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green premium from hydrogen offtakers , and inflexible offtake requirements from the industry . These challenges are typically addressed with high load hours and limited flexibility , contradicting the requirements of the system operator , as mentioned above .
To address the high cost of hydrogen production , power purchase agreements ( PPAs ) are commonly used , fixing the electricity price and spreading the CapEx over many hours of production . Subsidies equally play a significant role in offsetting CapEx , but they often require compliance with regulation , which demands that renewable energy is additional , temporally and geographically correlated with hydrogen production .
Some offtakers require minimum volumes to be delivered , setting a daily or weekly goal for hydrogen production . A minimum of operating hours is usually set at 4,000 – 5,000 per year , translating to 45 – 60 % utilisation . Such operation stands at odds with the interests of the grid .
Hydrogen consumption perspective
A number of industries need hydrogen molecules to decarbonise . The European Union ’ s target for 42 % renewable industrial hydrogen consumption by 2030 presents a significant challenge for the Netherlands , which has the highest per capita hydrogen consumption globally . It is also an opportunity to lead the transition and build a system worth replicating by other countries . This system can rely on two options for sourcing renewable hydrogen : production and import .
Production of green hydrogen under the RED requires supply from intermittent renewable energy sources . In the absence of green energy , electrolysers can produce grey hydrogen , but this is neither environmentally nor economically efficient . A variable operation of electrolysers results in a variable hydrogen supply against continuous demand , creating a difficult market structure .
While some offtakers can accommodate intermittent supply , electrolysers alone may not suffice . To meet continuous demand within a stable energy market , two strategies can be employed : combining local production with import and investing in storage and pipeline infrastructure .
Case study
To understand the value of flexibility and its impact on the system , we modelled a hydrogen project under different interventions related to operation , hydrogen price and offtake , energy procurement , and financial aid in the context of the green hydrogen economy in the Netherlands .
Our techno-economic model simulates the optimal operation of an electrolyser and calculates project metrics . Technical inputs include energy intake from renewable assets and energy markets with price and volume profiles , parameters of the electrolysis process , and hydrogen offtake requirements . Financial inputs include costs associated with building and operating the plant , grid costs , hydrogen prices , and the interest rate .
The model optimises electricity purchasing strategy ( combining PPAs with participation in day-ahead and intraday markets , as well as passive imbalance ) and electrolyser operation to maximise daily gross margin . This is done by deciding how much electricity to buy and how to split it between production and reselling . The outputs are aggregated to calculate the Net Present Value ( NPV ) and Levelized Cost of Hydrogen ( LCOH ) for the project .
The model is an approximate representation of reality and contains simplified assumptions , such as fixed system efficiency and limited number of states ( no stand-by or cold starts ). Additionally , the model assumes perfect price and generation foresight , which is not realistic for intraday and imbalance markets .
12 Hydrogen Tech World | Issue 18 | October 2024