The Cost of Everything

The True Cost of Hydrogen Part 1

January 18, 2021 Season 1 Episode 14
The Cost of Everything
The True Cost of Hydrogen Part 1
Show Notes Transcript

This is the first of a two-part series, in this episode I discuss the costs of producing hydrogen, the so-called hydrogen rainbow, and the potential reductions in cost of green hydrogen.

A link to the episode with Dr Daniel Dias - Value to Society (buzzsprout.com)

The study by Imperial College London -  | Uncovering the true cost of hydrogen production routes using life cycle monetisation - ScienceDirect

The Government 10-point plan - The ten point plan for a green industrial revolution - GOV.UK (www.gov.uk)

Checkout the website for the latest blog: thecostofeverything.net/

Follow the podcast on Twitter @costofpodcast

Join the LinkedIn page: Link

Welcome to the cost of Everything podcast. 

Today we are talking about the true cost of hydrogen. This is a two part series. In this episode I discussed the costs of producing hydrogen, the so-called hydrogen rainbow, and the potential reductions in cost of green hydrogen. 

The second part will talk about the impact on the demand side. What happens as a result of introducing the hydrogen economy to transport domestic and industrial consumption before we get into it? Please subscribe on whatever platform you're listening on. I would really appreciate a rating and a comment on Apple. For some reason, this helps with getting the podcast to people.  

My hope is that these podcasts can help professionals to get wider understanding of how we all approach costs and decision-making with cost information. I also want non estimators to understand what we do and to produce interesting topics to generate further discussion and debate. Please also check out the LinkedIn and Twitter pages. 

I provide regular updates on social media and notify when the blog posts are ready. So thanks again for listening. 

OK, so why do we care about hydrogen? To many a hydrogen economy looks like it will be an important part of transitioning to a sustainable energy economy to reduce carbon emissions, and from heavy energy users such as transport and industry. So we tend to think of hydrogen as a way of meeting some of the climate goals in the near future. 

In the UK 10 point plan for a green industrial revolution that was published in late 2020, the second point indicates that economic growth will be built on low carbon hydrogen. When we look at it, hydrogen has an impact not only on the output side but on the production side. If you consider that the UK Climate Change Committee forecast. 

The 80% of hydrogen consumed in 2050 will come from blue hydrogen. There are some questions that we need to be asking. Wait, what is blue hydrogen you ask? So there is a notional hydrogen rainbow, the International Energy Agency explained. The hydrogen rainbow is. 

Lowe's Gray Hydrogen is produced industrially from fossil fuel sources, mainly natural gas. These also produce and emit significant amounts of carbon blue hydrogen is cleaner where the emitted carbon is captured and stored or reused, so has a lower environmental impact. 

And green hydrogen is produced from renewable energy sources, so carbon is not emitted at the point of hydrogen production, so those are the three definitions, but a study from 2019 shows that over 90% of the manufactured hydrogen is produced from fossil fuel feedstocks, so their grade hydrogen. 

And this can be significant on the environment and externalities in general. Then, even I initially thought when considering just the production side, but on the face of it, it looks like a cheaper way to transition to larger scale hydrogen production. So let me just take a minute just to present a high level. The different sources of hydrogen production. 

So I'm just going to take a minute just to present at a very high level, so I'm not going to go into the production roots and the methods, but I'm just going to present the sources of hydrogen production. So as I mentioned before, we've got natural. 

Yes, so the resulting hydrogen also includes methane and some carbon dioxide. There's also coal gasification where coal is oxidized to produce hydrogen as well as carbon monoxide, carbon dioxide, and methane. There's also biomass gasification, which is then mixed with water. 

And it also produces hydrogen, carbon monoxide, carbon dioxide, and methane. There is a touted blue hydrogen version of biomass gasification. It requires carbon capture and storage technology as I'll talk about in a little while, this is not ready for deployment yet. 

And also there is the pyrolysis process decomposing hydrocarbons into solid carbon and hydrogen. One of the more promising technologies is through electrolysis, which can produce very high purity hydrogen requiring temperatures of over 650 degrees Centigrade to carry out. So this. 

Electrolysis happens with another technology. For example nuclear power wind energy or solar photovoltaics. 

And these technologies are ready for deployment. OK, so how do we measure the true cost? I mentioned true costs before. What is that? Well, true cost doesn't just consider how much it costs to build or operate the the production facility, but it also includes water clusters externalities. 

So when calculating the true cost, there is a need to assume things like the social cost of car. 

In monetary terms, but you need to derive the carbon footprint an what the social cost of carbon produced is to create that figure. You need to consider the costs of other greenhouse gas emissions as well, from cradle to grave over the lifecycle of that production facility. And if you're comparing different types of technology, you need to find a way of level Ising it. 

Essentially, turning the costs and revenues into an annualized value. This is because the production facilities will have different life lifecycles. 

So how and what do you monetize when you're looking at externalities? This is covered quite nicely by Doctor Daniel Diaz in a previous episode, so Go search that and check that out. I'll also put a link to that episode in the description. Externalities aren't just environmental impacts like climate change, but you have indicators like human health. 

