Learn more about EnergyEdge Online Training today!
About this Classroom Training
Levelised Cost of Hydrogen (LCOH) is intended as a time-efficient primer for anyone involved in the commercial decision-making process for green hydrogen projects, including those from a non-financial background. It will enable them to better understand the key variables and factors which most influence the economics of green hydrogen production projects, and how to quantify and analyse their influence on outcomes such as levelized cost of production, investment returns and project risk.
A particular focus will be given to the LCOH the standard metric used to measure the cost of producing hydrogen over a project’s lifetime. Participants will learn how LCOH is calculated, the assumptions that shape it, and why it is a central benchmark in evaluating the competitiveness and financial viability of hydrogen project.
Participants will receive clear explanations of the common elements of a green hydrogen project financial model, the key terminologies, and the changing economic and market context in which hydrogen production business plans must exist (and create financial returns for investors).
The course will highlight the key technological and financial inputs and outputs. It will thus be valuable to people from a variety of job roles including non-financial ones such as engineering, project development, policy, and product marketing.
This course will be delivered face-to-face over 3-days, comprising of 8 hours per day, 1 hour lunch and 2 breaks of 15 minutes per day. Course Duration: 19.50 hours in total, 19.50 CPD points.
1. What is the Levelized Cost of Hydrogen (LCOH)?
LCOH is a metric used to measure the total cost of producing hydrogen over a project's lifetime. It helps to evaluate the financial viability and competitiveness of a hydrogen project by taking into account all costs, including capital expenditures (CAPEX) and operating costs (OPEX). LCOH is the standard benchmark for comparing the cost of different hydrogen production methods.
2. How do capital costs (CAPEX) and operating costs (OPEX) affect the LCOH of a green hydrogen project?
Capital costs (CAPEX) for green hydrogen projects include the price of electrolyser systems and balance of system components. Operating costs (OPEX) are driven by factors like electricity, water, and land costs. The LCOH calculation is highly sensitive to changes in these variables, with electricity input costs being a major driver.
3. What are the key variables that influence the economics of green hydrogen production?
The main variables that impact the economics of green hydrogen include capital costs (CAPEX) and various operating costs (OPEX). Other critical factors are the cost of electricity input, project design decisions such as electrolyser sizing, and policy mechanisms like tax credits or production premiums. These variables determine the levelized cost and overall project returns.
4. How do policy mechanisms enhance the financial case for green hydrogen?
Policy mechanisms such as clean hydrogen mandates, production premiums, and tax credits are crucial for improving the business case for green hydrogen. They help bridge the gap between the cost of green hydrogen and its market value, attracting investment and making projects financially viable. Examples include the European Hydrogen Bank auctions and tax credits in the US and Australia.
5. What is the difference between a simple LCOH calculation and a comprehensive project financial model?
A simple LCOH calculation provides a quick understanding of a project's core economic variables. It's a useful benchmark but has limitations as a financial metric in the real world. A comprehensive project financial model, on the other hand, includes a full cash flow analysis. It provides a more detailed view by incorporating financial terminologies like IRR, NPV, and EBITDA, and considers key timeframes like debt tenor and project lifetime.
6. How do electricity input costs affect the competitiveness of green hydrogen?
Electricity input costs are one of the most important variables for green hydrogen costs. The financial viability of a project is highly dependent on the cost of renewable power supply. The source of electricity, whether from fully integrated projects or third-party Power Purchase Agreements (PPA), and policy constraints like temporal matching rules, all significantly impact the final price of hydrogen.
7. What role do project risk factors play in the financing of green hydrogen projects?
Project risk factors directly influence financing costs and a project's price competitiveness in auctions and tenders. Risks can arise from various stages of a project's lifecycle, from development and construction to operations. These risks, along with external market factors and policy risks, are balanced against potential returns to determine a project's "bankability" and its ability to reach a final investment decision (FID).