Saturday, August 5, 2023

Why All Hydrogen Cost Projections Are Wrong

Nobody Knows

At a recent conference I attended, a representative from a company based in the Netherlands gave an impressive presentation on the many components and subsystems they manufacture for large scale liquid hydrogen service. When he concluded his talk and opened up for questions, an audience member quickly stepped to the microphone and asked "When will hydrogen cost two dollars per kilogram?"

The speaker said he didn't know the answer, pointed out that his talk wasn't about cost projections for hydrogen, and suggested that perhaps one of the upcoming talks by the US DOE or others would address it. The questioner smugly grinned and nodded his head dismissively as if he had proven some unspoken point.

I've seen similar versions of this type of interrogation in a variety of forums over the past year or two. It generally comes across as a rather banal attempt to challenge the feasibility of transitioning to hydrogen because it hasn't yet reached some nebulous cost target that the questioner has deemed necessary.

My somewhat flippant reaction to such questions is that the cost will drop much faster than most people think, but not as quickly as some hydrogen startups trying to get their next round of venture funding might claim. A more serious answer is nobody really knows. And more importantly, it's the wrong question to begin with. Let's address the nobody really knows part first...

New vs Legacy Improvements

An analogous historical comparison that can provide some insight is renewable energy, specifically wind and solar. The plot above shows the global levelized cost of electricity from various sources for the 13 years prior to June, 2022. Note that the cost of legacy generating sources - coal and natural gas - have been stagnant over this period (and for many years prior as well). Although legacy nuclear is not shown on the plot, it has actually increased in cost.

Now take a look at onshore wind and solar (i.e., photovoltaics; "PV"). These costs have dropped dramatically to the point where they are the cheapest options available. And yet less than a decade ago renewables were derided as too expensive to ever be competitive. Fast forward a few years, and now coal, gas, and nuclear power plants are clamoring to get permission to pass along their higher operating costs to users because they cannot compete with solar and wind power generation.

There are at least three reasons why this has occurred:
  1. New technologies have the potential for large performance and cost improvements as they scale and more competitors enter the fray; Whereas, legacy technologies have already wrung out all but incremental performance and cost improvements over a very long time (often a century or more) in entrenched industries.
  2. Public policy and regulations generally favor legacy technologies, including subsidies that start as incentives and become perennial handouts (usually funded by taxpayers) as the legacy companies plow part of their outsized profits into political donations, lobbying, etc. Sometimes, however, a new technology begins to get traction and public policy starts to take its thumb off the legacy side of the scale. Geopolitical interests are also a powerful driver of policy changes.
  3. And the final reason is always in play regardless of the industry sector: follow the money. Once private and public investments start flowing toward the new technology, the momentum builds and also feeds into the other two reasons above. The overall effect is an acceleration in performance improvement, cost reduction, and market penetration that often becomes unstoppable.
As a result of these factors and others, projections about renewable energy from even a few years prior to the timeframe shown in the above plot grossly underestimated the magnitude and speed of the drop in cost. Simply put, the timing and interaction of all these factors cannot be predicted a priori with any meaningful accuracy. And it will be the same for hydrogen.

The Right Question to Ask

Of course, it's good to have hydrogen cost targets to help focus resources and priorities on the reductions necessary for widespread commercialization and adoption. But targets are goals, not predictions.

What the cost targets include, and how they compare to existing and competing technologies, is also a key consideration. Lifecycle and externality costs, for example, are often not addressed when comparisons are made. This inappropriately tilts the scale again toward legacy technologies.

But let's put aside the debate about what to include in costs for now. An arguably more important issue is what question should we be asking if the future cost of hydrogen can be made into target goals but cannot be accurately predicted? I suggest the right question to ask is: How can the cost of hydrogen be reduced as quickly as possible?

Focusing on "how" instead of "what" or "when" catalyzes the innovations and investments needed to transition away from fossil fuels and the damage they are doing to our health and environment. Those who insist on making strawman arguments based on the inherently unknowable timing and magnitude of hydrogen cost reductions will be relegated to the sidelines. Meanwhile, organizations and individuals who focus on how to accelerate the reduction in hydrogen cost will ultimately own the market and the new energy paradigm.

  • Matt Moran is the Managing Member at Moran Innovation LLC, and previous Managing Partner at Isotherm Energy. He's been developing power and propulsion systems for more than 40 years; and break-through liquid, slush, and gaseous hydrogen systems since the mid-1980s. Matt was also the Sector Manager for Energy & Materials in his last position at NASA where he worked for 31 years. He's been a co-founder in seven technology startups; and provided R&D and engineering support to many organizations. Matt has three patents and more than 50 publications including the Cryogenic Fluid Management series. He also leads the monthly LH2 Era™ Webinar.