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4. STRATEGIES FOR COST REDUCTION: SYSTEM LEVEL SCALING UP ELECTROLYSERS TO MEET THE 1.5°C CLIMATE GOAL The largest benefits for economies of scale for electrolyser manufacturing seem to be reached around the 1 GW/year level. Several industrial players claim to have reached this scale or are working towards expansion. One measure governments could take is to set manufacturing capacity targets, manufacturing tax benefits, grants and loans for capacity expansion and work in close collaboration with industry. The Netherlands and the UK are examples of where this is happening. A predictable 5-10 year pipeline of electrolysis projects – driven by green hydrogen demand – will be key for manufacturers to invest in new, larger and automated production facilities. Uncertainties about the demand for green hydrogen versus fossil-fuels based hydrogen is a key obstacle to the scaling up of electrolyser manufacturing: policy makers should carefully assess the balance, as learning from investments in green hydrogen versus blue hydrogen production are not interchangeable. Water electrolysis deployment for green hydrogen has been limited so far, which introduces uncertainty around the cost reduction that can be achieved by scaling up. From this limited experience, it seems electrolysers have a similar relationship between cost decrease and global capacity as solar PV does – which could lead to 40% cost reduction, given the capacity targets governments have already announced. One action governments could take is to ensure cost is communicated transparently, in order to be able to track progress and identify potential. Cost decrease is greatest during the current early stage of deployment, when cumulative capacity deployed is still small and the market is relatively concentrated in a few companies. Current costs suffer from lack of transparency, due to the nascent stage of the industry, which will likely be resolved as large-scale manufacturing facilities come online and large projects get commissioned. This, in turn, will facilitate price discovery and improve cost reduction forecasts. 73 KEY POINTSPDF Image | GREEN HYDROGEN SCALING UP ELECTROLYSERS
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