Reaching price parity of green hydrogen – what are we competing with?

Green hydrogen production costs via AEM Electrolysers can already be competitive with fossil fuels today and could widely undercut grey hydrogen by 2025

July 12, 2022

Many are curious or bullish about the future potential of green hydrogen – and for good reason. This green molecule carries serious potential for replacing fossil fuels.  

The public debate on green hydrogen often circles around the question “when will it be cost competitive with fossil fuels?”. 

But what’s regularly overlooked is that there’s likely not going to be just one price parity point, as decentralised green hydrogen is perfectly suited to compete with fossil fuel-sourced grey hydrogen on a range of industrial, commercial and retail applications.

In some cases, it already can be competitive with fossil fuels – and this is true even without today’s skyrocketing gas prices.  

How? It’s all a question of where green hydrogen is produced and what it replaces.

Follow the money

Several years ago, we proposed a first principles framework to calculate the cost of green hydrogen production on a product lifetime basis – a valuation approach that many welcomed. 

While we still stand by our reasoning that this is a great approach to depict the cost of a product over its existence, the market is moving to very large hydrogen projects. Those are best looked at through the lens of a project developer, with a 20-year levelized cost calculation. For this reason, we’ve updated our approach to reflect the reality of more and more AEM Electrolysers being deployed. 

Our central premise is the same: The cost of green hydrogen comes from the volume and cost of power used, the CAPEX (capital expenditure) of the electrolysers and the OPEX (operating expenses) to run these. 

But we tweaked it by adding the concept of Time Value of Money (TVM) This assumes that a sum of money is worth more now than that same sum later, letting us represent all costs at present value. 

Future costs are therefore discounted according to the cost of capital (the return that’s needed to make the investment worthwhile) and levelized to the value of today’s money. 

This Levelized Cost of Energy (LCOE) approach is commonly applied to energy projects. And when we apply it to green hydrogen to find Levelized Cost of Hydrogen (LCOH), it offers many insights: Firstly, that our megawatt-scale AEM Multicore is already within range of industrial grey hydrogen cost.  

Industrial parity: Green hydrogen at megawatt scale 

Following this approach, we calculate that when they go into operation in 2023, Enapter’s megawatt-class AEM Multicores will be able to produce green hydrogen at a cost of 1.5-4.2 €/kg.

To put this into perspective: Industrial grey or blue hydrogen made in an on-site steam methane reform (SMR) plant using natural gas costs 1-4 €/kg depending on the price of fossil fuels. This price excludes any hydrogen compression, storage or transportation costs. 

For all our calculations we have assumed pre-crisis fossil fuel prices, so the calculations would likely already be much more favourable to green hydrogen today. 

The fact that our AEM Multicores are projected to provide on-site green hydrogen generation that’s competitive with industrial grey hydrogen makes us very excited. All calculations and assumptions are available here, but we’ll give you a short rundown of how we came to this: 

Our hydrogen cost calculation includes the electrolyser CAPEX (capital expenditures – AKA the Enapter electrolyser price), cost of capital, as well as stack replacements, operation & maintenance costs, water costs, electricity costs and insurance costs for 20 years.  

We assume power prices ranging from 0-5 €cents/kWh. It’s now very clear that electricity prices strongly determine the cost of green hydrogen – but it’s also important to note that optimum electrolyser efficiency is vital to get the most out of electricity. Enapter leads the field for green hydrogen production efficiency and aims to improve this benchmark even further. 

Even though green hydrogen from the AEM Multicore can already be competitive next year, we expect to see a 50% improvement once we begin planned AEM Multicore mass production in 2025.  At that price range – between 0.7 and 3.3 €/kg – we expect green hydrogen to have already surpassed industrial parity.  

Competitive with commercial & retail: EL 4.0 

What’s sometimes lost in the debate about green hydrogen cost competitiveness is that there’s not just ONE single point of cost competitiveness.  

For example, Enapter’s single-core AEM Electrolysers – such as the new EL 4.0 – don’t need to compete with industrial grey hydrogen cost but rather with commercial and retail applications.  

Here the hydrogen price points are different because the cost of fossil fuel hydrogen at retail and commercial levels is much higher than the cost of industrial grey hydrogen production.  

That’s because grey hydrogen that’s produced elsewhere also has to be compressed, stored, and then lorried to end users such as hydrogen refuelling stations. This creates additional transport overheads like labour costs, as well as supplier profit margins.

The upshot is that small-to-medium installations of EL 4.0 electrolysers compete on a commercial basis as producing green hydrogen on-site costs less than buying it delivered in bottles or in bulk. 

Take the example we just mentioned of hydrogen fuel costs.   

If refuelling stations are selling hydrogen at prices starting from 9.85€/kg, commercial parity is achieved when the cost of making green hydrogen yourself drops to 4.85 €/kg – if not earlier – alongside on-site refuelling infrastructure costs of around 5 €/kg.


Green hydrogen from the EL 4.0 already has a price range of 3.4- 6.1€/kg. And as with the AEM Multicore, our single-core electrolyser should only get more cost-competitive over time: We’re planning for a 60% reduction in its LCOH by 2025 as EL 4.0 price drops due to mass production.  

Shifting away from fossil fuel volatility  

Using fossil fuels and their derivatives means being exposed to risk thanks to their volatile prices – and especially so when talking about natural gas, the most common precursor to grey hydrogen. On the flipside, green hydrogen is produced through water electrolysis from renewable electricity. If the electricity comes from self-production or long-term power purchase agreements (PPA), the main investment (covering the majority of the total cost of ownership (TCO)) happens before the electrolysers are installed, meaning that the hydrogen costs are locked in and predictable.  

And even if your renewable energy source isn’t locked in, the prices of renewable electricity bought from the grid on spot (without long-term contracts) still fluctuate less than fossil fuel prices. 

This makes green hydrogen from renewable energy sources a hedge against energy price volatility – as well as a hedge against inflation. By making investment upfront and not paying fluctuating prices for natural gas with decreasing purchasing power, the real cost of green hydrogen is much lower. 

And just to be clear, the natural gas price ranges we used in the calculations above assumed a normal market; not the skyrocketing prices in 2022 that will have pushed grey hydrogen costs even higher.  

One more point to consider: These prices do not take into account carbon taxes or other costs related to environmental externalities, which would boost the price of grey hydrogen. If these costs are taken into account as they deserve to be, green hydrogen will rapidly outcompete grey and the energy transition will come even faster. 

This adds up to one sum: the days of fossil fuel grey hydrogen are numbered. Green hydrogen is already cost-competitive, with this trend set to become more pronounced as hydrogen electrolyser prices and LCOH drop. Now it’s time to rapidly scale up the rollout of low-cost green hydrogen. 

To find out how AEM Electrolysers can replace grey hydrogen in your industry, contact our business development team or request a quote.

Here is a list of all our assumptions.