There are multiple routes to hydrogen, and they have differing levels of installed capacity, GHG emissions and cost. Today, about 98% of the approximate 88 Mt of hydrogen produced annually (according to IEA) relies on fossil fuels (“grey” hydrogen). The remaining 2% is low-carbon hydrogen, which includes both “blue” hydrogen (a combination of CO₂ emitting hydrogen production, such as steam methane reforming, with carbon capture, storage and utilization) and “green” hydrogen that is produced from electrolysis of water using renewable energy.

Based on World Bank data and Accenture Research models, the cost of producing hydrogen by steam methane reforming is in the $0.7 to $1.6 per kg range, while production of blue hydrogen based on carbon capture, storage and utilization is expected to be in the $1.6 to $3.4 per kg range. As hydrogen production based on renewable energy and electrolysis is not yet demonstrated on a world scale, the cost of green hydrogen is estimated to be in the $2.6 to $6.8 per kg range.

With renewable hydrogen, two cost drivers stand out: 1) the cost of electricity and 2) conversion losses in the overall system. First, for electrolysis-based hydrogen production, electricity is the dominant cost, accounting for 60% to 70% of total costs. Thus, the source and price-competitiveness of renewable electricity is a critical factor in the viability of this approach.

Solar- and wind-energy based electricity have been commercially demonstrated to be among the most competitive and scalable sources of renewable energy. Based on figures from Lazard, these renewable generation sources can achieve a cost as low as 26 to 30 cents/kWh. Based on the Accenture Research model, at this range of renewables cost, green hydrogen production can be expected at about $2 per kg. In the Gulf Cooperation Council region, solar- and wind-based electricity generation are in position to provide competitive renewable electricity for the production of green hydrogen.

Meanwhile, moving to the second cost driver, reducing conversion losses will, from a technical perspective, require the integration of assets and material flows; from a business perspective, it will require collaboration and partnering. For chemical companies, the need to reduce conversion losses will create opportunities to adopt new business models and gain new revenue. Examples include:

• Supplying materials and system components, such as electrolyzers, membranes and electrodes for electrolyzers, and linings for hydrogen pipes
• Operating hydrogen production assets, and marketing, selling and/or distributing hydrogen
• Decarbonizing chemical processes—e.g., by utilizing hydrogen by-products in chlorine production or by shifting to green ammonia
• Decarbonizing other industries—e.g., by supplying hydrogen and process technology to reduce CO₂ emissions or for use in the direct reduction of iron

Each business model offers chemical companies the opportunity for innovation. This could be technical innovation—for example, on membranes or electrodes; innovation in applications, such as helping customers reduce their GHG emissions; or innovation in operating assets and material flows.

Competitive renewable energy, reduction of conversion losses and further technical improvements could potentially reduce the production cost of hydrogen. Today, however, renewable energy-based hydrogen still has higher costs compared to currently installed processes and assets, which typically have a higher GHG emission footprint. So, the cost of GHG emissions and the willingness of customers and users to pay a higher price for net-zero emission products and offerings will be decisive for the economics and attractiveness of renewable hydrogen investments.

There is substantial political will to build out hydrogen, documented in various targets, incentives and funding schemes, such as the EU hydrogen strategy or Japan’s hydrogen roadmap. Indeed, the race has started, and multiple organizations have announced plans to supply and/or use hydrogen. Given the need to integrate material flows, supply-demand and assets, collaboration will be essential to bringing the hydrogen value chain to life and designing models that enable each partner in the value chain to succeed. As a result, many hydrogen-related announcements bring together partners from different industries. For example, Air Products, ACWA Power and NEOM have plans to jointly develop a $5 billion facility to produce and export green hydrogen. Additionally, Genvia—a clean hydrogen technology joint venture between the French Alternative Energies and Atomic Energy Commission (CEA), Schlumberger New Energy, VINCI Construction, Vicat Group and the Occitanie Region—has signed pilot project agreements with ArcelorMittal, Ugitech and Vicat from the steel and cement industries.

From the perspective of the chemical industry, hydrogen is creating significant opportunity in the form of increased customer demand and new business models. It will require new and competitive chemical and physical processes, and the time is now to get prepared. Chemical companies can begin by prioritizing hydrogen as a key opportunity, and then engaging in the emerging hydrogen market—setting up specific pilots (in electrolysis, decarbonized processes, etc.); shaping the partner and ecosystem network; and adjusting their R&D portfolios, business development efforts and investment plans to capture a share of the hydrogen opportunity.