Techno-economic analysis of hydrogen production

Hydrogen is no longer a hypothetical. Investment is real. Pipelines are being repurposed. Policy is in motion. And yet, amid all the momentum, confusion still dominates one of the most basic questions in the field:

How much does hydrogen actually cost to produce — and why?

Too many reports throw around price tags for green, blue, and gray hydrogen with no grounding in the actual mechanics. It makes for good headlines, but it’s poor economics. So in this article, I want to clarify what LCOH really means, and why using it without context is worse than not using it at all.

The Illusion of Simplicity

LCOH — the Levelized Cost of Hydrogen — is often treated as a benchmarking tool. "$2/kg by 2030!" is a seductive target. But LCOH is not a static number, and it's not universal. It’s a function of:

• Capital expenditures (CAPEX)
• Operating expenses (OPEX)
• Energy costs (especially for green H₂)
• Capacity factor (CF)
• Policy incentives or carbon pricing
• Technology maturity and system efficiency

Most notably, for green hydrogen, electricity price is the core determinant. Electrolysis is energy-intensive by design, and when electricity makes up 60–80% of total production cost, the LCOE (Levelized Cost of Electricity) becomes the gravitational center of any cost model.

If you don’t know the electricity price, efficiency, or CF — your LCOH number is noise.

Green vs. Blue vs. Gray — Not Just Color-Coding

Here’s the brief snapshot:

• Gray hydrogen remains the cheapest at $1.50–$2.50/kg — but that’s without accounting for its full environmental cost. Under a carbon price of $100/ton CO₂, it becomes uneconomical in most markets.
• Blue hydrogen offers a transitional pathway at $2.00–$3.50/kg, but its viability depends on natural gas volatility, CCS efficiency (85–90%), and whether carbon leakage is tolerated.
• Green hydrogen, currently $3.50–$6.00/kg, is narrowing the gap. It benefits from CAPEX reductions, IRA credits ($3.00/kg in the U.S.), and falling renewable electricity prices. But without cheap, 24/7 clean power, cost parity is elusive.

A key insight from my analysis: renewable power must fall below $20–30/MWh for green hydrogen to be competitive without subsidies. Few regions can guarantee this — and even fewer can do it at industrial scale with reliability.

Cost Is a System, Not a Number

In the full paper, I don’t just present cost estimates. I show how they emerge through:

• Detailed cost models across plant sizes (1–100 MW)
• Financial sensitivity to electricity cost, CAPEX, carbon price
• NPV and IRR analysis for investment decision-making
• Transportation and storage tradeoffs: pipelines, LH₂, ammonia
• Regional scenarios: U.S., EU, Middle East, Asia-Pacific

For example, Figure 13 in the paper shows that with electricity at $30/MWh, green hydrogen LCOH can drop below $3/kg. But raise it to $80/MWh? You’re above $6/kg again — even with tax credits.

That’s why LCOH without electricity context is misleading. This isn’t academic. It’s bankability logic.

Incentives Matter — But They Don’t Guarantee Success

Policy support like the Inflation Reduction Act is transformative. With up to $3/kg in production tax credits, green hydrogen becomes viable in U.S. markets with renewable electricity around $50/MWh.

But don’t mistake credits for cost reductions. If the support is temporary — or hard to qualify for — your project economics still hang by a thread. This applies equally to Europe’s Hydrogen Bank or Japan’s subsidies for ammonia carriers.

The bottom line? Incentives are essential, but structural cost declines are what will make or break the hydrogen economy.

So, What Can Be Done?

This analysis points to a few strategic levers:

1. Electrolyzer scaling: CAPEX falls 30–50% between 1 MW and 100 MW.
2. Long-term PPAs: Electricity price stability reduces LCOH uncertainty.
3. Carbon pricing alignment: Gray hydrogen only looks cheap when pollution is free.
4. Pipeline repurposing: Retrofits can reduce transport costs 50–70%.
5. Geographic matching: Don’t build hydrogen where power is expensive.

And most importantly: treat LCOH as a product of interdependent variables, not a sticker price.

📘 For full modeling assumptions, detailed cost tables, sensitivity charts, and the complete NPV/IRR framework, access the full publication here:

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