Green hydrogen adoption may delay as price gap with grey to persist: Crisil Ratings
The transition to
green hydrogen
may face a roadblock as the price differential between the grey and green hydrogen is likely to persist, according to a report by
Crisil Ratings
.
As per the report, the price gap is expected to come down from its current level of $2.0-2.5 per kg, but it is expected to remain at $1.0-1.5 per kg over the next three fiscals, resulting in delaying offtake mandates and elevating project risk.
Green
hydrogen production
, which involves splitting water using
renewable energy
via an electrolyser, is a capital-intensive process. Crisil highlights that the cost is largely divided between the round-the-clock (RTC) renewable energy plant with storage (nearly two-thirds) and the electrolyser itself (about one-third).
Achieving cost competitiveness with
grey hydrogen
, which relies on fossil fuels, would necessitate the Levelised Cost of Hydrogen (LCOH) for green hydrogen falling by more than half.
Analysts at Crisil estimate this requires a substantial 40-50 per cent reduction in the capital costs of both the renewable plant and the electrolyser – a decline considered unlikely within the next 2-3 fiscal years.
Slow pace
Despite some positive trends, such as declining
battery prices
(down 30-40 per cent in the past two years) and government exemptions for domestic modules in special economic zone for renewable projects, the impact on the overall cost of storage-backed renewable plants is limited, perhaps only around a 10 per cent reduction even with a significant 50 per cent drop in battery prices.
Electrolyser costs
have also seen declines, falling 42 per cent between 2010 and 2020. However, the pace has slowed considerably, with only about a 20 per cent reduction from 2021-2024.
Costs still exceed $1,000 per kilowatt as of March 2024. Furthermore, electrolyser efficiency has stagnated at 60-65 per cent, hampered by technological challenges, limited manufacturing scale, and the high costs of critical rare earth materials
Ankit Hakhu, Director at Crisil Ratings, expects a 30-35 per cent reduction in electrolyser cost and a 5-10 percentage point efficiency improvement by 2030. However, he noted, "Even if these expectations come true, the price differential between grey and green hydrogen will persist at $1.0-1.5 per kg over the next three fiscals."
He added that with over 90 per cent of global electrolyser projects still in early planning phases, actual cost declines will only become fully apparent as more capacity is built and becomes operational.
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