February 20, 2022

Fuel Cell Vehicle Economics Gradually Improve, Aided by Declining Green Hydrogen Costs

Stratas Advisors

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While alternative propulsion sources like hydrogen have a significant long-term potential for the decarbonization of the transport sector, technical constraints over the near term are set to hamper the development of economies of scale. However, with global renewable energy policies increasingly supporting low-carbon hydrogen value chains, dropping production costs will serve as a major driver towards fuel cell vehicle (FCEV) penetration, potentially reaching cost-parity with battery-electric vehicles (BEVs) in certain regions by mid-century.

Declining costs in renewable energy sources have led to a steep drop in water electrolysis CAPEX, although green hydrogen production is still today two to three times as costly as natural gas-based hydrogen through steam methane reforming (SMR). However, while global SMR pathways with and without carbon capture technology remain highly dependent on natural gas prices and carbon markets, improved electrolyzer technology and higher renewable capacity will be the main drivers towards lower CAPEX and OPEX, breaking even with blue hydrogen pathways by the late 2020s in key markets. Similarly, green hydrogen could become competitive with grey hydrogen in the early 2030s following the further expansion of wind and solar PV.

Upscaling variable renewable energy capacity and improving electrolyzer technology will develop a stable supply chain of lower cost green hydrogen, whose competitiveness in multiple applications is expected to be unlocked as supply and distribution systems are established at scale. As production costs decline, prices at the pump will do to, potentially allowing global average total cost of ownership (TCO) for light-duty FCEVs to break even with BEVs around 2050.

Source: Stratas Advisors, 2022

Key Takeaways

  • Carbon pricing will greatly influence the breakeven dynamics for green hydrogen, which is expected to experience different levels of CAPEX and OPEX reductions on the basis of regional projections on the levelized cost of renewable energy.
  • Europe and parts of Asia Pacific will remain the largest demand locations throughout the forecast period, though cost and geographical constraints will result in an increasing reliance on low-carbon hydrogen imports from global value chains.
  • Declining production costs will scale up FCEV penetration in certain regions, driving down retail infrastructure CAPEX and TCO. Hydrogen powertrains are expected to see an earlier breakeven in the medium and heavy-duty sectors due to limitations in other zero and low-carbon alternatives.
  • Stratas Advisors expects future low-carbon hydrogen projects to increasingly shift to electrolysis pathways as world policies implement supply and demand quotas, auctioning, and higher prices on carbon emissions.
     

 

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