Economics of hydrogen production and use

 

What do industrial-scale electrolyzers cost?

The cost of electrolyzers has dropped precipitously in the past few years and is expected to continue to do so. Just five years ago costs were quoted in the range of $2,000 per kilowatt and they are under half that today, expected to continue to drop rapidly as economies of scale bring down the costs. At least one manufacturer as targeted $200/kW and when queried about when that would happen, responded, “it’s not about when, it’s about production levels.” Another manufacturer representative commented, “We are largely still making these by hand, if we were making them at scale we would print them.” Costs are also very sensitive to the size of the installation, larger units cost significantly less than smaller ones on a cost per unit of hydrogen production basis.

How efficient are industrial-scale electrolyzers?

Roughly 70% Efficient. It takes between 55-60 kWh of electricity to make a kilogram of hydrogen, which has about the same energy content as a gallon of gasoline.

What is the current cost of producing renewable hydrogen and how does that compare with the cost of hydrogen from fossil sources?

Costs most sensitive to several factors:

  • Cost of the electricity feedstock
  • Capital cost of the electrolyzer
  • Usage factor of the device (i.e., is it operating at full capacity all year, or operating over a small number of hours per year).

Cherry picking the lowest retail rates in the Northwest, combined with today’s cost of multi-megawatt-scale electrolyzers and operating on at least 80% of the hours of the year, the produced cost of hydrogen at the electrolyzer may be around $4/kg. About 75% of that cost is the cost of the electricity, 25% the cost of the electrolyzer. With more favorable electric tariffs recognizing the value of flexible loads to the grid, the cost could be significantly lower. If the produced hydrogen is used as a transportation fuel, the low carbon fuel credits may offset in the range of $1-4/kg of the produced cost.

In addition to electricity costs, what other costs are incurred in producing hydrogen through electrolysis?

Modest maintenance costs and the cost of feedstock water. Electricity is by far the highest cost component.

How does the round-trip efficiency of energy storage using hydrogen compare with energy storage using batteries and other energy storage technologies?

The economic play for hydrogen today is not in producing electricity. The wholesale value of electricity is at near historical lows. Once hydrogen is produced from electricity, its highest value use is likely as a transportation fuel. The cost per BTU of transportation fuels is far higher than the value of wholesale electricity. In other words, we will likely only be depending on fuels from electricity to produce electricity as we near 80 or 90% renewables on the system. Batteries are a far more energy efficient means of storing electricity at about 90% compared with round-trip efficiency of power to fuels to power, which clocks in at about 42% at best.

What other significant costs are there in producing hydrogen, such as servicing, maintenance, part replacements, consumables?

All of these things are costs. The most significant of them are likely to be compressor maintenance and parts and replacement of electrodes for alkaline electrolyzers and membranes in proton exchange membrane electrolyzers. Regular maintenance may be one day per year, with a major overhaul after about 9,000 operating hours.

Electrolyzers represent advantageous loads for utilities to serve.  What attributes of electrolyzers make that so, and how are (or might in the future) the grid services that electrolyzers can provide be monetized?

There are two aspects of electrolyzer loads that make them valuable in providing grid services to utilities:

  • Because the product (hydrogen) is storable, the load can be interrupted with relatively minimal economic impact to the project if the interruptions are for a limited number of hours over the year.
  • Electrolyzers are very fast-reacting, especially the newer Proton Exchange Membrane technology.

These attributes make them a dependable source of flexibility that is normally provided by generation. For example, generating utilities need to keep some fraction of their generation out of the market, but available on very short notice to fill in if there is a system emergency (e.g., large generator or transmission line outage). These are called contingency (aka “operating”) reserves. Douglas County PUD is planning to use their electrolyzer to provide that service, freeing up their hydro generation to be used by their customers or marketed to other utilities.

Tacoma Power is actively working on a new “nonfirm” tariff that would give electrolyzer (and other interruptible loads) some reduction in overall electric rates in exchange for offering to be turned off over some hours of the year at the utility’s option on short (or possibly no) notice.

 

What level of investment in renewable hydrogen is expected?

Meeting decarbonization targets is going to take trillions of dollars of investment in new renewable energy deployments, including renewable hydrogen infrastructure. The US produces and consumes ten million tons of hydrogen annually today, a $10-20 billion industry that will need to be decarbonized. Some studies suggest hydrogen will constitute 18% of all energy delivered by 2050. Several estimates of the size of the potential market have been developed. A Goldman Sachs study suggests the industry could reach 10 trillion euros by 2050. The European Hydrogen Council sees an investment of $475 billion by 2030.

See:

How many jobs will the renewable hydrogen industry create?

Estimates vary widely between one job per $83,000 invested to one job per $430,000. The European Hydrogen Council estimates 30 million new jobs by 2050 worldwide on a $2.5 trillion investment.

See: Hydrogen scaling up: A sustainable pathway for the global energy transition, Hydrogen Council, Nov 2017.