A few of my previous articles directly or indirectly discussed problems with the economics of green hydrogen. But so far, they’ve all talked about the issue in high-level terms, never getting into specifics.

I haven’t yet answered the central question: what exactly is the problem with green hydrogen electrolysis? This is the focus of this post.

Green hydrogen projects are floundering

The zero-interest rate fever dreams of the early 2020s led to widespread hype for green hydrogen. Pure-play hydrogen companies received billion-dollar valuations. Massive waves of investment poured into the sector, and multiple gigawatt-scale electrolyzer projects were announced.

Renewable energy technology is a tale of two trajectories. Over the past decade, we’ve seen dramatic cost reductions for solar power, wind power, and batteries stemming from a mixture of technological improvements, economies of scale and learning effects. This is all great news for decarbonization, yet a few key pieces are still missing¹. Critically, we need a form of cheap, scalable, long-term energy storage, a means of decarbonizing heavy industry and chemical synthesis, and a form of chemical energy for long-haul transportation where batteries will likely be impractical for the foreseeable future. Is green hydrogen the solution?

The hot word in the power grid these days is ‘dispatchability’. The ability to adjust power output, or on the other end, adjust power consumption on demand is vital to balancing the grid¹. Dispatchable generation and dispatchable loads will become increasingly valuable with heavier penetration of non-dispatchable renewable generation, such as wind and solar.

The favorable economics of renewables and zero marginal cost of production mean that in many cases, it will make economic sense to overbuild generation capacity and simply curtail production when it isn’t needed. An even more economically sensible option is for large consumers with load flexibility to perform demand response, turning up their consumption when electricity is plentiful and turning down or even idling when generation is low.