Green hydrogen prices have nearly tripled as energy costs climb: S&P


Live Brief:

  • The cost of electrolytic hydrogen from renewable energy spiked as high as $16.80/kg in late July, three times recent price norms, according to S&P Global Commodity Insights.

  • Because hydrogen must be derived from inputs such as natural gas or renewable electricity, the cost of hydrogen rises alongside these resources, according to Alan Hayes, head of energy transition pricing for S&P Global Commodity Insights. Surging energy costs in the Electric Reliability Council of Texas market have driven the largest hydrogen price hikes, Hayes said.

  • In spite of recent price trends, long-term interest in hydrogen as an alternative energy resource continues to grow, according to Brian Murphy, a senior analyst covering hydrogen and low carbon fuels for S&P Global Commodity Insights.

Live Insight:

Hydrogen, it seems, is not immune to the inflationary pressures experienced in recent months by other energy resources.

The cost of hydrogen from US electrolyzers shot up to $16.80/kg in July as a result of energy price hikes that took place in the ERCOT market during a heatwave between July 6 and July 12, according to data from S&P Global Commodity Insights. Electrolytic hydrogen is derived from water and electricity, especially excess renewable energy, to create a carbon-free fuel source. This means hydrogen prices fluctuate alongside electricity prices, Murphy said.

The vast majority of hydrogen produced today is derived from natural gas, rather than electrolysis. Overseas, prices for this conventional hydrogen have also experienced spikes to twice their typical levels — in excess of $10/kg — since the beginning of the year, according to S&P Global Commodity Insights. The cost of conventional hydrogen has remained more stable on the US Gulf Coast. For conventional hydrogen, sometimes called “gray” hydrogen, prices correspond to the availability and cost of natural gas, Hayes said.

“Anything that happens in the [natural] gas markets has an immediate and direct impact” on hydrogen, Hayes said. Regions where both natural gas prices and electricity prices have spiked have experienced “the double whammy of all feasible production routes being impacted by gas and related power prices,” he said.

Multiple initiatives have established goals to bring the cost of clean hydrogen in line with fossil fuel energy resources, including the “hydrogen shot” by the US Department of Energy that targets $1/kg for low-carbon hydrogen.

Hayes and Murphy don’t believe these goals are in jeopardy. Long-term projections, Murphy said, indicate hydrogen prices should continue to fall as technology becomes more sophisticated and the scale of production grows. Long-term interest in hydrogen also remains high, he said, and the number of hydrogen projects in the works continues to grow.

“It’s important to distinguish between the market fluctuations right now, and we can see that direct link, and factors at play over the long term that indicate the direction of travel is for hydrogen prices to come down,” Hayes said.

But recent developments could shed light on the future of hydrogen production in the US, where the cost of natural gas remains relatively low, Hayes said. If the spread between natural gas and electricity prices is large enough, he said, US hydrogen producers may opt to extract their product from natural gas, coupled with carbon capture, rather than relying on renewable energy and electrolysis.

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