Robin Watts, MEL Candidate | December 2020
APPP 506 – Master of Engineering Leadership Capstone Project, University of British Columbia
Abstract
This study was aimed at performing an economic assessment of hydrogen production by electrolysis of water. The Levelized cost of hydrogen production (LCOH) is evaluated for different Canadian provinces using intermittent electricity from in-house renewable energy plant – solar/wind and partly consuming electricity from the grid. The results are based on data collection of the capacity factor of Variable Renewable Energy sources across thousands of locations across Canada and industrial electricity prices of different provinces. The results indicated that electricity price is the most dominant factor in determining the costs of hydrogen production. Among the analyzed locations, the contribution of the electricity component varied from 63-78%. The falling price of renewable energy is considered highly advantageous for using it in hydrogen production. Sensitivity analysis of the cost of renewable and its impact on hydrogen production was analyzed. The results indicated that for grid-connected, in-house renewable generation, the impact is not that significant.
Introduction
The energy sector that comprises energy use in buildings, transportation, energy use in industries, etc., accounts for 73% of the world’s global greenhouse emissions [1]. Hydrogen is widely regarded as the silver bullet in the energy system to mitigate climate change. Hydrogen has an energy density of 120 MJ/Kg, approximately three times more than that of diesel or gasoline [2]. Hydrogen is abundant in the universe, but it rarely exists as a gas on Earth and must be extracted from other elements.
Hydrogen can be produced from various resources using fossil fuels, biomass, renewable energy sources such as solar, wind, etc., using a wide range of processes. The two most discussed methods of hydrogen production are Steam Methane Reforming and Electrolysis. Steam reforming is a process of extracting Hydrogen by reacting to a high-temperature mixture of steam and methane in the presence of a catalyst. SMR is currently the least expensive method to produce Hydrogen, and it accounts for almost all commercially produced Hydrogen. Electrolysis is a process of splitting Hydrogen from water using electricity. This is sometimes referred to as power to gas [3], where power is electricity and gas is Hydrogen.
The Major drawback of SMR is the carbon emissions to the atmosphere, thus contributing to climate change. As per the IEA 2019 report [4], Hydrogen production is responsible for 830 million tonnes of Carbon Dioxide (CO2) emissions per year. On the other hand, electrolysis is considered the most promising technology for producing Hydrogen using renewable energy sources as it emits only oxygen as a by-product without any emissions. Thus, this method is sustainable and has a minimal environmental impact. The concept of producing hydrogen gas is shown in Figure 1.
Fig 1: Production of Renewable hydrogen (Source: Fuel Cell and hydrogen Energy Association)
Hydrogen Economy refers to the use of hydrogen as a low-carbon energy source. Various countries are taking significant steps to promote the hydrogen economy, and Canada is also eyeing in the same direction. One of the key strategies in this direction is to accelerate domestic production and use of hydrogen as zero-emission fuel. Any new step requires preliminary economic assessment, and this study aims to provide meaningful answers related to hydrogen production costs in Canada.
Objective
This study’s primary objective is to develop an understanding of the costs associated with hydrogen production using water electrolysis across different Canadian provinces using in-house intermittent power from renewable energy plant and taking grid electricity whenever required.
Methodology
The basic block diagram model of power-to-gas system for the purpose of this study is shown in the Figure 2.
Fig 2: Model for assessment of Hydrogen production costs
This analysis does not take into account any assumptions of any policy incentives or any other financial benefits received for promotion of renewable energy. Some key excerpts from the steps involved in economic assessment of hydrogen production costs are presented below: –
- Variable Renewable Energy Data collection – The data pertaining to variable renewable energy (solar/wind) capacity factors of different location was collected.
- Capital Recovery Factor & Levelized cost of electricity are given by the following equations –
i – interest rate and n – number of years
- The EPC cost estimate of solar/wind plant was referenced from Lazard [5] and cross checked with Canada Energy Regulator [6].
- Based on assumption of interest rate and reasonable assumption of lifetime of project, levelized cost of energy produced by renewable plant was calculated
- Electricity from renewable source is of intermittent nature and for interrupted operation, at other times electricity needs to be taken from the grid.
- Levelized Cost of transmission infrastructure – Usually the plants are located outside cities and thus additional infrastructure of transmission line is required. The marginal cost of transmission line is calculated based on the estimate of cost of spur line (additional transmission line) and point of interconnection cost (transformers etc).
