Is green hydrogen too expensive to use? The key to breaking the deadlock is just one thing: electricity prices
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“The outline of the 15th Five-Year Plan states that it is necessary to focus on key areas that will drive future development, establish a comprehensive system for fostering future industries, and promote technologies such as hydrogen energy and nuclear fusion energy to become new sources of economic growth. This strategic deployment sets the long-term direction for the hydrogen energy industry. Recently, the Ministry of Industry and Information Technology, the Ministry of Finance, and the **National Development and Reform Commission jointly issued the \"Notice on Carrying Out Pilot Projects for the Comprehensive Utilization of Hydrogen Energy\" (hereinafter referred to as the \"Notice\"), further transforming the high-level strategic plans into actionable and quantifiable plans. The Notice sets clear quantitative targets: by 2030, the average price of hydrogen for end-use applications is to drop below 25 yuan per kilogram, with efforts to achieve 15 yuan per kilogram in areas with competitive advantages, thereby providing a clear roadmap for the development of this industry. How to bridge the cost gap between green hydrogen and gray hydrogen and overcome the economic barriers across the entire value chain has become the key issue in transforming the green hydrogen industry from a policy-driven to a market-driven model. Cost gap: The real disparity between green hydrogen and conventional hydrogen production. The main obstacle to the development of green hydrogen is its lack of cost competitiveness. Data from the Research Institute of the China Hydrogen Energy Alliance show that by the end of June 2025, the hydrogen price index on the production side across the country was around 27.5 yuan per kilogram, while it was as high as 45 yuan per kilogram on the consumption side. The gap of nearly 18 yuan highlights the barriers to cost transmission from production to the end users, and also poses a challenge to the target price of 25 yuan per kilogram. Electricity costs are the core component of green hydrogen costs, accounting for 60%–70%. Fang Wei, vice president of Sunshine Hydrogen Energy Co., Ltd., estimates that at an electricity price of 0.3 yuan per kilowatt-hour, the cost of electricity alone is around 16.5 yuan per kilogram. When equipment and construction costs are added in, the total cost exceeds 20 yuan per kilogram. If the electricity price drops to 0.15 yuan per kilowatt-hour, the cost of electricity can be reduced to below 10 yuan per kilogram, with the total cost potentially falling around 15 yuan per kilogram. Furthermore, the intermittent nature of wind and solar power generation directly reduces the utilization rate of electrolyzer equipment, while high depreciation costs further drive up hydrogen prices. In the past, \"grid-connected hydrogen production,\" which relied on large power grids, could ensure stability; however, high electricity prices and complex procedures for determining its green status made it difficult to achieve long-term cost optimization. Wu Liang, chief engineer at Shanghai Hydrogen Era Technology Co., Ltd., a subsidiary of Shanghai Electric Group, said outright that the current cost of green hydrogen is more than twice that of gray hydrogen, and even after taking into account import carbon taxes, downstream users still have to bear higher costs. To reduce these costs, “70% depends on hydrogen production processes, while 30% depends on other aspects”; it is necessary to lower the cost of electricity used for hydrogen production, as well as improve efficiency and reduce waste across the entire chain of hydrogen production, storage, and utilization. Journalists’ investigations have found that relying solely on reducing equipment costs has reached a bottleneck. In the past three years, the prices of electrolyzers have dropped significantly; the bidding prices for some models have nearly halved, leaving little room for further reductions. There is a consensus in the industry: reducing prices in isolation is not sustainable; improving efficiency across the system is the key to breaking through this situation. Pathways to Breakthrough: From Equipment Competition to System Reconstruction Several corporate leaders and experts have stated that to reduce the cost of green hydrogen, it is necessary to move beyond a focus on individual devices and adopt a system-oriented approach that integrates production, transmission, consumption, storage, and hydrogen utilization. The key strategies lie in off-grid hydrogen production, system optimization and the use of flexible technologies, as well as technological innovation and digital transformation. Off-grid hydrogen production to secure the cost advantage of green electricity. Shifting from \"grid-connected\" to \"off-grid\" has become an important option for the industry to reduce electricity costs. An independent micro-energy system is established through direct connection of wind and solar power along with energy storage and hydrogen storage, turning wasted wind and solar energy into valuable resources; this helps to reduce the base cost of electricity from the source and reduces reliance on the main power grid. This technological pathway is rapidly transitioning from a conceptual stage to large-scale implementation. Among the hydrogen energy pilot projects in the energy sector announced by the National Energy Administration in 