A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) has argued that improving electrolyzer efficiency has become more important than reducing electrolyzer costs for the development of Australia’s green iron industry.
Australia has been seeking to build a green iron export sector based on its abundant iron ore reserves and renewable energy resources. According to the report, while renewable energy has become the cheapest source of electricity generation, it has not yet achieved cost competitiveness in ironmaking. However, declining renewable energy costs and rising coal and gas prices have narrowed the gap.
High-efficiency electrolyzers could lower green iron costs
The report highlighted the role of electrolyzers in producing green hydrogen, a key input for green iron production. According to IEEFA analyst Lachlan Wright, improvements in electrolyzer efficiency could reduce hydrogen production costs even if electrolyzer prices remain elevated.
IEEFA estimates that access to highly efficient electrolyzers could reduce green iron production costs by 15-20 percent, bringing them closer to the historical trading range for iron.
Rising electrolyzer costs challenge project economics
The report noted that expectations for significant declines in electrolyzer prices during the early 2020s did not materialize. Instead, electrolyzer prices increased and are not expected to fall substantially in the near term. As a result, projects relying on lower-cost electrolyzers and variable renewable energy have become more difficult to develop, contributing to the cancellation of several hydrogen-based steel and iron projects.
According to IEEFA, recent technological improvements have enabled new high-efficiency electrolyzers to offset higher capital costs through lower electricity consumption.
Battery storage supports renewable-powered production
The report also highlighted the sharp decline in battery storage costs since 2020. Battery deployment in Australia has increased more than fourfold over the past three years, reducing the cost of firmed renewable electricity and allowing electrolyzers to operate at higher utilization rates.
According to IEEFA, combining high-efficiency electrolyzers with battery storage can make these systems cost-competitive with lower-cost electrolyzers operating solely on variable renewable power.
Focus needed on innovation and commercialization
IEEFA stated that Australia’s green iron ambitions would benefit from greater emphasis on electrolyzer efficiency through research and development, industrial-scale testing and scalable manufacturing processes. It added that Australian steelmakers, iron ore producers and government agencies possess the technical expertise and resources needed to support further innovation in the sector.
According to Wright, bringing highly efficient electrolyzers to market will be challenging, but advancing the technology is becoming increasingly important for the future competitiveness of Australia’s green iron industry.