Business Model and Replication Study of BIG HIT

Guangling Zhao, Eva Ravn Nielsen

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Due to concerns about climate change, negative environmental impacts of some fuels, and the decline in the availability of fossil fuels, renewable energy technologies are growing rapidly and becoming mature. Such technologies can provide a major share of electricity supply demand globally. However, as their market share grows, concerns about potential impacts on the stability and operation of the electricity grid, as well as economic impacts due to grid upgrading requirements, may create barriers to their future expansion, due to renewable electricity’s intermittent productions and variability. ‘Green hydrogen’ can be seen as one of the solutions to integrate high penetrations of renewables in the energy system, using both the electricity and gas networks. At present, the ‘green hydrogen’ market is small and prices are high. However, costs can be driven down by upscaling the production of equipment to mass production; supply chain optimisation, and there is also still room for technology improvement. Now is the time to prepare for the integration of significant quantities of ‘green hydrogen’ into the energy system and gain experience from large-scale demonstration of relevant hydrogen concepts.

The BIG HIT project is creating a replicable hydrogen territory in Orkney (An island archipelago six miles offshore from North of Mainland Scotland.) by implementing a fully integrated model of hydrogen production, storage, distribution of the hydrogen across Orkney and utilised for mobility, heat and power. The BIG HIT project will use otherwise curtailed electricity from one wind turbine on Shapinsay and one wind turbine and a tidal test sites on Eday, and use 1.5 MW of Polymer Electrolyte Membrane (PEM) electrolyser to convert it into ~50 t pa of hydrogen. This will be used to provide heat to local public buildings. The excess hydrogen will be transported by ferry in hydrogen tube trailers to the Orkney islands largest town, Kirkwall, where it will be used to fuel a 75 kW fuel cell stack (which will provide heat and power to ferries when docked); and the remaining hydrogen will be used at a refuelling station to fuel a fleet of up to 10 electric-hydrogen range extended vans.

The present business model report includes a financial analysis of the demonstration project and should provide an early warning if there is anything that would require the project to be altered (for example, to negotiate negative priced input electricity). By gathering and critically examining inputs from project partners and equipment suppliers: electrolyser (ITM power), tube trailer (Calvera), catalytic hydrogen (H2) boilers (Giacomini), compressor (Hofer), fuel cell stack (Arcola Energy), Hydrogen Fuel Cell (H2 FC) van (SymbioFCell) and other stakeholders, the business model is developed within the 1st year of the project.

The cost analysis of this project considers the life cycle of hydrogen starting from the hydrogen production, transportation, and consumption. The cost includes the fixed cost for equipment and infrastructure investment and operation cost of electricity and water consumption. The functional unit is 1 kg hydrogen produced and consumed. The data collected from the project patterns and suppliers. The current analysis is based on the estimation of hydrogen production and consumption on both Shapinsay and Eday. Another objective of this report is replicability of the concept for follower territories of BIG HIT. So the cost of a replicated BIG HIT concept in the 5th year after starting BIG HIT is modelled based on the assumed capital cost reductions. Capital costs will be driven down through mass production or supply chain optimisation, and also by the technology development.

