Large volumes of low-carbon hydrogen from excess renewable energy production can help decarbonize the economy and thereby enable countries to meet their net zero emissions targets. The net-zero scenarios proposed by the International Energy Agency and the Commission on Energy Transitions show that hydrogen will meet between 15 and 20% of global final energy demand in 2050, all of which must be low carbon . This would increase the demand for hydrogen from less than 80 tonnes today to over 1,000 tonnes by the middle of the century and create a huge opportunity for renewables, especially solar photovoltaic energy.
How large-scale hydrogen will play a role in providing long-term storage to net zero power grids in the future is a hot topic in and of itself. However, the production of green hydrogen from small and medium scale electrolyzers offers considerable potential in the short term. The key is that it becomes commercially viable quickly, so that it can help solve network integration issues.
To date, green hydrogen from electrolyzers powered by renewable energy is adopted in small quantities in demonstration projects, but the technology is on the way to commercial maturity. So what makes co-located electrolysis and renewable generation financially attractive?
Network balancing revenues
RTE, the operator of the French transmission network, ensures the stability of the network by balancing supply and demand. Three network balancing services are currently the subject of a call for tenders by RTE, differing in their required activation time, their response time, their duration and the occurrence of the service as indicated in the table ( at the bottom right).
Some electrolysers may operate at a partial nominal load factor and therefore vary their demand back and forth in response to grid requirements. They produce hydrogen at a higher rate when there is an abundance of electricity that might otherwise be reduced, and decrease production when renewable energy production is scarce and the market is tight. This capacity allows them to participate in these calls for tenders. Primary and secondary reserves are needed every day to balance the grid frequency. The capacity market is only required during the tightest supply months of the year and ensures that there is always sufficient supply available to meet demand.
As part of Sacha Lepoutre’s master’s thesis, an analysis was undertaken to assess the capacity of an electrolyser, co-located with solar or onshore wind power, to provide auxiliary services to the grid. The potential economic value of doing this for a pilot scale commercial project has been quantified. The scenarios modeled were solar + storage, with the remaining part of electricity supplied by the grid, as well as solar + grid electricity, guaranteed as renewable using green certificates (GO or Guarantee of Origin). Another scenario was wind power + grid guaranteed as renewable using green certificates (GO or Guarantee of Origin).
The results of the analysis are presented in the graph (bottom left), plotting the IRR achieved by each project scenario against the resulting or negotiated hydrogen off-take price.
Several conclusions can be drawn from the analysis. More importantly, using the electrolyser to provide one or more frequency reserve services improves profitability, with the project’s IRR constantly increasing, regardless of the renewable energy with which it is associated. Network service revenues contributed up to 10% of total project revenues for a relatively small additional capital outlay. Second, on the French market and for this specific project, supplying the electrolyser with wind energy can outperform solar. And third, higher internal rates of return (IRR) are observed for electrolyzers which are only reserved and not activated on the secondary reserve.
In other words, although not the primary purpose of an electrolyser, the ability to provide ancillary services can create additional revenue streams and dramatically improve the profitability of a PV or wind project. This could lead to small and medium scale electrolyzers to become an important new entrant in the ancillary services market on the supply side. The potential impact on battery storage business models and ancillary service pricing pressures warrants further investigation.
However, the main obstacles to bankability remain. Although several innovative projects concerning frequency services have recently emerged and manufacturers mention the feasibility of such projects, practical feedback from real demonstrator projects is currently lacking. Additionally, to date, the lack of a regulatory definition of green or low-carbon hydrogen adds significant uncertainty to revenue streams.
Scaling up renewables is already a problem, and this problem will quickly escalate without large-scale, price-sensitive distributable demand that can be increased when renewable energy is available in excess. In the long run, electrolysers may well provide some of this shippable demand.
About the authors
Sacha Lepoutre has undertaken a master’s degree in the Sustainable Energy Futures program at Imperial College London. He works in emerging markets as part of a larger transition to a more sustainable future. He is currently the hydrogen manager of Neoen, an independent producer of renewable energies, in France.
Nicolas Choleur is a partner at Everoze, a technical and commercial energy consulting firm specializing in renewable energies, energy storage and flexibility. He has been designing, engineering and operating all kinds of solar PV systems around the world since 2006, from residential PV panels to large scale power plants.