Can We Afford It?

Technology advancements could make solar-derived hydrogen, with its potential for near-site delivery, cost-competitive.

By Margaret K. Mann and Johanna S. Ivy

"How much will it cost?” That inevitable, very reasonable question follows any discussion of the benefits of hydrogen.

To assess what tomorrow’s hydrogen costs will be, an understanding of current hydrogen production technologies and markets is vital. The price a customer pays for hydrogen depends primarily on delivery cost, amount purchased and contract length.

Many people believe that hydrogen is the only viable long-term option for addressing our energy, environmental and economic concerns. A better understanding of the costs of hydrogen technologies, systems and pathways is critical for making the right development and investment choices.

Today’s Hydrogen Prices
Most hydrogen produced in the United States is made from natural gas, by steam reforming. Approximately 4.0 million kilograms (kg) per day (1.7 billion standard cubic feet per day, or scfd) of “merchant hydrogen,” or hydrogen for sale, are produced. Another 7.1 million kg per day (3 billion scfd) is produced for on-site use (e.g., at refineries); this hydrogen is referred to as captive hydrogen. If today’s entire U.S. hydrogen capacity were used in transportation, it would fuel around 20 million cars. Worldwide consumption of hydrogen is around 103 million kg per day (44 billion scfd).

Refineries consume about 45 percent of total hydrogen produced, and petroleum refinery demand is expected to increase significantly during the next few years. The second-largest commercial user of hydrogen is the ammonia industry, which consumes 38 percent of the total. Other users include the methanol industry, the food-oils industries, metal producers, the electronics industries and, of course, NASA.

The January 24, 2003, issue of Chemical Market Reporter includes a profile of merchant hydrogen markets. Prices through 1997-2002 have risen steadily, primarily due to growing demand in the refinery sector. For compressed-gas hydrogen, loaded into tube trailers, the average 1997 and 2002 prices were $5.3 and $11.0 per kilogram, respectively. Additional delivery costs would be incurred to move this hydrogen from the production plant to the consumer’s site. As of the beginning of 2003, the price of pipeline-delivered compressed-gas merchant hydrogen ranged from $0.8 to $3.4 per kilogram. Because pipeline delivery is the most economical supply method, this hydrogen price can be used to approximate today’s plant-gate prices. The broad range reflects different natural gas price contracts, volume sold and the cost of installing new capacity.

The 2002 SRI Chemical Economics Handbook reports the production price (vs. the market value) of captive hydrogen, including a 25 percent per year return on investment, as $1.4 to $1.6 per kilogram. That assumes a natural gas cost of $3.50 per million British thermal units (Btu), which represents a feed cost of $0.6 per kilogram of hydrogen. If the natural gas were to cost $5.00 per million Btu, the production price of hydrogen would increase to
$1.7 to $1.9 per kilogram. The U.S. Department of Energy’s Energy Information Administration (EIA) forecasts the delivered natural gas price in 2025 will be $6.19 per million Btu in 2002 dollars. Such feedstock costs would raise the production price of hydrogen to just over $2.0 per kilogram. These prices do not include compression, storage or delivery costs.

Distributed Generation May Improve Economics
Today’s hydrogen consumers purchase significantly larger volumes of hydrogen than would be required for everyday vehicle driving. As transportation-sector demand grows, however, the high cost of delivery may result in more decentralized hydrogen systems.

The cost of delivering hydrogen, as summarized in Figure 1, is a function of production volume, and to a lesser extent, delivery distance. Unless large quantities of hydrogen can be purchased, the delivery cost quickly becomes greater than the cost of producing the hydrogen. If fuels-related hydrogen markets develop such that they can take advantage of the large plants supplying today’s hydrogen markets, or if hydrogen demand increases rapidly, justified investments in pipelines would significantly reduce the delivery costs. Alternatively, distributed production would mitigate the need to transport small quantities of hydrogen at high cost. The technologies being developed for distributed production include small-scale natural gas reforming and electrolysis. Because of its application to solar energy, electrolysis is the technology focus of this article.

