LCP sees case for almost 27GW of electrolysers by 2050

Almost 27GW of electrolysers may be needed by 2050 to maximise the benefits of surplus renewable energy to the energy system, modelling by LCP has suggested.

The consultancy said building this amount of green hydrogen production capacity would likely require around £13 billion of private investment.

In a new report, LCP said its optimal pathway would see 1.1GW of electrolysers deployed in 2030, 15GW by 2040 and 26.6GW by 2050.

It said deploying 1.1GW in 2030 would require government support of £9-20/MWh of green hydrogen or £14-30/kW/year of electrolyser capacity under its medium and high assumptions for electrolyser capital costs but could be done without subsidies under its low cost assumptions.

The consultancy, whose EnVision power market model is commonly used by Ofgem and the Department for Business, Energy and Industrial Strategy to assess the impact of new policies and regulations, said the government support required to follow its optimal deployment pathway would decrease over time, falling to zero under its medium-cost assumptions by 2050.

In the scenario modelled by LCP, renewable generation capacity would reach 105GW by 2040. Renewable generation would outweigh supply in 44% of hours in 2040, with the total surplus over the year amounting 57TWh.

The consultancy said some of this excess could be exported to other countries via interconnectors or used for energy storage, meaning load factors would be lower, ranging from 15% to 25% for a marginal 1GW electrolyser between 2030 and 2050.

LCP said electrolysers would be “extremely sensitive” to cannibalisation, with the deployment of additional electrolysers lowering the load factors of those already installed. It said deploying more electrolysers than those envisioned in its optimal pathway would therefore require additional subsidies.

It said the optimal amount of green hydrogen capacity would also be heavily dependent on the amount of renewable generation.

Chris Matson, a partner at LCP, said: “Green hydrogen is set to play a crucial role in the net zero transition. But as more electrolysers are built and compete with each other, their profitability becomes susceptible to cannibalisation.

“Due to the high levels of excess wind and solar energy we expect to see over the coming decades, it makes sense for the industry and government to invest in large amounts of electrolysis to maximise system benefits, and our analysis shows that 26GW by 2050 would be needed. This will need government support but will be more cost effective than building and supporting more renewable assets for similar outcomes.”

He continued: “The government is quite rightly consulting on a future Contracts for Difference model to apply to the hydrogen sector. As our analysis shows, some electrolyser projects could need up to £1 billion of support from the government over their lifetime. Investors will be keen to see how this support will play out so that a green hydrogen revolution can become a sustainable reality.”

“If the UK government wants to meet its green hydrogen deployment targets it will need to provide support to mitigate the impact of price cannibalisation. In the immediate term, contractual payments to producers and regulatory returns models could be designed to deliver low carbon hydrogen production in the next decade.”