Study on Early Business Cases for H2 in Energy Storage and More Broadly Power to H2 Applications

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Study on Early Business Cases for H2 in Energy Storage and More Broadly Power to H2 Applications FUNDED BY STUDY ON EARLY BUSINESS CASES FOR H2 IN ENERGY STORAGE AND MORE BROADLY POWER TO H2 APPLICATIONS FINAL REPORT June 2017 A REPORT BY LEGAL NOTICELEGAL NOTICE This document has been prepared for the Fuel Cells and Hydrogen 2 Joint Undertaking, however This documentit reflects has been the prepared views offor the the Fuelauthors. Cells andNeither Hydrogen Fuel 2 JointCells Undertaking, and Hydrogen however 2 itJoint reflects Undertaking, the views of the nor authors. the Neither Fuel Cells Europeanand Hydrogen Commission 2 Joint Undertaking, or the nor Advisory the European Board Commission may be or held the Advisory responsibl Boarde may for be the held use responsible that may for bethe use that may be mademade of theof theinformation information contained contained in this publication. in this publication. © FCH 2 ©JU, FCH 2017 2 JU, 2017 Reproduction is allowed, provided the source is acknowledged. Reproduction is allowed, provided the source is acknowledged. TRACTEBEL ENGINEERING S.A. Avenue Ariane 7 1200 - Brussels - BELGIUM tel. +32 2 773 99 11 - fax +32 2 773 99 00 [email protected] tractebel-engie.com TECHNICAL DOCUMENT Our ref.: P2H-BC/4NT/0550274/000/03 TS: Imputation: P.009733/0004 PUBLIC Client: FCH-JU Project: EARLY BUSINESS CASES FOR H2 IN ENERGY STORAGE AND MORE BROADLY POWER TO H2 APPLICATIONS Subject: A study prepared for the FCH-JU by Tractebel and Hinicio Comments: 01 2017 06 16 FIN *C. Chardonnet (Tractebel) *V. Giordano (Tractebel) *S. Rapoport(Tractebel) *L. De Vos (Tractebel) *F. Genoese (Tractebel) *G. Roig (Tractebel) * F. Bart (Hinicio) *J-C. Lanoix (Hinicio) *W. Vanhoudt (Hinicio) *T. De Lacroix (Hinicio) * T. Ha (Hinicio) *B. Van Genabet (Hinicio) REV. YY/MM/DD STAT. WRITTEN VERIFIED APPROVED VALIDATED * This document is fully electronically signed on 2017 06 16. TRACTEBEL ENGINEERING S.A. - Registered Office: Avenue Ariane 7 - 1200 Brussels - BELGIUM VAT:BE 0412 639 681 - RPM/RPR Brussels: 0412 639 681 - Bank account - IBAN: BE74375100843707 - BIC/SWIFT: BBRUBEBB 1. EXECUTIVE SUMMARY It is generally accepted that energy storage is slated to become a key component of power systems in decades to come, as the share of intermittent renewables continues to rise. Within the portfolio of storage technologies, hydrogen is widely recognised as a promising option for storing large quantities of renewable electricity over longer periods. For that reason, in an energy future where renewables (RES) are a dominant power source, opportunities for Power- to-Hydrogen in the long-term appear to be generally acknowledged. The key challenge today is to identify concrete short-term investment opportunities, based on sound economics and robust business cases. Initial business cases will likely be based on producing green hydrogen and supplying it to industry and mobility (“Power-to-Hydrogen” and “Hydrogen-to-X”). Business cases based on storing and re-electrifying large quantities of renewables (“Power-to-Power”) are expected to be niche applications in the short-term. The focus of this study is to identify these early business cases and to assess their potential replicability within the EU from now until 2025. An essential part and innovative approach of this study is the detailed analysis of the power sector including its transmission grid constraints. This is of key importance for hydrogen business cases, for at least two reasons. First, because electricity grids represent a potential source of revenues via the provision of balancing services1 given that electrolysers are flexible loads, i.e. can adapt their consumption. Second, because the running costs of hydrogen production are mainly determined by the price of electricity and this price may vary depending on local grid bottlenecks and RES curtailment. Already today, low-cost curtailed renewable electricity is available in various locations across Europe, thus representing an opportunity for electrolyser operators to significantly cut their input costs. In this study, we identify particular sub-national locations where low-cost electricity is available based on electricity market and transmission grid models with an hourly time resolution. It is important to note that these locations are not representative at country-level but represent the best starting point for building a bankable business case. 1 Balancing services are procured by the grid operator to maintain a real-time balance between supply and demand. P2H-BC/4NT/0550274/000/03 Ed. 16/06/2017 1/222 PUBLIC 1.1. Key conclusions of the study 1.1.1. Power-to-Hydrogen is bankable today The key conclusion of this study is that Power-to-Hydrogen is bankable already today. By 2025, an estimated cumulative electrolyser capacity of 2.8 GW could be installed in Europe based on sound economics, representing a market value of €4.2 bn. Even today, the aggregate amount of profitable business cases would amount to 1.4 GW and €2.6 bn, if all cases