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A recent investigation by the Netherlands Organisation for Applied Scientific Research (TNO) unveils that producing green hydrogen in the Netherlands may surpass €13 per kilogram, higher than past estimates. This figure is based on real-time data from projects currently under development at Maasvlakte 2 in the Port of Rotterdam, a hub for large-scale green hydrogen initiatives.

Rising electricity prices, increased network fees, and inflation have contributed to the cost spike. While the current price point is daunting, parallels drawn with offshore wind energy suggest a potential for significant cost reductions. Industry and government collaboration, regulatory adjustments, and technological advances are essential for the Netherlands to achieve a competitive edge in the renewable hydrogen market.

Why this is important:

Green hydrogen is one of the solutions to decarbonize hard-to-electrify sectors such as heavy transport and industry, yet its costs are still too high to be on par with current options.

Understanding green hydrogen production costs

To produce hydrogen without carbon emissions, known as green hydrogen, electrolysis powered by renewable sources such as the sun and wind is required. TNO’s research underscores green hydrogen’s pivotal role in decarbonizing sectors where direct electrification is challenging, like heavy transport and aviation.

However, the process is not without its obstacles. The recent TNO study, informed by input from about ten companies developing electrolysis factories in the Netherlands, has provided an essential baseline for understanding these costs. The study’s outcome indicates that the unit capital cost (UCC), the price tag of the installation itself, has been underestimated in previous research. Subsidies, specifically the availability of Sustainable Energy Transition Incentive Scheme (SDE++) subsidies, significantly impact the UCC, according to TNO.

Comparing with offshore wind energy

Despite the figures, there is a silver lining. NLHydrogen, an industry association, sees these findings as a starting point for cost reduction, drawing an analogy with the offshore wind sector. In 2013, the cost of offshore wind energy was around 17 cents per kWh due to inexperience and technical risks. This figure had dropped to 5.5 cents per kWh within a few years.

The potential for green hydrogen cost reduction is similarly promising. Factors such as the standardization of factory designs, mass production of electrolyzers, shorter construction times, higher conversion efficiencies, and adjusted network tariffs could all contribute to a downward trend in costs.

Government and industry: a path forward

NLHydrogen has called upon the government to remove regulatory barriers and for companies to demonstrate boldness in their investment decisions. Moreover, a collaborative plan between the public sector and industry players is essential to reduce costs. This joint effort could place the Netherlands at the forefront of renewable hydrogen production globally.

TNO’s report recommends regular market development monitoring, complementing analyses with diverse data sources, and improving project public support frameworks. It is vital to continue updating the study to adapt to the shifting financial landscape of green hydrogen production.

Challenges and opportunities ahead

While the costs of producing renewable hydrogen in the Netherlands are currently high, optimization and economies of scale are expected to bring significant savings for future projects. TNO’s study included data from fourteen electrolysis projects, ranging from 100 MW to 200 MW, and identified the main contributors to the levelised cost of hydrogen as the cost of electricity, investment cost, and the high-voltage electricity grid transport tariff.

However, it’s crucial to note that the outcome of the TNO study should not be generalized for future projections. The data is considerably variable, reflecting the industry’s nascent state and evolving technology. The study’s box and whisker plots demonstrate the substantial spread and uncertainty of the data, indicating that while some projects may yield more favorable economics, others may struggle to reach viability without substantial public contributions.

The path to competitive green hydrogen

Despite the challenges, the study shows that green hydrogen production in the Netherlands is promising. The country’s large-scale water-electrolysis projects, while currently limited in actualization due to high costs, could benefit from shared experiences and technology improvements. Regular updates to the study and close attention to market developments will be crucial in creating a shared understanding among project developers, policymakers, and researchers. Finally, the public and private sector engagement will likely dictate the pace at which green hydrogen becomes a competitive and sustainable energy source.