These Key Actions Will Lower the Cost of New Cleantech — and Speed Up the Energy Transition
To meet net zero goals,
the industry must incentivize the adoption of new technologies,
just as it has with renewables.
Across the globe, the desire to achieve net zero carbon emissions has reached an inflection point. Companies and governments are embracing ambitious timelines for decarbonization. But the cost of such an enormous, widespread effort remains a major obstacle.
Meeting climate goals across industries will require sustainable solutions, which means they must provide sound economics along with low or no emissions. To ensure widespread and timely adoption, technologies like green hydrogen must be accessible, reliable and affordable. The power industry has the tools at its disposal to make this happen.
The sector has a longer and more successful track record for developing and commercializing clean technologies than it gets credit for, says Michael Ducker, Senior Vice President and Head of Hydrogen Infrastructure at Mitsubishi Power Americas and Chief Operating Officer at ACES Delta LLC. He points out that the history of today’s renewable energy tells the story of industries working together to solve issues of scale, efficiency and cost, which enabled a growing market for much-needed innovation.
It’s a history worth repeating.
To predict success, watch the cost curve
Over the past two decades, the power sector has curbed its carbon emissions dramatically. From 2005 to 2021, the annual rate of emissions declined by some 944 million metric tons — a 32% improvement. The technologies that have driven the reductions have followed a similar pattern: Once the price of a new technology becomes low enough to justify adoption, demand kicks in and the technology takes off.
We can’t be complacent in any way — we have to continue to drive efficiencies with a real sense of urgency to stay on track [to achieve net zero].
Take solar power, for example. The cost of the utility-scale photovoltaic systems has fallen more than 80% since 2010, driving global installed solar capacity from roughly 40 gigawatts in 2010 to an estimated one terawatt in 2020.
The price and adoption of lithium-ion batteries exhibit a similar inverse relationship. Battery prices dropped nearly 90% between 2010 and 2021, while global electric car production increased dramatically, from negligible numbers to a total of more than 16 million cars on the road in 2021.
The same dynamic occurred with combined-cycle gas turbine plants as the price of natural gas declined. Between 2005 and 2020, the price dropped 80%.
The lesson for today, says Drummi Bhatt, Vice President of Market Intelligence & Strategy at Mitsubishi Power Americas, is this: “If we have to get to net zero in the 2050 time frame in the power sector, it’s doable. But we can’t be complacent in any way — we have to continue to drive efficiencies with a real sense of urgency to stay on track.”
The economics of green hydrogen today
Green hydrogen is already cost effective for long-duration energy storage when compared to other storage technologies. For instance, analysis shows that lithium-ion batteries are most economical for durations of eight hours or less, whereas green hydrogen is cost effective for longer durations, from 12 hours to days, weeks, months or even seasons.
Today, green hydrogen as a fuel has reached a similar inflection point on the cost curve as wind, solar and lithium-ion batteries have, says Ducker. The cost to produce, store and transport green hydrogen has been a major hurdle to widespread adoption as a decarbonized fuel. As the cost comes down, green hydrogen becomes even more effective as an energy storage solution. The industry has a variety of tools at its disposal to drive affordability.
Ducker believes we’re on the verge of making the necessary progress, noting several key drivers that will reduce production costs and build the market:
Increasing capacity
The primary technology to generate green hydrogen is electrolysis, which uses renewable power to convert water into hydrogen and oxygen. The process is expensive because production scale remains relatively small — even the largest facilities currently coming online expect to produce fewer than 25 megawatts.
Just as demand for wind power prompted wind turbine makers to progress from smaller 1-megawatt turbines to 5- and 10-megawatt models, the growing need for green hydrogen to help meet net zero targets will spur electrolyzer manufacturers to build bigger units and scale their production. In fact, in early 2022, Mitsubishi Power placed one of the largest orders to date — 40 electrolyzers — to produce green hydrogen for its Advanced Clean Energy Storage Hub in Delta, Utah, the largest renewable energy storage facility anywhere in the world.
“The world has never needed a 220-megawatt electrolyzer before,” Ducker says. But it does now. As production capacity grows, costs will fall.
To that point, the Green Hydrogen Coalition in conjunction with the Los Angeles Department of Water and Power (LADWP) and other key supporters launched HyBuild™ Los Angeles to achieve under $2.00/kg delivered green hydrogen by 2030 in the LA Basin.
Improving manufacturing efficiencies
The wind, solar and battery industries captured economies of scale as they increased production. In particular, automating production significantly reduced the cost of manufacturing.
Ducker expects something similar will happen for green hydrogen. Advances in automation and low-cost manufacturing methods will create a cycle in which these efficiencies drive down costs, leading to greater investment and production, boosting supply and creating further efficiencies — all of which decrease costs further, helping to increase adoption.
Embracing technological advances
Renewable power is critical to producing green hydrogen. As a result, anything that lowers renewables’ costs while increasing their availability — for example, scale and efficiency improvements for solar and wind — stand to help green hydrogen’s economics.
Moreover, new technologies that convert gas turbines to run on green hydrogen will create demand for it from power producers committed to lowering their emissions, thus leading to increased production. Increased supply in turn can make large quantities of stored green hydrogen available for energy-intensive industries that are difficult to decarbonize, such as transportation, steel and concrete. Likewise, system improvements in one sector can translate into other sectors.
Benefits will increasingly outweigh costs
Other factors also can contribute to lower costs, from policy incentives for hydrogen producers to tax breaks for renewable energy use. Most notably, the Inflation Reduction Act introduced tax credits and direct payment options to reduce the cost of clean hydrogen production, making it more economically competitive to deploy with other forms of energy production.
As the cost-benefit equation around green hydrogen strengthens, these types of incentives and agreements will further accelerate its evolution. “Most of the clean energy technologies we work with have come down the cost curve faster than anybody thought they would,” says Bhatt.
The elements that are under the industry’s control, such as technological advances and economies of scale, are easier to predict than government subsidies. But the world’s net zero carbon future depends on all of these contributors, both to solve the technical challenges of breakthrough innovation and to improve the economics enough to spur the use of new technologies. Fortunately, these elements are underway, and the progress on each front offers reason for optimism.
See our Blueprint for Decarbonization to learn more about our vision for a net zero and reliable power industry.