Under the two different time frames (present expectations and replication after 5 years of BIG HIT), five different scenarios are built to analyse the cost. In the first scenario S1 (current situation with limited use of curtailed energy) and the second scenario S2 (full utilisation of curtailed energy), the electrolysers on Eday and Shapinsay are directly connected to wind turbines and tidal test site. The electricity supply for the electrolyser is only from otherwise curtailed electricity. In the third scenario S3 (full utilization of electrolysis capacity and the consumed electricity from curtailed electricity), the fourth scenario S4 (full capacity of electrolyser and electricity from both curtailed electricity and power grid), and the fifth scenario S5 (full capacity of electrolyser and the consumed electricity from power grid), the electrolysers are connected to both the wind turbines and tidal test sites and the electricity grid. In the scenarios S3, S4, and S5, it is assumed that the electrolysers can operate at full capacity and run continuously at 24 hours per day. Further it is assumed, that there is a consistent demand of ‘green hydrogen’ on the market. The difference between the otherwise curtailed electricity and grid electricity is the price. The otherwise curtailed electricity would generate an income from Feed in Tariff (FiT), which also lead to the motivation for the hydrogen producer by using the curtailed electricity. In the current BIG HIT situation (S1) the cost of hydrogen production is calculated to be 9.87 £/kg on Shapinsay and 5.17 £/kg on Eday. Two reasons cause the cost of hydrogen production to be lower on Eday than on Shapinsay. Firstly, hydrogen produced on Eday has the priority to be transported to the fuel cell in Kirkwall, which means there would be no hydrogen unconsumed on Eday. Secondly, the cost of electricity consumed by electrolyser on Eday is less than that on Shapinsay. The difference is made by Eday Renewable Energy ltd. (ERE) sharing their FiT with the project Surf ‘n’ Turf (SnT) and the BIG HIT project where Shapinsay Renewables Limited, a child company of Shapinsay Development Trust (SDT) does not have the same agreement for the BIG HIT project by now. If the curtailed electricity from the wind turbines could be fully absorbed and the produced hydrogen would be transported and consumed consistently, the cost of producing hydrogen will decrease to 6.92 £/kg on Shapinsay if the agreement of electricity cost is same with that in S1. If the electricity cost is based on FiT, the cost of producing hydrogen will decrease to 2.52 £/kg presented in S2. With increasing of the running capacity, the cost of producing hydrogen can decrease to -2.33 £/kg with FiT support. In the replicated BIT HIT scenarios, the costs of producing hydrogen on Shapinsay are 9.02 £/kg and 2.00 £/kg in S1 and S2, respectively. If there would be no FiT for renewable electricity production in the future, the cost of hydrogen production will be 12.38 £/kg and 13.21 £/kg on Shapinsay and Eday, respectively (S5). The major cost comes from the cost of the electricity consumed from power grid. In the replicated BIT HIT project scenarios, the cost can decrease to 12.34 £/kg and 13.12 £/kg on Shapinsay and on Eday. This difference between from Shapinsay and Eday is due to the different capacity of electrolyser, 1 MW and 0.5 MW respectively.

The utilizations of hydrogen considered in this demonstration project are heat, electricity, and mobility. The replaced conventional energy sources are oil for heat, electricity from power grid, and diesel for mobility. The functional unit is defined as 1 kg hydrogen consumed. The costs of conventional fuels are obtained from the market price. The amounts of conventional fuels are calculated based on the same amounts of energy obtained from 1 kg hydrogen. The considered system boundary includes the hydrogen production process, hydrogen transportation, and hydrogen consumption. At each stage, the data has been collected from the project partners and equipment suppliers/manufacturers. The cost of hydrogen is calculated through the life cycle of hydrogen production and consumption. The suggested price of hydrogen in order to offer a cost-competitive solution is estimated. If the purpose is to supply heat (by boiler), the competitive hydrogen price is estimated to be between 1.22 £/kg and 1.28 £/kg without or with considering CO2 emission cost. If the purpose is to provide electricity and heat through a fuel cell unit, the competitive hydrogen price is between 1.48 £/kg and 2.97 £/kg without or with considering CO2 emission cost. If hydrogen is used as fuel for hydrogen fuel cell vehicles, the competitive price level of hydrogen is estimated to be 8.85 £/kg and 8.46 £/kg without or with considering CO2 emission cost.

By the comparison of the total costs for a certain heat, power or mobility service, between hydrogen technologies and conventional technologies, it is concluded that mobility is the application where hydrogen is closest to offer a cost-attractive proposition to the conventional technology, i.e. mobility using diesel as energy source. In the present scenarios, hydrogen is not close to being cost-competitive for neither heat purposes nor power purposes.
Original languageEnglish
PublisherDepartment of Energy Conversion and Storage, Technical University of Denmark
Number of pages37
Publication statusPublished - 2017

Bibliographical note

BIG HIT: Building Innovative Green Hydrogen Systems in an Isolated Territory: a Pilot for Europe.

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