2025, the Off-grid Wind Power-Energy Storage-Hydrogen Production Integration Project in Xintaizi, Tieling, Liaoning, and the Large-scale Off-grid DC Hydrogen Production Project utilizing wind and solar power in Daan, Jilin, have both been included in the list of advanced flexible off-grid hydrogen production demonstration projects. From the development of pilot projects to large-scale deployment, the economic viability and stability of off-grid hydrogen production still require key technological breakthroughs as a foundation. Hu Song, associate professor at University of Science and Technology Beijing, stated that the key to off-grid hydrogen production lies in the compatibility with green electricity. If the compatibility with green electricity can be improved without increasing costs, it will significantly reduce the costs associated with energy storage and hydrogen storage, which is of great importance for controlling hydrogen production costs. System optimization and flexible technologies: improving the compatibility with green electricity. The main challenge in off-grid hydrogen production is the discrepancy between the fluctuating supply of green electricity and the continuous demand for hydrogen in chemical processes; this discrepancy directly reduces system efficiency and increases costs. Cui Chuansheng, technical director of Donghua Engineering Technology Co., Ltd., said that although the direct cost of green electricity in areas rich in wind and solar resources is low, the instability of wind and solar power generation leads to low utilization rates of electrolyzer equipment and high depreciation costs. Meanwhile, the need for chemical production to operate continuously 24/7 imposes high demands on the stability of the hydrogen supply; if there is a mismatch between green electricity availability and hydrogen demand, it results in efficiency losses and increased costs. The introduction of flexible hydrogen production technology provides a key solution to this dilemma, effectively improving the compatibility with green electricity. This technology can proactively adapt to the fluctuations in wind and solar power output, flexibly adjusting the scale and efficiency of hydrogen production, thereby ensuring a seamless connection between the intermittent nature of green electricity and the continuous demand for hydrogen downstream. In multiple **-level demonstration projects in Jilin, Inner Mongolia and other regions, Sunlight Hydrogen Energy has utilized flexible hydrogen production systems to work with wind and solar power sources that experience significant fluctuations. The electrolyzers have a fast response time to load changes, resulting in a high rate of fault-free operation and a noticeable improvement in the actual hydrogen production efficiency. Fang Wei said that true cost competitiveness stems from a high proportion of utilization of volatile green electricity and optimal efficiency across the entire system, rather than simply low equipment costs. And the improvement in system efficiency will further enhance the adaptability to green electricity. Cui Chuansheng suggested that the key to breaking this deadlock lies in shifting from a mindset focused on \"equipment procurement\" to one centered on \"system integration.\" By achieving precise capacity allocation, intelligent operation strategies, and optimal combinations of technologies, it is possible to maximize the utilization of green electricity as well as the value of the equipment. Essentially, this involves improving the efficiency of integrating green electricity into the entire process of hydrogen production and utilization through system-level optimizations. In summary, the introduction of flexible technologies addresses the challenges related to adaptation, while improved system efficiency enhances the effectiveness of this adaptation. Together, these factors will effectively boost the suitability of green electricity for off-grid hydrogen production. Technological innovation and digital empowerment strengthen the foundation for energy efficiency. For gigawatt-scale projects, the operation of multiple devices in clusters and the integration of various energy sources present challenges in terms of management and control. Digital technologies such as artificial intelligence and digital twins, along with the iterative advancement of various technical approaches, contribute to the continuous improvement of the overall energy efficiency of green hydrogen production. At the level of technological innovation, the industry is building a hierarchical technological framework by relying on established approaches as a foundation and leveraging cutting-edge technologies as breakthroughs. Wu Liang said that the hydrogen equipment industry has fully developed four technical approaches: alkaline (ALK), proton exchange membrane (PEM), solid oxide (SOEC), and anion exchange membrane (AEM). Among these, ALK and PEM are already at a mature commercial stage. AEM combines the advantages of low cost and high flexibility, making it the next-generation technology that is being actively promoted; SOEC enables efficient use of waste heat from data centers, thereby significantly improving the overall energy efficiency of systems, and the company is accelerating the process of bringing this technology to market. Liu Wangan, deputy general manager of Shanghai Taihui Chen Energy Technology Co., Ltd., said that Chint Hydrogen Energy primarily adopts a dual approach of ALK and AEM. ALK meets the hydrogen demand of