The Prospects for Renewable Hydrogen Production

Hydrogen has long been heralded as a potentially critical element in the transition to a low carbon economy. The recent sharp cost declines for renewable energy raise the question whether an economic case can be made to produce hydrogen from renewable power sources through a Power-to-Gas process. We analyze this question from an investor perspective when a renewable power plant is combined with a suitably sized Power-to-Gas facility. Essential to the analysis is that the available capacity can be put to optimal use in real time as electricity prices and intermittent renewable power fluctuate. Calibrating our model to the current environment in both Texas and Germany, we find that renewable hydrogen is already cost competitive in niche applications but not yet for industrial scale supply. This conclusion, however, is projected to change within a decade provided recent market trends continue in the coming years.