Designing Optimal Integrated Electricity Supply Configurations for Renewable Hydrogen Generation in Australia

Abstract

Renewable derived hydrogen is increasingly seen as key to energy sector and wider decarbonization over coming decades. However, costs are still high by comparison with fossil fuel alternatives. Fortunately, falling costs with growing deployment of wind and solar renewables, and technology progress with electrolyzers promise improving economics for green hydrogen to 2030 and beyond. Wind and solar are now the cheapest electricity supply option in many jurisdictions including Australia. However, their high variable and somewhat unpredictable output poses challenges for electrolyzer operation and economics. In particular, there is a potential tradeoff between achieved electrolyzer capacity factor and renewable electricity capacity factors. We develop a comprehensive and integrated cost framework for design of renewable electricity supply configurations to minimize levelized hydrogen production costs. The electrolyzer model incorporates important and often neglected factors including performance degradation over time, financing rates, and indirect costs to assess the economics of 10 MW scale Alkaline and PEM electrolyzers. Our scenario analysis explores three possible configurations of electricity provision: (i) grid supply using both average and time varying whole saleprices, using current and projected wholesale electricity market data from the Australian National Electricity Market (NEM), (ii) the application of renewable power purchase agreements within electricity markets matched to flexible electrolyzer operation, using existing NEM solar/wind farm generation curves and (iii) off-grid electrolyzers matched to co-located wind and solar projects, including consideration of potential oversizing of the renewables to achieve higher electrolyzer capacity factors. We assess possible levelized H2 production costs of these different configurations in the near term (2020 costs) as well as for possible 2030 electrolyzer and renewables costs. Our findings highlight that the higher capacity factor of wind is a significant advantage for electrolyzer operation despite higher wind than PV project costs. It also highlights the significance of degradation rates and major refurbishments, as well as financing costs on total production costs, impacting LCH2 by around 30%. Overall, a wind-powered electrolyzer configuration currently likely offers the most economical generation pathway (A$4 – 9 kg-1) using both PPAs and off-grid supply. However, PV costs are projected to fall more than wind costs over the coming decade and beyond. Oversizing off-grid renewables up to 50% can improve overall economics by up to 10%. Our modelling suggests that future electrolyzer costs reduction (<A$700 kW-1, favorable financing schemes (weighted average cost of capital < 4%) and readily available low-cost renewable electricity (<30 MWh), can deliver hydrogen at costs of around A$2 - 3 kg-1 in Australia.