large-scale industrial applications, while AEM is suitable for flexible scenarios such as those involving distributed solar and wind power. By combining these two approaches, the company aims to achieve optimal economic efficiency in hydrogen production across the entire life cycle. The coordinated iteration of multiple technical approaches enables green hydrogen production to adapt to different resource conditions and application scenarios, laying a solid foundation for improving energy efficiency at the equipment level. In terms of digital empowerment, artificial intelligence has become the key tool for advancing system management from \"passive response\" to \"proactive prediction\". Fang Wei, vice president of Sunshine Hydrogen Energy, noted that artificial intelligence is a key technological tool that enables progress in digitalization. By collecting large amounts of operational data to build analysis models, digital signals can be accurately correlated with characteristics such as equipment performance, health status, and performance degradation. By training intelligent models using empirical data, it becomes possible to predict failures and identify performance trends, thereby achieving an upgrade in capabilities from merely being able to “see” things to understanding them, and finally to being able to predict them in advance. Scenario differentiation: Which sectors will first achieve economic viability? Currently, there are significant differences in the economic viability of green hydrogen across various applications, with green chemistry emerging as the key sector where progress is being made first. In areas with abundant wind and solar resources, the on-site production of green hydrogen and its conversion into green ammonia and green methanol can effectively avoid the problems associated with long-distance storage and transportation, meeting the international demands for low-carbon development. The green hydrogen, ammonia, and alcohol integrated project at the Jilin Songyuan Hydrogen Energy Industrial Park, invested in and built by China Energy Engineering Group, was officially put into operation at the end of last year; it is also the largest such integrated project of its kind in the world. After the project went into operation, the Belgian shipping company CMB.TECH signed the world’s first contract for the sale of green ammonia as marine fuel with China Energy Engineering Group. This project provides an important demonstration for the large-scale application of green hydrogen in the field of green chemistry. In the transportation sector, hydrogen-powered trucks used in enclosed environments such as mining areas, ports, and industrial parks benefit from hydrogen production and refueling stations, which help reduce storage and transportation costs. When the price of hydrogen at the point of use drops to 25 yuan per kilogram, its energy cost becomes comparable to that of diesel vehicles, making it economically viable in certain contexts. Fang Wei said that heavy-duty long-distance applications already exhibit certain advantages, and as prices drop and infrastructure improves, the economic benefits will increase further. Liu Wangan explained that Shanghai Taihui Chen has demonstrated in projects related to the blending of hydrogen into natural gas and the use of green hydrogen as a substitute in industrial applications that, when the cost of green electricity drops to a reasonable level, the overall cost of supplying gas with hydrogen can compete with that of traditional natural gas, thus providing a new approach for decarbonizing industrial furnaces. In sectors such as metallurgy and large-scale energy storage, the technology is still in the demonstration phase, and its economic viability relies on carbon pricing mechanisms and low-cost green electricity. Overall, the reduction of costs associated with green hydrogen has moved from a conceptual idea to reality, showing a clear pattern of differentiation across various applications and gradual implementation. Green chemistry has become the core sector to first establish a viable profit model, thanks to on-site utilization, green premium pricing, and long-term order commitments. Applications such as hydrogen-powered trucks in closed environments and natural gas blended with hydrogen achieve a competitive edge through cost optimization, thereby opening the way for broader adoption. Applications such as metallurgy and large-scale energy storage are still in the demonstration and development phase; breakthroughs in terms of economic viability depend on the improvement of carbon pricing mechanisms and the continued decline in the cost of green electricity. In the future, their potential will be gradually realized as these industries mature. Industry experts believe that as the cost of green electricity continues to decline, the energy consumption and lifespan of electrolyzers improve, and storage, transportation, and refueling systems become more efficient, the cost of green hydrogen will be able to compete effectively with the overall cost of \"gray hydrogen plus carbon taxes\" by around 2030, marking a shift from policy-driven to market-driven development. Source: Xinhua Net
