(Bloomberg) -- The actual cost of using green hydrogen, touted as a future low-carbon solution, is at risk of being higher than projected, according to a new study. That would limit its utility to effectively replace fossil fuels.
Significant storage and distribution costs — which are often overlooked by most cost estimates — will likely make hydrogen a “prohibitively expensive abatement strategy across many major sectors,” according to a paper by Harvard University researchers published Tuesday.
Hydrogen has been pitched as a tool to cut carbon emissions in industries like steelmaking as well as long-distance transport. But many governments and companies are pinning their green goals on the fuel eventually becoming an affordable option to decarbonize.
Currently hydrogen costs $3 to $7 per kilogram. A number of analyses expect that will be cut in half by the end of the decade and drop fourfold by 2050, which would make it become almost as cost-effective as fossil fuels, according to the researchers.
But production costs are only one aspect of hydrogen’s price. For most sectors, storage and distribution costs are one-third to half of the total delivered price, meaning “future reductions in production costs will only have a marginal impact on the overall price,” they added.
“Even if production costs decrease in line with predictions, storage and distribution costs will prevent hydrogen from being cost-competitive in many sectors,” said Roxana Shafiee, a postdoctoral fellow at Harvard’s Center for the Environment, adding that the study results challenge the idea of hydrogen being the “Swiss army knife of decarbonization.”
A growing number of countries are pushing to make hydrogen a key part of their emissions-cutting strategies, particularly for energy-intensive industries. The US has invested billions to kickstart hydrogen production with generous tax credits. In the EU, policymakers banking on the fuel and building power plants that are “hydrogen-ready” to meet ambitious climate goals, though transporting and storing the gas will involve costly upgrades at ports. Australia’s government will provide $5 billion in government incentives over the next decade, and Japan’s started a $20 billion hydrogen funding program.
But demand is lagging in the sector, with many hydrogen projects failing to find buyers stepping up to purchase the fuel. Only about 12% of production capacity planned to be commissioned by the end of the decade has currently an identified offtaker, and just a small percentage of those deals are binding, BloombergNEF said in a May report. In recent months, the sector has seen projects spiked, as well as scaled-back investment plans as it grapples with high costs.
Hydrogen faces “a bit of a chicken and egg problem,” said BNEF analyst Kathy Gao. “For costs to come down, projects need to be deployed. If projects are deployed, demand can increase and costs can be pushed down. But we aren’t seeing that for hydrogen.”
While green hydrogen has high potential to play a role in decarbonizing sectors such as heavy transportation and industrial heating — both large sources of greenhouse gas emissions — it would be “premature” for the government to provide so much support for the gas “without also supporting alternative approaches,” the Harvard researchers said. Those include advanced biofuels and advanced battery storage, among others.
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