Australia’s green Iion push hinges on electrolyser efficiency, not cost cuts

Battery cost declines reshape hydrogen steel economics.

Australia’s green iron ambitions depend increasingly on electrolyser efficiency rather than lower equipment costs as renewable energy and battery prices reshape project economics, the Institute for Energy Economics and Financial Analysis (IEEFA)  said.

In a report, IEEFA said access to high-efficiency electrolysers could cut green iron production costs by 15% to 20%, bringing them closer to historical iron price ranges and helping close the competitiveness gap with conventional ironmaking.

“Iron and steelmakers have consistently cited a lack of affordable clean hydrogen as a barrier to decarbonising production,” said Lachlan Wright, Energy Finance Analyst at IEEFA Australia, adding that improved efficiency would reduce costs whilst electrolyser prices remain high.

The analysis says expectations that falling electrolyser prices would support low-cost hydrogen production have not materialised.

Instead, equipment costs have remained elevated, shifting attention towards efficiency gains as a way to reduce production costs.

“The expectation was that cheaper electrolysers would allow lower utilisation rates, meaning the electrolyser would follow the variable output from renewable sources, reducing electricity costs. But as electrolyser prices have not fallen, this approach may no longer be feasible,” Wright said.

The report says utility-scale battery storage prices have fallen by two thirds since 2020, lowering the cost of firming renewable power and supporting higher utilisation rates for electrolysers.

It says new electrolyser technologies are improving efficiency, whilst battery cost declines are changing operating conditions for hydrogen production systems.

Australia has sought to develop a green iron export industry based on its iron ore reserves and renewable energy resources.

However, the report notes that ironmaking requires substantial chemical energy inputs, allowing metallurgical coal and gas to retain a cost advantage despite lower renewable electricity costs.

IEEFA says steelmakers, iron ore producers, and governments could support higher-efficiency electrolysers through research and development, industrial demonstrations, and manufacturing scale-up.

Wright said access to higher-efficiency electrolysers could determine the viability of green iron projects.