Renewable hydrogen is at the heart of virtually all industrial decarbonization strategies. But between rhetoric and action, there is a metric that separates viable projects from speculative bets: the LCOH (Levelized Cost of Hydrogen).
This is not just another acronym in the energy sector. LCOH stands for levelized cost per kilogram of hydrogen over the lifetime of a project, and it serves as the "common language" among investors, long-term buyers, and policymakers. Whoever masters this metric, masters the game.
What exactly constitutes LCOH?
LCOH internalizes all production costs, initial investment (CAPEX), operation and maintenance (OPEX), input costs (primarily electricity), and capital costs over decades. According to the National Energy System Operator (NESO), the metric is calculated as the ratio between the net present value of total costs and the cost of hydrogen production.
In practice, this means that two projects using the same technology can have drastically different costs depending on variables such as:
- Price of electricity – in electrolysis, energy can represent up to 64% of the total cost.
- Capacity factor – utilization of the electrolyzer throughout the year
- Cost of capital – discount rate or WACC applied to the project
- Installed CAPEX – which includes not only the equipment, but all engineering, procurement and construction (EPC)
One example illustrates this dynamic well: reducing the price of electricity by USD 10/MWh can lower the LCOH (low-cost liquid oxygen) of PEM (polymer-emergency) systems by between USD 0.5 and 0.6/kg, considering consumption in the range of 55-60 kWh/kg H₂.
The global cost map
The latest data reveals an uncomfortable reality for many proponents of green hydrogen: competitiveness still depends on regional context, project design, and public policy.
In Europe, the European Hydrogen Observatory reported that, in 2023, hydrogen produced by electrolysis directly connected to renewables cost an average of €6.61/kg H₂, while production via steam methane reforming (SMR) without carbon capture was around €3.76/kg.
In the United States, Department of Energy (DOE) models for current PEM systems indicate prices between USD 4.4 and 7.9/kg, depending on the CAPEX scenario and the capacity factor of the renewable source. "Blue" hydrogen (with carbon capture) can reach USD 1.10/kg with tax incentives such as the 45Q credit.
China, however, is redefining the competition.
The International Energy Agency (IEA) estimates that the installed CAPEX of electrolyzers manufactured and installed in China was between USD 600 and 1,200/kW in 2024 — less than half of that observed outside the country (USD 2,000-2,600/kW). This difference comes not only from manufacturing, but from the entire EPC chain, contingencies, and scalable execution.
Brazil emerges as an interesting candidate in the medium term. Sectoral studies project LCOH (Low-Cost Hydropower) between USD 2.7 and 5.6/kg in 2030, taking advantage of the complementarity of wind and solar sources in strategic regions. But this potential only becomes reality with competitive electricity contracts and accessible financing.
The true drivers of competitiveness
Sensitivity analyses conducted by the DOE and multilateral institutions converge on a clear hierarchy of impact on LCOH:
1. Price of electricity – the dominant factor in electrolytic routes
The relationship is almost linear: the variable cost is approximately the product of specific consumption (kWh/kg) and the price of energy. Therefore, robust PPAs (Power Purchase Agreements) are not just "energy contracts"—they are strategic assets that define long-term economic viability.
2. Capacity Factor – Use more, pay less per kg
Increasing the capacity factor from 50% to 75% can reduce LCOH by more than USD 1/kg, as it dilutes fixed costs (CAPEX and fixed OPEX) across higher production. Hybrid projects (wind + solar + storage) are gaining traction precisely because they pursue high utilization.
3. Cost of Capital – The Invisible Factor That Defines the Game in Emerging Markets
OECD studies show that the cost of financing is a determining factor in the competitiveness of green hydrogen in emerging economies. The difference between a discount rate of 7% and 12% can increase the cost of LCOH (low-cost, low-cost, and low-cost) by as much as 30-40%.
4. Installed CAPEX – the hidden “iceberg” beyond the equipment
The IEA is explicit: outside of China, EPC and contingencies account for more than half of total CAPEX. Buying a cheap electrolyzer but installing it with expensive engineering eliminates a good portion of the gain.
Politics as an economic variable
The European Union and the United States demonstrate how well-designed public policy can radically alter the LCOH (Location, Cost, and Attitude) perceived by investors.
The second auction of the European Hydrogen Bank (IF24 Auction) offers €1.2 billion in fixed premiums per kg of certified renewable hydrogen, payable for up to 10 years. This directly reduces revenue risk and improves the bankability of projects.
In the US, the 45V (clean hydrogen production) and 45Q (carbon capture) tax credits can shift the effective cost by more than USD 1/kg, transforming policy into an economic variable as relevant as technological efficiency.
In Brazil, the legal framework for low-emission hydrogen has been established, and the Rehidro (special tax incentive regime) is valid for five years starting in January 2025. But the decisive point will be Law No. 15.042/2024, which establishes the regulated carbon market (SBCE).Without carbon pricing, the country risks being "good in potential and bad in demand."
The game is set.
The hydrogen sector is entering its decisive phase: less narrative, more cost engineering. LCOH is not just a technical metric; it's the language that translates promises into contracts, prototypes into commercial plants, and policies into investments.
Three points will determine the winner:
- Energy discipline – robust electricity contracts and high asset utilization
- Industrial execution – ability to deliver projects with competitive CAPEX and on-time delivery.
- Regulatory alignment – policies that create demand, reduce risk, and price carbon.
China has already demonstrated that scale and vertical integration rewrite the cost curve. Europe is betting on rigorous certification and direct subsidies. The US is playing with massive tax incentives.
Brazil has abundant renewable resources and unique complementarity potential. But potential doesn't close deals. Those who control LCOH (Low-Cost Hydrogen) with discipline, through contracted electricity, high utilization, cheap financing, and repeatable execution, are the ones who define the future of hydrogen.
