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Economics2024-03

Green Hydrogen at SMR Prices: An Economic Analysis

Achieving cost parity with fossil-derived hydrogen

ReferenceTE-WP-ECONOMIC
Date2024-03
CategoryEconomics
Classificationpublic

Abstract

This paper presents a detailed economic analysis of hydrogen production using Tobe Energy's technology compared to conventional electrolysis and steam methane reforming (SMR). We demonstrate a pathway to green hydrogen at $1/kg— competitive with fossil-derived hydrogen without subsidies.

Contents

  1. 1.Current Cost Landscape
  2. 2.Cost Breakdown
  3. 3.Tobe Energy Economics
  4. 4.Path to $1/kg
  5. 5.Market Implications
  6. 6.References
1.

Current Cost Landscape

Hydrogen production costs vary significantly by method:

  • •Steam Methane Reforming (grey hydrogen): $1-2/kg
  • •SMR with Carbon Capture (blue hydrogen): $1.5-3/kg
  • •PEM Electrolysis (green hydrogen): $4-6/kg
  • •Alkaline Electrolysis (green hydrogen): $3-5/kg

The 2-4x cost premium for green hydrogen has been the primary barrier to widespread adoption, despite its environmental benefits.

2.

Cost Breakdown

For conventional electrolysis, costs break down approximately as:

  • •Electricity: 60-70% of production cost
  • •Capital equipment: 15-25%
  • •Operations & maintenance: 10-15%

Electricity cost dominates, making efficiency the critical lever. A system operating at 95% efficiency vs. 70% produces 35% more hydrogen per kWh of electricity consumed.

3.

Tobe Energy Economics

Our technology impacts all three cost components:

ELECTRICITY (60-70% → 45-55%) 95% efficiency reduces electricity consumption by 25-35% compared to conventional systems.

CAPITAL (15-25% → 8-12%) Elimination of exotic materials and thermal management systems reduces equipment costs by 50-60%.

OPERATIONS (10-15% → 5-8%) Simpler systems require less maintenance. No membrane degradation or catalyst poisoning reduces replacement costs.

Combined impact: 50-60% reduction in levelized cost of hydrogen.

4.

Path to $1/kg

At current industrial electricity prices ($0.04-0.06/kWh), our technology achieves hydrogen production costs of $1.50-2.00/kg. The path to $1/kg requires:

1. Scale manufacturing: Unit costs decrease 15-20% with volume production 2. Renewable PPA pricing: Long-term solar/wind contracts at $0.02-0.03/kWh 3. Process optimization: Additional 5-10% efficiency gains identified

With these factors, sub-$1/kg green hydrogen is achievable within 3-5 years— making it cost-competitive with SMR without any carbon pricing or subsidies.

5.

Market Implications

Cost-competitive green hydrogen unlocks markets currently served by fossil fuels:

  • •Industrial processes: Ammonia, steel, refining
  • •Transportation: Heavy-duty trucks, shipping, aviation
  • •Power generation: Grid storage, peaking capacity
  • •Heating: Industrial heat, building heat in some regions

The addressable market exceeds $100B annually in the US alone.

6.

References

  1. [1]BloombergNEF. "Hydrogen Economy Outlook." (2020).
  2. [2]IEA. "The Future of Hydrogen." (2019).
  3. [3]Lazard. "Levelized Cost of Hydrogen Analysis." (2023).