Profitability of hydrogen production: Assessment of investments in electrolysers under various market circumstances

Although hydrogen is increasingly seen as a crucial energy carrier in future zero-carbon energy system, a profitable exploitation of electrolysers requires still high amounts of subsidies. To analyze the profitability of electrolysers, attention has to be paid not only to the costs, but also to the interaction between electricity and hydrogen markets. Using a model of internationally integrated electricity and hydrogen markets, this paper analyses the profitability of electrolysers plants in various future market circumstances. We find that in particular the future supply of renewable electricity, the demand for electricity as well as the prices of natural gas and carbon strongly affect the profitability of electrolysis. In order to make massive investments in electrolysers profitable with significantly lower subsidy requirements, the amount of renewable electricity generation needs to grow strongly and the carbon prices should be higher, while the demand for electricity should not increase accordingly. This research underscores the critical role of market conditions in shaping the viability of hydrogen electrolysis, providing valuable insights for policymakers and stakeholders in the transition to a zero-carbon energy system. • Hydrogen’s importance grows, but electrolysers need substantial subsidies. • Model of electricity and hydrogen markets is used to assess profitability. • Driving factors are renewable electricity, electricity demand, gas and carbon prices. • More renewables and higher carbon prices are required for profitable electrolysers.