- Net Energy Cost is given by equation
(Capacity Factor * Cost of RE) + (1-Capacity Factor) * Industrial Electricity cost
- Electricity required to produce per Kg of H2 is taken as 53kWh [7].
- Levelized cost of Electrolyser – Calculated on the basis of assumption of 1MW capacity of the plant and Capex of same referenced from [7].
- Levelized cost of water – The cost component of water is minimal. It was referenced from [7] and cross verified with water costs in Ontario.
- Levelized cost of Hydrogen production is aggregate of levelized costs of energy, electrolyser and water.
Results and Discussion
- The electricity price is the most dominant factor in determining the price of hydrogen production and it accounted for 63-78% portion of the cost across all the analyzed locations.
- The levelized cost of hydrogen production across Canada was analyzed. The levelized costs using solar is presented in Figure 3 and for wind is presented in Figure 4. The figures in the map give the range of hydrogen production costs in CAD /Kg of H2 produced.
Fig 3: H2 production costs using solar (CAD/Kg of H2)
Fig 4: H2 production costs using wind (CAD/Kg of H2)
- Even though per kW EPC cost of wind is higher than that of solar, the high-capacity factor of wind compensates that to great extent and minimum cost of hydrogen production using wind is observed better than that using solar.
- As significant portion of electricity is fetched from grid (for interrupted operation of hydrogen production), the grid electricity price is dominant factor in determining levelized cost of hydrogen production. The provinces – Manitoba, Quebec have lowest levelized cost of H2 production as these provinces have cheapest electricity.
- Sensitivity analysis was performed on the EPC cost of renewable plant (keeping everything else same) and it was observed that the reduction in levelized cost of hydrogen production in British Columbia using solar was 8% and using wind was 11.2 %. This is because grid electricity is needed for majority of time for interrupted operation and it dominates the cost.
Conclusion
Hydrogen will disrupt the energy sector in coming years and the time to invest in hydrogen economy is today as even though renewable cost will fall, the reduction in hydrogen production won’t be significant unless there is significant drop in grid electricity prices. Manitoba, Quebec need to pick up the hydrogen production as electricity is cheapest in those provinces. As the GHG emission intensity of electricity production is already very low in these provinces [8], these provinces can utilize the grid electricity completely and produce renewable hydrogen.
Contact
Email : robinwatts19@gmail.com
LinkedIn : https://www.linkedin.com/in/robinwatts19/
References
[1] Emissions by sector. (2020). Retrieved 14 December 2020, from https://ourworldindata.org/emissions-by-sector
[2] Hydrogen Storage. (2020). Retrieved 14 December 2020, from https://www.energy.gov/eere/fuelcells/hydrogen-storage
[3] Production of hydrogen – U.S. Energy Information Administration (EIA). (2020). Retrieved 14 December 2020, from https://www.eia.gov/energyexplained/hydrogen/production-of-hydrogen.php#
[4] The Future of Hydrogen – Analysis – IEA. (2020). Retrieved 14 December 2020, from https://www.iea.org/reports/the-future-of-hydrogen
[5] Levelized Cost of Energy and Levelized Cost of Storage – 2020. (2020). Retrieved 14 December 2020, from https://www.lazard.com/perspective/levelized-cost-of-energy-and-levelized-cost-of-storage-2020/
[6] CER – The Economics of Solar Power in Canada – Executive Summary. (2020). Retrieved 14 December 2020, from https://www.cer-rec.gc.ca/en/data-analysis/energy-commodities/electricity/report/solar-power-economics/index.html
[7] CHRISTENSEN, A. (2020). Assessment of Hydrogen Production Costs from Electrolysis: United States and Europe. Retrieved 14 December 2020, from https://theicct.org/sites/default/files/publications/final_icct2020_assessment_of%20_hydrogen_production_costs%20v2.pdf
[8] CER – Canada’s Renewable Power Landscape 2017 – Energy Market Analysis – Greenhouse Gas Emissions. (2020). Retrieved 14 December 2020, from https://www.cer-rec.gc.ca/en/data-analysis/energy-commodities/electricity/report/2017-canadian-renewable-power/canadas-renewable-power-landscape-2017-energy-market-analysis-ghg-emission.html