Economic Assessment of Hydrogen Technologies Participating in California Electricity Markets Joshua Eichman, Aaron Townsend, and Marc Melaina National Renewable Energy Laboratory NREL is a national laboratory of the U.S. Department of Energy Office of Energy Efficiency & Renewable Energy Operated by the Alliance for Sustainable Energy, LLC This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications. Technical Report NREL/TP-5400-65856 February 2016 Contract No. DE-AC36-08GO28308 Economic Assessment of Hydrogen Technologies Participating in California Electricity Markets Joshua Eichman, Aaron Townsend, and Marc Melaina National Renewable Energy Laboratory Prepared under Task No. HT12.2A15 NREL is a national laboratory of the U.S. Department of Energy Office of Energy Efficiency & Renewable Energy Operated by the Alliance for Sustainable Energy, LLC This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications. National Renewable Energy Laboratory Technical Report 15013 Denver West Parkway NREL/TP-5400-65856 Golden, CO 80401 February 2016 303-275-3000 • www.nrel.gov Contract No. DE-AC36-08GO28308 NOTICE This report was prepared as an account of work sponsored by an agency of the United States government. 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This work was supported by the U.S. Department of Energy under Contract No. DE-AC36- 08GO28308 with the National Renewable Energy Laboratory. Funding was provided by the U.S. Department of Energy’s Fuel Cell Technologies Office in the Office of Energy Efficiency and Renewable Energy. iii This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications. List of Abbreviations and Acronyms CAISO California Independent System Operator FOM fixed operation and maintenance FC fuel cell NREL National Renewable Energy Laboratory SMR steam methane reformer VOM variable operation and maintenance iv This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications. Executive Summary As the electric sector evolves and increasing amounts of variable renewable generation are installed on the system, there are greater needs for system flexibility and sufficient capacity, and greater concern for overgeneration from renewable sources not well matched in time with electric loads. Hydrogen systems have the potential to support the grid in each of these areas. However, limited information is available about the economic competitiveness of hydrogen system configurations. This paper quantifies the value for hydrogen energy storage and demand response systems to participate in select California wholesale electricity markets using 2012 data. For hydrogen systems and conventional storage systems (e.g., pumped hydro, batteries), the yearly revenues from energy, ancillary service, and capacity markets are compared to the yearly cost to establish economic competitiveness. Hydrogen systems can present a positive value proposition for current markets. Three main findings include: 1. For hydrogen systems participating in California electricity markets, producing and selling hydrogen was found to be much more valuable than producing and storing hydrogen to later produce electricity; therefore systems should focus on producing and selling hydrogen and opportunistically providing ancillary services and arbitrage. 2. Tighter integration with electricity markets generates greater revenues (i.e., systems that participate in multiple markets receive the highest revenue). 3. More storage capacity, in excess of what is required to provide diurnal shifting, does not increase competitiveness in current California wholesale energy markets. As more variable renewable generation is installed, the importance of long duration storage may become apparent in the energy price or through additional markets, but currently, there is not a sufficiently large price differential between days to generate enough revenue to offset the cost of additional storage. Future work will involve expanding to consider later year data and multiple regions to establish more generalized results. v This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications. Table of Contents 1 Introduction ........................................................................................................................................... 1 2 Previous Studies on Grid Revenue Calculation and Hydrogen Flexibility ..................................... 2 3 Hydrogen System Configurations ...................................................................................................... 4 4 Modeling Approach and Data Sources .............................................................................................. 6 4.1 Revenue Optimization ................................................................................................................... 7 4.2 Cost Calculations ......................................................................................................................... 11 4.3 System Configurations ................................................................................................................ 12 5 Results ................................................................................................................................................. 14 6 Conclusions ........................................................................................................................................ 18 7 Future Work ......................................................................................................................................... 19 8 References .......................................................................................................................................... 20 vi This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications. List of Figures Figure 1. Hydrogen technology configurations ....................................................................................... 5 Figure 2. Example of optimized operation for an electrolyzer and fuel cell storage system for two consecutive days .................................................................................................................................. 9 Figure 3. Comparison of cost versus electricity market revenue for conventional and hydrogen technologies ($3–$10/kg represents a range of potential sale prices for hydrogen) .................. 15 Figure 4. Breakdown of electricity market revenues with a hydrogen sale price of $3/kg ............... 16 Figure 5. Storage capacity sensitivity analysis for “FC-EY All” from 3 to 168 hours of storage ..... 17 List of Tables Table 1. Historical Energy, Ancillary Service, and Natural Gas Prices for CAISO in 2012a ................ 6 Table 2. Technology Assumptions ............................................................................................................ 8 Table 3. List of System Configurations .................................................................................................. 12 vii This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications. 1 Introduction Hydrogen is a versatile element that can be used in a variety of applications including chemical and industrial processes (Bourgeois 2007; Ramachandran and Menon 1998), as a transportation fuel (Green et al. 2008), and as a heating fuel for heating, cooking, power generation, etc. (De Vries et al. 2007;