There are rising concerns around the cost-effectiveness and scalability of hydrogen production, particularly focusing on blue hydrogen.
A recent example highlighted by Saudi Aramco’s plans to invest billions into blue ammonia and blue hydrogen—produced from fossil fuels with carbon capture—illustrates the high costs involved. The article claims that the production cost of blue hydrogen would be equivalent to around $250 per barrel of oil, far exceeding the current price of $71 per barrel. This disparity, coupled with its fossil fuel origin, has made it challenging for Aramco to secure customers in major markets like Europe, Japan, and South Korea.
Here we assess why green hydrogen, produced from renewable energy sources, offers a more cost-effective and sustainable alternative. It will also explore the processes involved in producing green, blue, and grey hydrogen while addressing the economic implications of each in the UK context.
Types of Hydrogen
1. High Production Costs of Blue Hydrogen
The Process
- Blue Hydrogen is produced using natural gas through a process called Steam Methane Reforming (SMR). This process involves heating methane (natural gas) with steam to produce hydrogen and carbon dioxide (CO₂). However, in blue hydrogen, the CO₂ emissions are captured and stored using Carbon Capture and Storage (CCS) technology, which involves capturing CO₂ from the reforming process and transporting it to be stored underground in geological formations.
- The cost of blue hydrogen is significantly impacted by both the price of natural gas and the cost of CCS, which remains expensive and inefficient at scale.
The cost of blue hydrogen, at $250 per barrel of oil equivalent, is prohibitively high, especially when compared to current oil prices of $71 per barrel. This cost includes both fossil fuel inputs and the added complexity of CCS. In the UK, this high production cost (which equates to roughly £200 per barrel at current exchange rates) makes blue hydrogen unattractive compared to alternatives.
By comparison, green hydrogen (produced through electrolysis using renewable electricity) can be more cost-competitive in the long run, especially as renewable energy prices fall. According to recent projections, the cost of green hydrogen could range between £3 to £5 per kilogram of hydrogen by 2030, compared to £6 or more for blue hydrogen today. The UK’s renewable energy mix, with increasing contributions from wind, solar, and nuclear, presents an opportunity to scale green hydrogen more effectively.
2. Market Appeal and Fossil Fuel Dependence
Grey Hydrogen: The Current Industry Standard
- Grey Hydrogen is the most common form of hydrogen production, accounting for around 95% of global hydrogen production today. It is produced in a similar way to blue hydrogen through Steam Methane Reforming (SMR) of natural gas, but without CCS. As a result, the process emits large amounts of CO₂ into the atmosphere, making it unsustainable in the long term from a climate perspective.
The Process
- Grey hydrogen is produced by using natural gas as a feedstock in SMR. The hydrogen is extracted, but all CO₂ emissions are released into the atmosphere, contributing to climate change.
In the UK, grey hydrogen production is still prevalent, but its environmental impact makes it increasingly incompatible with the country’s legally binding commitments to achieve net-zero carbon emissions by 2050. Grey hydrogen is relatively cheap to produce, costing around £1.50 to £2.50 per kilogram, but its environmental drawbacks have led to a decline in its attractiveness.
In contrast, green hydrogen produced via electrolysis, which splits water into hydrogen and oxygen using electricity from renewable sources, has significant long-term benefits. While the current cost of green hydrogen may be higher than grey hydrogen (around £7 per kilogram depending on renewable energy prices), the price is steadily falling as the cost of renewables continues to decrease, and electrolyser technologies improve. In fact, by 2030, green hydrogen could potentially reach parity with grey hydrogen in cost, making it a much more viable option for the UK’s decarbonisation strategy.
3. Renewable Energy Integration: Green Hydrogen’s Cost Advantage
The Process of Green Hydrogen
- Green Hydrogen is produced through electrolysis, which uses renewable electricity (such as wind or solar) to split water (H₂O) into hydrogen (H₂) and oxygen (O₂). The process produces no direct emissions, making it a clean, sustainable method of hydrogen production.
- The cost of green hydrogen depends largely on the cost of electricity used. The UK has a strong offshore wind capacity, which is rapidly lowering the cost of electricity from renewable sources. As the cost of electricity from renewables continues to drop, the cost of green hydrogen is expected to fall as well.
The green hydrogen process is much cleaner than both blue and grey hydrogen, offering a direct path to decarbonisation. While currently more expensive than grey hydrogen, green hydrogen is expected to become more cost-competitive as the scale of renewable energy production increases. The UK’s abundant renewable resources, such as wind and solar, make it well-placed to benefit from these trends.
Several recent studies suggest that by 2030, green hydrogen could be produced at an average cost of around £3 per kilogram, making it competitive with both grey and blue hydrogen as long as the cost of renewable electricity continues to decline. Furthermore, green hydrogen production is more scalable in the long term, especially as the cost of electrolyser technology is expected to fall, and the UK expands its offshore wind farms.
4. Environmental Impact and Social Responsibility
Blue hydrogen, despite its CCS technology, still relies on fossil fuels, and its long-term viability is questioned by environmental groups. Although CCS can reduce emissions, it remains expensive, energy-intensive, and there is limited capacity for large-scale CO₂ storage. Green hydrogen, however, directly supports the UK’s net-zero strategy, as it is produced without emissions and is entirely reliant on renewable energy.
For investors, governments, and companies prioritising sustainability, green hydrogen provides a clear environmental benefit and a better fit with future regulatory requirements. Furthermore, green hydrogen enjoys increasing political and financial support, as evidenced by the UK government’s hydrogen strategy, which is backing low-carbon hydrogen initiatives, including green hydrogen, to meet its 2050 net-zero goals.
5. Long-term Cost Trajectories and Energy Transition Goals
While blue hydrogen may be seen as a transitional technology, it will remain tied to the volatility of fossil fuel prices and the high costs of CCS, making it less attractive in the long run. The future of hydrogen lies in the scalability of green hydrogen, which can achieve cost parity with fossil-fuel-derived hydrogen through the increasing availability of cheap, renewable electricity and technological advances in electrolysis.
The UK’s commitment to reducing carbon emissions, along with its growing renewable energy sector, positions green hydrogen as the more cost-effective and sustainable solution. Over the next decade, as electrolyser technology matures and renewable energy prices continue to fall, green hydrogen will likely become the dominant source of hydrogen production.
In the UK, while blue and grey hydrogen can play a role in the energy transition, they are ultimately more expensive and less sustainable than green hydrogen. The cost of blue hydrogen, with its reliance on natural gas and CCS, is high and unlikely to compete effectively with green hydrogen in the long term. Green hydrogen, by contrast, offers a cleaner, more cost-effective, and scalable alternative, especially as renewable energy prices continue to fall. The UK’s substantial renewable energy resources, particularly offshore wind, make green hydrogen a more viable option for meeting the country’s net-zero targets, and as such, it represents a more cost-effective and sustainable choice for hydrogen production moving forward.
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