Sankalp Arpit, Sandeep Pai, Shyam Murari Choudhary | October 2024
● The levelized cost of hydrogen (LCOH) for green hydrogen is estimated at $2.88/kg when using electricity from an on-grid solar PV system (Optimistic Scenario). However, when electricity is taken from RE-RTC, the cost comes to around $4.35/kg (Reference Scenario).
● Capital expenditure (CAPEX) and utilities (electricity and water) constitute the biggest cost components in the entire green hydrogen production life cycle, cumulatively accounting for 96 per cent of the total cost. CAPEX alone constitutes nearly 16 per cent of the total cost, while utilities take up nearly 80 per cent.
● Potential consumers of green hydrogen like the steel industry may not find the current estimated price viable in the absence of a subsidy or carbon tax. Currently, thecost of producing 1 kg of grey steel is around $0.32. However, the cost of producing green steel would be $0.5723 using green hydrogen even under the Reference Scenario (see Appendix for calculation), which makes the production of green steel 1.78 times more expensive.
● There is uncertainty about the immediate utilization of any green hydrogen that may be produced, given that the consumer market has not matured and infra-structure for hydrogen transportation is still inadequate.
● Our analysis shows that green hydrogen produced using solar is currently the cheapest option (Optimistic Scenario). Therefore, coal SoEs should invest in solar-based technology if green hydrogen, out of all the other renewable energy (RE) options considered for this study like wind, small hydro, nuclear and renewable energy round the-clock (RE-RTC), is to be a part of their business diversification strategy.
● When the debt-to-equity ratio for funding projects decreases, the levelized cost of green hydrogen increases. For a debt-to-equity ratio of 70:30, the cost of hydrogen production comes out to be $4.35/kg. Therefore, coal SoEs should keep the debt-to-equity ratio of 70:30 as a part of capital budgeting.
● Coal SoEs should invest in high-capacity plants with better capacity factors as a way to reduce the long-term cost of hydrogen production. However, even after factoring in a subsidy, green hydrogen is still not cost-competitive.
● Green hydrogen plants should be located in places with surplus electricity, which could be used to produce green hydrogen at a relatively low price.
● Green hydrogen plants must be located in places with a ready consumer base. For instance, proximity to the steel industry or a refinery should be preferred.
● To further reduce costs, abandoned coal mine lands with large quantities of water could be repurposed for the development of hydrogen plants.