E05 - A Financial Algorithm for Computing the Levelized Cost (US$/kg; €/kg) of Producing Green Hydrogen (LCOH)

It has been proposed that green hydrogen (H2) replace carbon intensive gray H2. There are no H2 wells. Green H2 must be produced at a renewable energy (solar, wind) powered grid scale electrolyzer. The H2 is green because it is produced with renewable electricity. The electrolyzer uses renewable electricity to separate water (H20) into H2 and O2. This paper and its Excel LCOH Algorithm Worksheet give financial professionals a simple quantitative tool that allows them to compute the cost (US$/kg; €/kg) of producing green H2 at a renewable energy powered electrolyzer. This green H2 will be used to replace the carbon intensive gray H2. Green H2 will be used as an industrial gas, perhaps be used as a future renewable energy storage medium and perhaps even be used as a future renewable energy carrier to help power a decarbonized American economy. The H2 industry uses the US$/kg (€/kg) to price industrial H2. The paper discusses electrolyzer technology and operation, the levelized cost (LC) method and its financial algorithm for computing the LC of producing green H2 at a renewable energy powered utility scale electrolyzer. The LC method meets two criteria; “back of the envelope” simplicity and an accurate first approximation of the cost (US$/kg; €/kg) to produce green H2. To compute the LCOH, the paper’s financial LC algorithm requires nine electrolyzer specifications (specs) [independent variables]; two foreign exchange (FX) values, one energy unit conversion factor and 35 dependent variables. The paper presents a model electrolyzer with its nine specs values. The source for each of the nine electrolyzer spec values is discussed. The LCOH is computed to be US$3.18/kg (€2.78). 23% of the LC is the amortization of the electrolyzer CapEx while 62% is the cost of the renewable electricity. With the current market price for gray H2 at US$1.00/kg (€0.87), the LCOH is US$2.18/kg (€1.90) or 67% greater than the cost of gray H2. To compute the LCOH, readers can enter on the paper’s Excel LCOH Worksheet, their own nine electrolyzer spec values and computer their own LCOH. They can then compare their own LCOH with the current cost of gray H2 and the expected future cost of blue H2. The paper's Excel LCOH Worksheet makes these comparisons. The paper’s LCOH financial algorithm will help renewable energy financial professionals make rational electrolyzer investment decisions.