What LCOH means
LCOH is expressed in euros (or dollars) per kilogram of hydrogen. It answers one question: what constant price per kg would make the project break even, with investors earning exactly their required return?
It is a cost, not a market price. Two projects with the same LCOH can have very different risks, and an offtake price above the LCOH is what makes a project bankable.
The formula
LCOH = (sum of discounted costs over the life) ÷ (sum of discounted hydrogen production over the life).
Costs include the initial investment (CAPEX), electricity, operation and maintenance, stack replacements and water. Each year is discounted with the weighted average cost of capital (WACC), and so is the production: a kilogram produced in year 15 is worth less today than one produced in year 1.
The inputs that matter
CAPEX: the electrolyser cost per kW plus the balance of plant (power electronics, water treatment, compression to plant gate, civil works), often expressed as a percentage of the electrolyser cost.
Electricity: the price per MWh and the specific consumption, typically around 50 to 55 kWh per kg of hydrogen at system level.
Operating hours, availability, O&M (as a percentage of CAPEX per year), stack degradation and replacement, water, project lifetime and WACC complete the list.
Electricity is usually the biggest cost
A quick check: consumption × price. At 50 kWh/kg and 40 €/MWh, electricity alone costs 2 € per kg of hydrogen. Every 10 €/MWh more adds about 0.5 €/kg.
That is why the power purchase agreement, and the RFNBO rules that limit how it can be structured, weigh so much on the final cost.
€/kg
Operating hours: the trade-off
CAPEX is spread over the kilograms produced. An electrolyser that runs few hours per year carries a high capital cost per kg; one that runs many hours spreads it thin but may need more expensive power.
Solar-only projects often run 2,000 to 3,000 hours a year; hybrid solar and wind or grid-backed projects can run far more. The cheapest LCOH is a balance between cheap hours and enough hours.
WACC, lifetime and inflation
A higher WACC raises the LCOH because future production is discounted more heavily while the CAPEX is paid up front. Lifetime works the other way: more years of production dilute the investment.
Check whether a figure is nominal (money of each year, including inflation) or in constant money. The two can differ by more than half a euro per kg for the same project, so compare like with like.
What an LCOH figure leaves out
Most published LCOH figures stop at the plant gate. They exclude storage, compression for transport, pipelines or shipping and the cost of the buyer’s own equipment.
Subsidies are usually not deducted from the production cost: they change the investor’s return, not the cost of producing a kilogram. Before comparing two numbers, check the system boundary, the money year and the basis.
Uncertainty: one number is not enough
Every input is an estimate. A sensitivity analysis shows which input moves the LCOH most, and a Monte Carlo simulation gives a range with probabilities instead of a single figure.
Lenders look at that range: the question is not only what the LCOH is, but how likely it is to stay below the offtake price.
Inputs of the example
| Input | Value |
|---|---|
| Technology and size | PEM, 10 MW |
| Electrolyser cost | 900 €/kW, plus 30% balance of plant |
| Electricity | 40 €/MWh, 50 kWh/kg |
| Operation | 4,000 hours a year, 95% availability |
| O&M | 2% of CAPEX a year |
| Stack | Replaced every 10 years at 40% of electrolyser cost, 1% degradation a year |
| Finance | WACC 7%, 20 years, 2% inflation, 18 months of construction |
Worked example: a 10 MW PEM electrolyser
The investment is 10,000 kW × 900 €/kW × 1.3 = 11.7 million euros. The plant produces 10,000 kW × 4,000 h × 95% ÷ 50 kWh/kg = 760,000 kg of hydrogen in its first year.
With these inputs the LCOH is 4.74 €/kg in nominal terms, or 4.02 €/kg in constant money. Electricity is 51% of the cost, CAPEX 35%, O&M 8%, stack replacements 6% and water less than 1%.
This is the reference case the GaugeH2 calculator shows before you enter anything: change any input and see how the LCOH moves.
- Electricity51%
- CAPEX35%
- O&M8%
- Stack replacement6%
- Water0.5%
Frequently asked questions
What does LCOH stand for?
Levelized cost of hydrogen: the constant price per kg that recovers all the costs of a project over its life, including the required return on capital.
What is the formula for LCOH?
The sum of discounted costs over the project life divided by the sum of discounted hydrogen production, both discounted with the WACC.
What is the biggest cost in green hydrogen?
Usually electricity. At 50 kWh/kg, each 10 €/MWh of power price adds about 0.5 € per kg.
How many kWh does it take to make 1 kg of hydrogen?
Around 50 to 55 kWh per kg at system level for current electrolysers. The theoretical minimum, based on the higher heating value, is about 39.4 kWh/kg.
Is LCOH the same as the hydrogen price?
No. LCOH is the production cost including the return on capital. The selling price depends on the market, on contracts and on subsidies.
Do subsidies reduce the LCOH?
It depends on the convention. Many analyses, GaugeH2 included, keep the production cost without subsidies and show their effect on the investor’s return separately.