Cheap electricity or more hydrogen?
An electrolyser developer can operate longer, but extra output comes from a more expensive electricity block. The team needs to compare a low-utilisation strategy with a larger annual production target.
Permanent case linkYour task
Compare electricity cost per kilogram with average and marginal production cost. Explain why a low power price does not by itself make the project bankable or low-emissions.
Your role
Industrial-energy analyst screening an operating strategy
Practice data & worked solution
Utilisation changes the cost per kilogram
Original synthetic annual screen for a 20 MW electrolyser. Two non-overlapping 3,000-hour blocks. Specific electricity consumption 50 kWh per kg of hydrogen at the stated process boundary. Annual fixed-cost allowance A$2m, unchanged between strategies. No water, compression, storage, transport, degradation, start costs, taxes or finance. The allowance is not a complete annualised capital model; results are not LCOH or a renewable-hydrogen certification.
| Block | Available hours | Electrical input MW | Price AUD per MWh |
|---|---|---|---|
| Lower-price hours | 3000 | 20 | 40 |
| Additional hours | 3000 | 20 | 90 |
Your analysis
- Calculate electricity input, hydrogen output and electricity cost for each block. Calculate the low-price-only strategy's cost per kg including the fixed allowance.
- Operate both blocks. Calculate annual output, total included cost and average cost per kg. Explain why utilisation can lower the fixed-cost burden while raising electricity cost.
- At a hypothetical A$5/kg sale price, calculate contribution after included costs for both strategies and the incremental contribution from the additional block. State the omitted costs and evidence that could reverse the decision.
Worked solution
Low-price operation
Each block consumes 20 × 3,000 = 60,000 MWh, or 60m kWh, producing 1.2m kg at 50 kWh/kg. Electricity costs are A$2.4m and A$5.4m respectively: A$2/kg and A$4.50/kg. Low-price-only operation costs A$4.4m including the fixed allowance, or A$3.67/kg.
Higher utilisation
Both blocks produce 2.4m kg from 120,000 MWh. Electricity costs A$7.8m; total included cost is A$9.8m, or A$4.08/kg. The fixed allowance falls from A$1.67 to A$0.83/kg, but average electricity cost rises from A$2 to A$3.25/kg. Lower fixed cost per kg does not guarantee a lower overall average.
Marginal decision
At A$5/kg, low-price-only receipts are A$6m and contribution A$1.6m; both-block receipts are A$12m and contribution A$2.2m. The additional block adds A$0.6m before omitted costs, equivalent to A$0.50 per extra kg. Average cost rises while total contribution improves. Additional variable costs above that margin could reverse the choice; verify offtake volume, emissions attributes and the full process boundary.
Review your response
- Conversion: MWh to kWh and kg are traceable.
- Cost: electricity-only, included average cost and full levelised cost are distinguished.
- Decision: compare marginal revenue with marginal cost, not only average cost.
- Claims: no low-emissions, renewable or investment claim is inferred from price alone.
This checklist supports self-review. No tutor marking or independent credential is included.
Related topics 5
Sources & evidence
All figures are original teaching inputs, not observations or published forecasts. The official source supplies industry context, not this dataset. Source link checked 17 October 2026. The National Hydrogen Strategy provides policy context, not project economics. Obtain equipment performance, water, compression, storage, offtake and certification evidence separately.
DCCEEW National Hydrogen Strategy 2024