Economics of solar-based hydrogen production: Sensitivity to financial and technical factors

Abstract

This study examines the sensitivity of the levelised cost of hydrogen (LCOH), produced from solar photovoltaic (PV) electricity, to four factors that strongly influence the economics of green hydrogen: electrolyser efficiency, PV capacity factor, nominal interest rate and inflation rate. The authors' aim was not to calculate an absolute value for the LCOH, which varies according to location and economic circumstances, but to examine its sensitivity to these critical parameters of the economic model. This approach facilitates comparisons between potential solar hydrogen projects to select the location with the lowest LCOH. Direct coupling of a PV power plant to proton exchange membrane (PEM) electrolysis, without storage, was assumed, along with a base-case scenario with nominal interest rate 7%, inflation rate 2%, electrolyser efficiency 75% and PV capacity factor 22%. To account for the rapidly evolving electrolyser market, a learning-rate model was employed to estimate for the cost of routine end-of-life replacement of the electrolyser. Finally, the effect of grid-assisted operation on the LCOH was considered. The results demonstrated clearly the importance of careful site selection to achieve high PV capacity factor, which was more influential than foreseeable increases in electrolyser efficiency. Moreover, examination of the mutual sensitivities between the four critical parameters showed that high capacity factor is a good hedge against high inflation rates.