installing electrolysis systems have surged by a median of 57% rather than the anticipated decrease.

Without electrolyzers?

The EU is betting high on an investment plan for the manufacture of 40 GW of electrolyzers annually – to move away from Chinese dependence. The necessity of that support was summarised in a quote from the CEO of Scandinavian electrolyzer manufacturer NEL, Håkon Volldal.

Talking to Hydrogen Week, he said: “We [in Europe] could make a lot cheaper electrolyzers if we used child labor if we didn’t have pension plans if we had horrible working conditions… [and] cheap state financing.” However, the European target of 40 GW seems unlikely to be met.

Green hydrogen can also be produced without electrolyzers. Five years ago, a research team from the University of Leuven developed a solar panel that can turn moisture instead of drinking or seawater into hydrogen. However, the project transgressed into a company spin-off called Solhyd, but large-scale commercial production isn’t around the corner yet.