Electrolyzer Costs and Opportunities
Electrolysis uses electrical energy to split water into hydrogen and oxygen. Two types of industrial electrolysis units are produced today. One involves an aqueous electrolyte solution of potassium hydroxide, and is referred to as an alkaline electrolyzer. The second type of electrolysis unit is a solid polymer electrolyte electrolyzer, also referred to as a polymer exchange membrane (PEM) electrolyzer.

What's in a Kilogram? • • • • • Though hydrogen prices and amounts traditionally have been quoted per standard cubic foot, the common unit of measure is quickly becoming the kilogram. A kilogram (kg) of hydrogen has essentially the same energy content as a gallon of gasoline, on a lower heating-value basis—123 megajoules. Thus, discussions of hydrogen in fuel applications are facilitated by this quick conversion to the gasoline equivalent. If hydrogen can be used in a fuel cell, and the fuel cell can achieve twice the efficiency of an internal combustion engine (both using hybrid technology), approximately 0.5 kg of hydrogen per day would be required to fuel the average light-duty vehicle.

Available electrolyzers have system energy efficiencies ranging from 56 percent to 73 percent without compression, on a higher heating-value basis. An efficiency goal for electrolyzers in the future is in the range of 50 kilowatt-hours (kWh) per kilogram of hydrogen including compression, or a system efficiency of 78 percent. Note that all efficiencies include energy requirements of the electrolysis peripherals such as rectifiers and dryers. Thus, in addition to stack efficiency, system energy consumption is a focus of R&D efforts.

Figure 2 details the results of a boundary analysis to determine the effects of electricity price on hydrogen costs. No capital, operating or maintenance costs are included in this analysis.

At current electrolyzer efficiencies, in order to produce hydrogen for less than $3.0 per kilogram, electricity costs must be between 4.0 cents and 5.5 cents per kilowatt-hour. In order to produce hydrogen for less than $3.0 per kilogram with a system that is 100 percent efficient, electricity prices must be less than 7.5 cents per kilowatt-hour. The EIA reports 2002 industrial, commercial and residential electricity prices at 4.83 cents, 7.89 cents and 8.45 cents per kilowatt-hour, respectively. Thus, if only electricity costs were incurred, current electrolyzers could produce hydrogen for $3.0 per kilogram at industrial electricity prices; an ideal system could produce hydrogen for $3.0 per kilogram at slightly lower than commercial electricity prices. As demonstrated, the cost of electricity is a significant factor for electrolytic hydrogen production.

In addition to the boundary analysis, researchers performed a discounted cashflow analysis using data from electrolyzer manufacturers. (See “Additional Resources” sidebar, Ivy.) The Department of Energy’s H2A (hydrogen analysis) cash-flow model was used to perform the calculations. Note that this analysis focuses on currently available technology, and results of this study should be considered representative of the electrolysis market as it stands today and in the near future, but not representative of long-term costs and prices. The electrolysis industry now serves a smaller market demand than would exist if hydrogen were used as a transportation fuel. As the demand for hydrogen increases, mass production will bring costs down.

Electricity price projections to 2070 are included in the H2A model. The projections from 2001 through 2025 come from the EIA’s Annual Energy Outlook 2004, and projections through the next decade are extrapolations. The projections beyond 2035 are derived from growth rates from a Pacific Northwest National Laboratory long-term energy model. Industrial electricity prices were assumed.

Results of the discounted cash flow analysis are shown in Table 1. The after-tax real internal rate of return (IRR) was fixed at 10 percent, and the selling price of hydrogen was varied until the net present value equaled zero.

Though the cost of hydrogen produced by the small units is extremely high, the forecourt case demonstrates the promise of electrolysis. Again, this analysis was performed on now-available electrolyzers. Thus, electrolyzer
R&D is likely to result in capital and efficiency improvements. Additionally, distributed hydrogen production via electrolysis may avoid some high delivery costs.

