We Can Improve The Economics Of New Cleantech—Like We Did With Renewables

By Mitsubishi Power Americas

Today, a global consensus is forming around the need to decarbonize. But there’s a sticking point: cost.

Meeting climate goals will require sustainable solutions, which means they must provide sound economics along with low or no emissions. To ensure widespread and timely adoption, options such as clean 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 of Hydrogen Infrastructure for Mitsubishi Power Americas and President of Advanced Clean Energy Storage I, a hydrogen hub underway in Delta, Utah. He points out that the history of today’s renewable energy sector 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.

Driving down cost

Between 2005 and 2020, the annual rate of emissions in the U.S. power sector declined dramatically— a 40% 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.

“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.” – Drummi Bhatt, Vice President of Market Intelligence and Strategy, Mitsubishi Power Americas

Consider solar power. Since 2010, the cost of the utility-scale photovoltaic systems has fallen 82%, driving global installed solar capacity from roughly 40 gigawatts that year to more than 700 gigawatts in 2020.

The price and adoption of lithium-ion batteries exhibit a similar inverse relationship. Battery prices dropped 85% between 2010 and 2018, while global electric car production increased dramatically, from negligible numbers to a total of more than seven million cars on the road in 2019.

This dynamic also occurred with gas turbine combined cycle plants as the price of natural gas declined. Between 2005 and 2020, the price dropped 80%.

The lesson for today is this: “If we have to get to net zero in the 2050 time frame in the power sector, it’s doable,” says Drummi Bhatt, Vice President of Market Intelligence and Strategy at Mitsubishi Power Americas. “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.”

Tools that drive affordability

When compared to other storage technologies, green hydrogen, produced with renewable energy, is already cost effective for long-duration energy storage. 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.

As a fuel, hydrogen 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, 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.

“The world has never needed a 200-megawatt electrolyzer before,” Ducker says. But it does now. As production capacity grows, costs will fall.

To that point, in 2021 the Green Hydrogen Coalition in conjunction with the Los Angeles Department of Water and Power (LADWP) and other key partners launched HyDeal LA to achieve at-scale green hydrogen procurement at $1.50/kilogram in the Los Angeles Basin by 2030.

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 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.

Other levers that can spur production

There are other factors that can also contribute to lower costs, from policy incentives for hydrogen producers to tax breaks for renewable energy use. Developing renewable energy policy on a regional basis can drive cost reduction as well, by increasing customer bases and taking further advantage of economies of scale.

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.

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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, all of these elements are underway, and the progress on each front offers reason for optimism.

About the author

Mitsubishi Power Americas is a power solutions brand of Mitsubishi Heavy Industries.