You of course have different impacts depending on the production route. Are you using fossil fuels like coal and natural gas to produce hydrogen or using non fossil fuels like wind, solar or nuke? 

There are different stages in the production process where you could account for the cost of hydrogen production and is this over a number of years? Does this include the entire supply chain over the lifecycle? The environmental impact goes beyond climate change. You also look at the acidification potential energy consumed to produce hydrogen, eutrophication potential. 

So considering all this, which is the cheapest way to produce hydrogen? 

So how do we account for these externalities of hydrogen? Well, a recent paper from Imperial College London did just this. A link to the paper is also in the description. 

Their study incorporated a lifecycle assessment, a life cycle inventory which essentially tells you the amount of feedstock required. The NRG balance and the waste produced on the production route, and monetizes these and then overall presented the results as a levelized cost of hydrogen. 

I should point out here that the estimate estimates at this stage and at this level is subject to so many uncertainties, and the addition of externalities makes us even more difficult. 

The question is how do you account for the actual costs and impact of fossil fuels from hydrogen production? It's difficult because you can't validate accurately over a long period of time. Let's take each indicator or monetized point that Imperial College looked at and talk about the technologies which impact them the most. 

So unabated coal gasification which essentially is without any kind of capture of the emitted outputs or waste products shows the highest impact on human health. For ecosystem quality. Biomass gasification shows the highest impact. 

In terms of global warming potential, which is the total greenhouse gas emissions per kilogram of hydrogen produced, biomass gasification with carbon capture and storage shows the lowest global warming potential value. Although looking at the figure that the paper produced without carbon capture and storage nuclear looks like it has the lowest global warming potential. 

What the study from Imperial College really found was that externalities have a big impact on hydrogen production costs, particularly for fossil fuel roots. When monetized for electrolytic routes, the capital cost of production is the most significant cost. The lowest cost overall. When you take into account the externalities as well as the direct costs. 

But for the lowest cost corresponds to natural gas, blue hydrogen, fossil fuel roots, despite their higher CO2 emissions compared with the electrolytic roots. But there is a massive resource depletion, which is a significant environmental cost because of the use of natural gas. Other findings, so despite lower costs for coal feedstock coal gasification it does have the highest level levelized cost because of the huge externalities. 

Electrolysis based hydrogen. So from wind, solar and nuclear need capital costs to come down significantly, but in the long term they could emerge as a potentially attractive option. The capital cost of nuclear power plants is the biggest cost in the nuclear route to hydrogen, but it does benefit from the relatively clean nature of the uranium source and its higher capacity factor compared with wind and solar. I've shared the cost breakdown for renewable based hydrogen production on the website blog that will be accompanying this episode. 

The biggest blocker appears to be, as I've stated already. The large capital investment required. 

So why is it useful to know this true cost rather than just the capital cost? Well, policy and the market are going to impact the cost of producing hydrogen from different sources. The IEA project. A rise in natural gas prices due to market forces and that Gray hydrogen will also have an additional emissions tax burden in different regions globally. 

So you need to account for a potential minimum CO2 price and that price likely increasing as well as the volatility of the gas market in different regions around the world. The limiting factor at the moment for hydrogen production via electrolysis is affordable scalability where the cost of electricity via zero emission sources is too expensive. 

Transition technologies such as natural gas and bio mass with carbon capture and storage, but possibly more immediately. The production of hydrogen with nuclear power or wind could reduce the true cost of hydrogen. 

Hydrogen production could be a massive area of growth for poor economies in South America and continental Africa to think the sunshine and wind rich areas should allow the cost. Competitive production of green electricity connect these to hydrogen production and you have a potential export market as well as the ability to mitigate climate change. 

Through domestic consumption of green electricity, producers of hydrogen of electricity and governments can set targets to transition to green hydrogen from Gray hydrogen by employing the appropriate models with the true cost taken into. 

Account, do these require new business models? Well, yes, but a lot of companies are ahead of the game on this and the models are there. It's a case of fostering and implementing them to achieve the targets in the most efficient way. So just some key points of discussed today. A hydrogen economy is seen as a key part of a sustainable energy future, it's potentially as versatile as natural gas, and it can be produced in a number of different ways. 

Is one of the barriers to the adoption of green hydrogen is cost? If we take only the view of capital costs clean hydrogen is limited. It will not be widely deployed on this basis. If prices do not come down enough to make the investment case viable. But if we take the true cost, the externalities and the costs of production there is a case to show that blue and green hydrogen is cheaper than grey. 

The other side is that of energy policy with a carbon price and demand changes for natural gas in the future. The assumption that Gray hydrogen will be expected to stay low is a fallacy. The comparative costs of production start to favor green technology. 

If we are to transition to a hydrogen economy, we can't repeat the mistakes of fossil fuels. We need to consider the externalities associated with the production side as well as the use and end of life cause. 

OK, so that's the production side. The next hydrogen episode will be in a few weeks time talking about the impact of hydrogen as an energy source on the demand side, how it could be used to decarbonize transport, domestic and industrial energy usage. Next week I'll be discussing decision-making using. 

Socioe-conomic indicators with my next guest, I hope you can join me for that. Until then, thanks for listening and have a great week