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Centre for Energy Economics Research

Faculty of Economics and Business
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Imports of hydrogen produced by electrolysis from Morocco more competitive than local production

Datum:08 april 2022

The most competitive supply route of low carbon hydrogen to the North-west European market, is hydrogen produced through SMR with CCS in Norway, with unit costs of supply of just above 2 €/kg. If one only considers hydrogen supply by electrolysis with the use of renewable electricity, supply from Morocco is less expensive than production in Europe, with estimated levelized supply costs of slightly above 4 €/kg. Because hydrogen transport costs rapidly increase with distance, supply of hydrogen over large intercontinental distances is not competitive.

This follows from an analysis and comparison of the levelized costs of hydrogen supply of various low-carbon hydrogen production technologies in various countries, conducted by Peter Perey and Machiel Mulder from the Centre for Energy Economics Research at the University of Groningen. Governments are increasingly promoting hydrogen with low carbon emissions as this energy carrier is seen as important to realise climate policy objectives. The ambition of the European Commission is to gradually deploy low-carbon hydrogen, starting in the industrial and mobility sector, to help reaching climate neutrality in 2050. This low-carbon hydrogen is produced either through electrolysis using electricity, or with fossil fuels, through Steam Methane Reforming (SMR), combined with Carbon Capturing and Storage (CCS) technology.

Given this projected increase in low-carbon hydrogen demand, it is necessary to realize sufficient supply to meet Europe’s ambitions. Although there are ambitious plans for electrolysis production within Europe, research has shown that high local electricity prices make this relatively expensive. The production of low-carbon hydrogen with CCS technology seems more price-competitive, but is still depending on fossil fuels whilst also being constrained by the availability of carbon storage facilities. Given these limitations of European supply, supply from other regions with more favourable conditions for renewable electricity production may form efficient alternatives.

In their paper, Perey and Mulder analysed which sources of low-carbon hydrogen are most competitive, taking into account both local production costs and transport costs to the North-west European market. Countries included in the analysis are Australia, Chile, Morocco, Norway and Saudi Arabia. Based on estimation of the levelized costs of hydrogen supply from various sources, they find that production of low-carbon hydrogen by SMR with CCS have significantly lower costs than electrolysis with renewable electricity. Production costs of electrolysis are strongly affected by renewable electricity costs and capacity factors. For the transport of low-carbon hydrogen, they find that pipeline transport is the lowest cost option for distances under 10,000 km, with costs linearly increasing with distance. For larger distances, transport as ammonia is found to have lowest costs, with less relation to distance, but high conversion costs.

Perey and Mulder conclude that if the societal objective is to reduce carbon emissions cost-efficiently by using low-carbon hydrogen, it is logical to focus on low-carbon hydrogen produced through SMR and CCS, instead of promoting the production or import of hydrogen produced by electrolysis. Policies that can help this production technology are focused on making carbon storage fields available, or help constructing carbon transport structures. Alternatively, they conclude that, when low-carbon hydrogen produced through PEM-electrolysis is preferred, in the present day, focussing on import of hydrogen from Morocco is more cost-efficient than producing hydrogen locally. Import of hydrogen produced with electrolysis over large distances, such as Australia and Chile, is found not to be competitive. These conclusions are robust for various assumptions on costs and capacity factors.

Read the paper

For more information, please contact:

Peter Perey, MSc.: p.l.perey rug.nl