Green Hydrogen Global Market Price Model

Methodology and Insights on Global Trade Flows and Market Prices for Green Hydrogen

Green hydrogen, produced from renewable electricity through electrolysis, is expected to play a key role¹ in the decarbonization of the economy. It is a new commodity, with an immature and illiquid market that is only taking shape, characterized by small but growing production volumes, new production technologies, i.e. large-scale electrolyzers, and a new demand driver – decarbonization regulations – that all combined entail a multitude of unprecedented risks and uncertainties.

In particular, given that green hydrogen production costs are currently ~2-3 times higher than the costs of grey hydrogen (produced from natural gas)² – with significant variations due to geography, facility site and renewable electricity source – the question of the landed price for green hydrogen expected to match decarbonization mandate takes cost pressure and dependence on policy, which lead to further uncertainties for the entire value chain, including investors as it negatively impacts their decision-making.

Against this backdrop, our energy experts developed a Green Hydrogen Price Model and thereby quantified the global average landed price of green hydrogen in 2030, assuming the market principle of a global equilibrium between supply and demand in 2030, while integrating transport costs associated with globally-optimal routes.

Scope of the Model

Geographic: Global scope with country-level resolution

Temporal: Initial timeframe in 2030, which can be extended to 2050

Product definition: Green hydrogen as defined in the EU’s Delegated Acts to the Renewable Energy Directive II (incl. hourly matching of renewables with hydrogen production)

Key Assumptions

We assume a demand inelastic to price as a first estimate, as determined by regulatory mandates.
Our supply is based on the probability-weighted global production capacity of green hydrogen (IEA 2023 Hydrogen Project Database). We assume domestic production in a given country to be consumed as a priority, if demand exists in such a country.
Producers and infrastructure operators in the value chain are assumed to incorporate their required rate of return into the costs.
We assume a uniform clearing price per country, which is established based on the inelastic demand and the (highest) long-run marginal cost (LRMC) of required supply in a given country.

Added Value for Green Hydrogen Market Players

The added value of this model is threefold:

It aims to provide a price benchmarking tool for market players of green hydrogen (i.e. support contracting with quantitative views);
It might serve as a tool for potential investors to assess competitiveness and potential return on investment of prospective assets; and
It allows to assess main sensitivities that change green hydrogen prices or flows in any particular country.

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Footnotes:

1: IEA Global Hydrogen Review 2023

2: FTI Consulting analysis, 2023