Green hydrogen is highly dependent on electricity prices and highly sensitive to them: electricity costs account for 60%–80% of the cost of green hydrogen. According to Xinhua Net, for every 0.1 yuan decrease in electricity price per kilowatt-hour, the cost of each kilogram of green hydrogen decreases by about 5–8 yuan； At the same time, the volatility of wind and solar power, along with electricity pricing mechanisms, determine equipment utilization rates and cost stability, and are key factors affecting the scalability and economic viability of green hydrogen. Overview of Key Relationships: Table, Dimensions, Conclusions. Degree of impact: Electricity costs represent the largest component, accounting for 60%–80%. Xinhua Net app. Sensitivity coefficients: Electricity price – ±0.1 yuan/kg; cost – ±5–8 yuan/kg. Economic turning point for wind and solar power: LCOE is 0.15–0.20 yuan/kWh. Key constraints: The intermittent nature of wind and solar power affects equipment utilization and depreciation. Strategies to reduce costs: Direct connection to green electricity plus flexible scheduling can result in cost reductions of 20%–30%. I. How electricity prices determine the cost of green hydrogen: The core components of the cost structure for green hydrogen include electricity costs, equipment depreciation, operation and maintenance expenses, and financing costs, with electricity costs playing a dominant role, according to Xinhua Net app. Calculation: Electricity price of 0.30 yuan/kWh → Electricity cost of approximately 16.5 yuan/kg ； Drop to 0.15 yuan/kWh → electricity cost drops to around 8.25 yuan/kg, with the total cost potentially falling to about 15 yuan/kg, according to Xinhua Net app. Industry consensus: The LCOE for wind and solar power has dropped to 0.15–0.20 yuan per kilowatt-hour, while the cost of green hydrogen can approach that of gray hydrogen (around 8–12 yuan per kg). Differences in electricity price types and models: Direct supply price (direct connection to wind and solar power): the optimal model, as it eliminates additional costs such as grid connection fees and capacity charges; it can be directly compared with the LCOE of wind and solar power (as low as 0.13–0.15 yuan/kWh in resource-rich western regions). Purchase grid price: It includes transmission and distribution costs as well as various fees, resulting in significantly higher overall costs and poor economic viability. Spot market electricity prices: there is a large difference between peak and off-peak rates (for example, in Gansu, the spot price ranges from 0.12 to 0.48 yuan per kilowatt-hour). Flexible hydrogen production methods (operating at full capacity during off-peak times and shutting down during peak times) can reduce costs by 20%–30%. II. The synergistic constraints between wind and solar variability and electricity prices: Green hydrogen relies on wind and solar power generation, and the intermittency of this energy source directly affects the utilization rate of the equipment, thereby increasing depreciation costs; if the annual operating hours are only 2000 hours (due to instability in wind and solar supply), depreciation expenses will significantly raise the cost per unit of hydrogen ； Combined with energy storage and flexible scheduling, the utilization rate can be increased to over 4,000 hours, significantly reducing costs. III. Electricity price mechanisms and the pathways of policy impact: Market-oriented reforms – With the advancement of a unified national electricity market, green hydrogen projects can participate in spot trading and demand response, allowing them to purchase electricity at competitive prices and operate during off-peak times, thereby stabilizing costs and reducing the impact of price differences between peak and off-peak periods. Portfolio of policy tools: Direct access to green electricity: Several regions are piloting direct purchases of renewable energy power, eliminating additional fees and thereby reducing costs directly. Green certificates/carbon trading: enhance the value of green hydrogen and carbon, and offset part of the electricity cost. Subsidies and tax incentives: Some **/ regions exempt electricity used for electrolysis from taxes and fees (such as Germany), while Chinese local areas are piloting price difference settlement and subsidies. IV. Prioritization for cost reduction through practical measures (based on speed of impact): Priority should be given to low-cost green electricity; efforts should be made to achieve direct connection to wind and solar power sources, with the target electricity price being below 0.15 yuan per kilowatt-hour. Improve equipment utilization: Implement energy storage and flexible scheduling to achieve an annual utilization rate of ≥4,000 hours. Technology and scale: Use high-efficiency electrolyzers (ALK/PEM), reduce costs through bidding, and improve durability and efficiency. Participate in market transactions: spot trading + demand response, to optimize electricity usage by taking advantage of price differences between peak and off-peak times. V. Comparison of Typical Scenarios (1 kg of green hydrogen) Table: Scenario, Electricity Price (yuan/kWh), Electricity Cost (yuan/kg), Total Cost (yuan/kg, including depreciation and maintenance), Grid Purchase Price (regular): 0.35, 19.25, 25–30; Direct connection from wind and solar power (western regions): 0.15, 8.25, 12–15; Off-peak electricity prices + direct connection: 0.10, 5.50, 9–12. In short: The electricity price is the “root of the costs” for green hydrogen; direct connection and flexibility are the “ways to reduce costs”; while the utilization of wind and solar energy along with appropriate policies serve as the “means to expand production scale”. Only by taking advantage of low-cost electricity and high utilization rates can green hydrogen overcome its cost threshold.