From Electricity Prices to Hydrogen Costs: Evaluating Green Hydrogen Competitiveness Pathways

Green hydrogen produced via water electrolysis is a key pillar of the European Union’s decarbonisation strategy for hard-to-abate sectors. However, its economic competitiveness remains highly uncertain in small, electricity-importing power systems characterised by volatile wholesale electricity prices. The study assesses the techno-economic viability of grid-connected green hydrogen production in Latvia under current and near-term electricity market conditions. A comparative analysis is conducted for alkaline water electrolysis (AWE), proton exchange membrane (PEM), anion exchange membrane (AEM), and solid oxide electrolysis (SOEC) using industry-standard performance parameters and European cost benchmarks for the 2023–2024 period. The levelized cost of hydrogen (LCOH) is calculated on an ex-plant basis using observed Latvian electricity prices for 2025, a uniform economic lifetime of 15 years, and a weighted average cost of capital of 10 %. Results indicate that electricity prices are the dominant cost driver, accounting for more than two-thirds of total hydrogen production costs under high-price conditions. At electricity prices around EUR 85/MWh, the LCOH ranges from approximately EUR 6.1–6.6/kg for AWE and PEM, exceeding the cost of conventional hydrogen production via steam methane reforming (SMR) and SMR with carbon capture and storage (CCS). Sensitivity analysis confirms a near-linear relationship between electricity prices and hydrogen costs, with a reduction of EUR 1/MWh lowering LCOH by approximately EUR 0.052/kg for low-temperature electrolysis technologies. Competitiveness thresholds are derived analytically: achieving an LCOH of EUR 5/kg requires electricity prices below approximately EUR 50/MWh, while an LCOH of EUR 4/kg requires prices below approximately EUR 32/MWh, excluding compression. Additional electricity demand for hydrogen compression further tightens these thresholds.