Green hydrogen could become cost competitive in under 5 years, according to Enapter, but this will require a serious rethink of how value is prescribed in the energy sector, and for the industry to shake off its obsession with centralized generation.
When following the nascent growth of hydrogen production, it’s easy to get drawn in by the large-scale production figures – just look at our story on JV’s project in Saudi Arabia this week – but it’s likely that the key development of the sector will lie outside the remit of these gigawatt scale projects. In conversation with Rethink Energy, Enapter co-founder Vaitea Cowan detailed how the company intends cost reduction to be driven by the serial fabrication of standardized electrolyzers.
The current cost of green hydrogen – hydrogen produced by renewable energy – can be as high as €10 per kg, compared to CO2-intensive grey hydrogen – from steam reforming – which sits be-low €1.50 per kg. We have seen some evidence from H2V Energies that green hydrogen can be put onto the market at competitive prices ($2.67 per kg), but broadly speaking this is not the case.
The consistently conservative energy sector has looked at this and placed – seemingly arbitrarily – an expectation that cost parity will not be reached until well into the 2030s. This won’t be the first time that the industry has underestimated a technology: the IEA has constantly had to update its expectations for solar and lithium-ion since it started posting price forecasts.
Carbon taxes will bring up the cost of grey hydrogen sooner than expected, by more than €0.50 per kg – even BP now expects a price of $100 per ton of CO2 to be in place by 2030. And while this is happening, unprecedented demand for green hydrogen will allow serial production and economies of scale.
To optimize this, Enapter has adopted the school of thought that compact and standardized modules can be pumped out at a reduced cost and stacked for use in projects of whatever size the system integrator would like. Success is already being seen on the cost front. Since its first Anion Exchange Membrane (AEM) model in 2018, the company managed a 40% reduction in cost by 2019, and a further 20% by 2020; the EL 2.1 2.2 kW unit now retails at $9,000 (not including the added option of a dryer if you’re operating a fuel-cell with high purity demand).
The company is also in the process of a “major scale-up” accord-ing to Cowan, and could break ground this year on it’s first net-zero, automated manufacturing facility in Germany, which will facilitate these costs to fall dramatically again from 2022. Moving from its EL 2.1 model to its mass-produced EL Model T, Enapter is hoping to bring unit costs down to €2,500 by 2023/24. With a concurrent increase in product lifetime, this will bring the Capex contribution in the levelized cost of production down from €6.70 per kg to €1.40.
This levelized cost has also been bolstered by incremental improvements in production efficiency; over the past two years, En-apter has pulled this up by 4% to a 68% efficiency in the conversion from electrical energy into chemical energy stored within hydrogen molecules.
This distributed/modular approach is one that is starting to gather momentum across the energy industry: in residential solar, battery storage and V2G technology. It’s worth highlighting that cost reductions in lithium-ion systems were largely due to reductions in cell prices – and the same sized cells are used in various quantities over systems of all sizes. The common analogy that players in these sectors like to use is that of computing; that PC’s advanced so quickly that mainframe computers were made largely redundant, and that if Google had just focused on large-scale computing, then we wouldn’t have cloud networks today.
The networking aspect of these distributed production resources is therefore something that needs to be addressed. In this space, Enapter has its Energy Management System, encompassed by a cloud-based app, which maintains the performance of the system and allows a rules-based management system for hydrogen production. This can be paired with residential generation and storage systems for electricity and hydrogen to allow optimum production at times when local electricity demand or the price of wholesale electricity is low.
One of the exciting opportunities that this could open in the future, much as residential storage is starting to in the power sector, is for micro-energy trading from distributed resources as part of a ‘smart grid’ system which could be extended to incorporate hydrogen transmission. With optimized trading, costs of both electricity and hydrogen will fall further.
The cost of electricity is often overlooked when assessing the life-time cost of green hydrogen, especially seen in the lack of ambition seen in figures published by the IEA. If electricity prices were to remain constant for an Enapter electrolyzer, the share of electricity in the cost of hydrogen production would rise from 25% to 58% over the next 4 years. But the reality is that electricity prices are falling, especially in the context of producing hydrogen. With more and more renewables comes more and more curtailment, and wholesale electricity prices that have dipped into the negative on numerous occasions through recent months. While we may be someway off having Netflix-style subscription rates for electricity, incentives for hydrogen production could bring the associated cost of electricity down low enough to make green hydrogen cost competitive by 2025.
In Europe and Japan in particular, we’re told that the hydrogen ‘hope or hype?’ debate falls firmly on the side of hope. The only objections seem to come from the veterans of the industry, who claim that they’ve ‘heard it all before.’ But the difference now is that, for the first time, businesses, academics, and policymakers are starting to pull in the same direction. National hydrogen strategies are being published, and incentives and buyer-side subsidies will soon be in place.
A key barrier to overcome here is how hydrogen production is viewed – is it generation? is it storage? is it both? – and we’ve seen the same argument being wrestled with in the battery storage sector. For Enapter, the hope is that the lifetime cost of its systems is where value is allocated, rather than in the cost-per-MW, which inherently favors larger systems.
Analysts often look through a project finance lens, assuming that projects will operate at constant performance for a 20- or 25-year lifetime, without declines in efficiency, stack replacement, or the sustainability of the product itself (including recyclability, safety and upstream emissions). With Enapter holding ad-vantages in this regard over Proton Exchange Membrane (PEM) technologies, reassigning value to these characteristics needs to happen on an industry-wide level.
With headquarters in Germany, the company has deployed its AEM electrolyzers in over 100 projects across 33 countries, spanning end-use applications including: microgrid electricity storage; peak shaving; rural electrification; power-to-heat; power-to-gas; nitrogen purification; as well as road and air transport.
Having come close to winning the Shell Energy Challenge in 2018, it’s potentially a good thing for the company’s growth that it man-aged to progress swiftly as a privately owned entity; it’s now in a series B round of funding. If the company decides to go public in the future, it’s likely that this will coincide with the Enapter’s vision of its electrolyzers reaching a commodity status in the market.
Following goals set by the Hydrogen Council, the company has set an ambitious target to occupy a 10% market share in the global production of electroyzers by 2050. With the EU announcing a strategy to bring online 60 GW of hydrogen production by 2030, its home continent of Europe might not be a bad place to start, before progressing into Asia where the company operates offices in Thailand, with another set to open in Japan this year.
Original article here.