were realised. In general, a total (baseload) electricity price of 40-50 €/MWh or lower is required to build a profitable business case. This price consists of the total cost of supplying electricity to the electrolyser including grid fees, taxes & levies. An effective way to achieve profitability is to stack up several revenue streams from a variety of market applications. In locations with access to discounted electricity prices through valorization of local curtailed renewable electricity, the most bankable business cases identified in the short- and medium-term involve mobility and industry as primary applications, such as regional hydrogen mobility2 deployment, refineries and cooking oil production, complemented by gas grid injection. The payback time of the best located business cases varies from 3 to 11 years depending on the primary application, conditional on a gas grid injection tariff of 90€/MWh LHV. Only the refinery business case is not identified as profitable in 2017. An investment cost reduction of 10% (e.g. through investment subsides) would be required to bring the refinery business case at breakeven already today. In general, business cases that are purely based on primary applications (i.e. selling the molecule to industry or mobility) can be profitable but have a longer payback time than business cases that stack up multiple revenue streams. Revenues from providing frequency services to the power system (frequency containment and/or restoration reserves) will significantly improve bankability and cut payback times. They represent a small share of the total revenues (between 10 and 30%) but have a sizeable and positive impact on net margin (+40% to +80%) as the extra cost needed to offer grid services remains relatively low. On payback time, it allows a reduction of 30 to 50%, from 4-11 years down to 3-8 years. 2 Irrespective of the final consumer (buses, cars, forklifts…), as we study the delivery of H2 to an HRS. P2H-BC/4NT/0550274/000/03 Ed. 16/06/2017 2/222 PUBLIC Source: Hinicio Hinicio Source: Table 1: Profitability results of the three best short-term business cases 1.1.2. Power-to-Hydrogen and renewables will reinforce each other Given the cost structure of electrolysers, the access to low-cost electricity is key factor of profitability. Accessing curtailed renewable electricity at discounted price would be very effective in that regard, as well as system- beneficial. A value corresponding to 40% of the market price (60% price discount) in times of oversupply and at the specific location of oversupply has been assumed throughout this study.3 This is contrary to prevailing beliefs that excess renewables will be free, which is at the same time overly optimistic for the electrolyser operator and strongly unfavorable for the RES generator. This study demonstrates that Power-to-Hydrogen can be an attractive downstream market for RES generators in a context where the added cost of intermittency will be increasingly borne by the producers themselves, e.g. if priority dispatch is indeed phased out. Local price signals could be based on a legal and pricing framework between the RES and the hydrogen sector, which would be mutually beneficial as it would allow improving financial predictability on the RES generators side while at the same time contribute to making Power-to-Green-Hydrogen an economic reality. Partial exemptions from grid fees, electricity taxes or levies for electrolyser operators, justified on the grounds that these provide benefits to the electricity grid, will also help improve the economics of Power-to- Hydrogen. Such partial exemptions are already in place today in the four studied countries (France, Germany, Great Britain, Denmark), but not across the whole European Union. 3 In the current regulatory framework, such local price signals are not foreseen. P2H-BC/4NT/0550274/000/03 Ed. 16/06/2017 3/222 PUBLIC 1.1.3. Gas grid injection is instrumental to de-risk mobility business cases Strong synergies exist between Power-to-Hydrogen for mobility, gas grid injection and grid services, representing a short-to-mid-term de-risking instrument through the valley of death of mobility. As a matter of fact, gas grid injection can boost cash flows at low marginal cost towards breakeven during the ramp-up phase of mobility applications, when the risk of expected demand not materializing remains high (“valley of death”). Injection also allows for continuous electrolyser operation that helps to secure revenues from providing grid services, which generally require that the electrolyser is running. 1.2. Summary of findings 1.2.1. Identification of high-potential areas for Power-To-Hydrogen business cases (Section 3) Five power systems are selected for in-depth modelling, namely Germany, France, Denmark, Great Britain and Sardinia, following a multi-criteria selection process including power system criteria (RES share, grid congestion management costs), power market criteria (wholesale market price as well as its volatility, existence of and access to flexibility markets), hydrogen market criteria and natural gas system criteria.
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