Two key factors cause the variation in cost contributions and results shown in the tables. First, due to varying system efficiencies, the systems require different amounts of electricity to make the same amount of hydrogen. Second, electrolyzers have varying cell-stack lifetimes. Cell-stack replacements add new capital costs.

The cost of producing hydrogen via current electrolytic processes depends largely on the cost of electricity, system efficiency and the capital costs of the systems. The potential for increasing system efficiency is limited. Though targeted efficiency improvements will reduce the electricity cost component, lower electricity prices will have a greater effect. Increased R&D will reduce electrolysis capital costs, but manufacturing economies of scale will be even more effective.

Solar Hydrogen Positioned to Be Viable
The fact that hydrogen is an energy carrier, like electricity, rather than a primary energy source, increases the possible options for its production. Hydrogen can be produced regionally via the most economical combination of local resources and delivery modes. Using renewable energy resources mitigates problems associated with dependence on foreign fossil energy resources, climate change effects and local economy energy expenditures. Figure 3 shows the vast quantities of hydrogen that could be produced from U.S. solar and wind energy resources. The cost of producing hydrogen from sunlight may not always compete with the cost of producing it from other resources, such as wind. However, significant opportunities exist for lowering the cost of solar-derived hydrogen from today’s photovoltaic/electrolysis costs.

Of long-term significance is the development of direct solar water splitting. Known as photoelectrochemical water splitting (PEC), this technique combines the processes of electricity production and electrolysis into one step. Though this technology is decades from commercialization, economic analysis demonstrates that, with significant research advancements, PEC has the potential to be cost-competitive (see “Additional Resources,” Mann, Spath and Watt).

Additional Resources • • • • • Natural Gas Projections to 2005, Energy Information Administration (EIA), U.S. Department of Energy: www.eia.doe.gov/oiaf/aeo/pdf/aeotab_14.pdf Annual Energy Outlook 2004 report, EIA: www.eia.doe.gov/oiaf/aeo/aeoref_tab.html#ng Costs of Storing and Transporting Hydrogen, by Wade Amos, 1998, National Renewable Energy Laboratory (NREL): www.eere.energy.gov/hydrogenand fuelcells/pdfs/25106.pdf Summary of Current Electrolytic Hydrogen Production Technologies: Milestone Report for the Department of Energy’s Hydrogen, Fuel Cells, and Infrastructure Technologies Program, by Johanna Ivy, 2004, NREL: www.nrel.gov/publications The Economic Feasibility of Producing Hydrogen from Sunlight and Wind, by Margaret Mann, Pamela Spath and Andrew Watt, 1999, Ninth Canadian HydrogenAssociation Meeting, 1999.

In the near-term, solar-derived hydrogen can benefit from electrolyzer cost reductions, as well as integration with the grid. If a solar array can generate electricity for sale to the grid during periods of peak demand, while producing hydrogen during times that approximate when the hydrogen will be required, overall costs can be reduced. Such hydrogen/grid interaction could reduce the production price of hydrogen by as much as 60 percent (see sidebar, Mann, Spath and Watt).

The National Renewable Energy Laboratory (NREL) is conducting analyses to better define these scenarios and identify opportunities for cost-reduction. A key aspect of these analyses will be to quantify the delivered cost of hydrogen. Because hydrogen from solar energy can be produced closer to where it is required, it may compete with central-production scenarios that require expensive delivery. However, storage costs may be higher with solar-derived hydrogen because of the intermittency of the resource; reducing storage costs will be part of the optimized scenarios.

In order to produce the most economic, environmentally benign hydrogen, local renewable resources should be a significant part of the production mix. Solar energy benefits from its distributed nature, its ability to co-produce electricity and hydrogen, and research advancements in photovoltaics, PEC and electrolyzers. These factors increase hydrogen’s flexibility for meeting the nation’s future energy needs.

Margaret K. Mann is a senior chemical process engineer at NREL in Golden, Colorado. Johanna S. Ivy is a chemical process engineer at NREL. For more information, access www.nrel.gov.