In a hydrogen-electric economy, power companies could see very large market opportunities—and play a major role in enabling and accelerating implementation. So concludes a new white paper, The Roles and Opportunities for Power Companies in the Hydrogen-Electric Economy, by EPRI and the Hydrogen Utility Group (HUG).
HUG, founded in October 2005 by nine power companies, with the support of DOE, the National Renewable Energy Laboratory (NREL), EPRI, and the National Hydrogen Association, was initiated as a way to accelerate utility integration of promising hydrogen energy-related business applications.
Meeting the needs for a hydrogen-electric economy could represent an important new convergence between the utility and transportation sectors. Our analysis indicates that, under some scenarios, annual new revenue on the order of $1 billion to $5 billion could be realized during the first-phase transition period via use of distributed electrolysis systems. The long-term revenue opportunity exceeds $200 billion/year in a fully developed market with potentially higher operating margins.
The scale of the market could range from selling an additional 40 to 800 terawatt-hours (TWh) of electricity via distributed electrolysis, to the installation of 10 to 300 integrated coal gasification plants, biomass plants, or nuclear power facilities over the next 20 years. (1 TW-hour equals 1 billion kilowatt-hours.)
This opportunity may be even more attractive for utilities because a large portion of the additional electricity capacity needed for the hydrogen-electric economy can be met with the existing electric generating infrastructure through the use of off-peak capacity and under-utilized transmission and distribution (T&D) assets.
In addition, some analysts believe that the success of the transition to the hydrogen-electric economy could depend on actions taken by the electric power industry, which has been silent on this issue. Researchers estimate that a 10 percent penetration of hydrogen in the transportation market will be needed to justify the building of a new infrastructure for hydrogen production and delivery. Because power companies have existing infrastructure, they can be the prime enablers of the transition to the hydrogen economy.
In recent years, heightened investment and R&D to enable a hydrogen-electric economy have been spurred by a confluence of national policy drivers. The United States is searching for ways to help ensure the country’s long-term energy security by reducing dependence on imported petroleum. The need to improve air quality and reduce emissions of greenhouse gases (chiefly carbon dioxide, CO2) is a major national concern. Heavy dependence on imported oil threatens U.S. economic well-being.
In February 2004, the National Academies report on the DOE hydrogen program concluded: “A transition to hydrogen as a major fuel in the next 50 years could fundamentally transform the U.S. energy system, creating opportunities to increase energy security through the use of a variety of domestic energy resources for hydrogen production while reducing environmental impacts, including atmospheric CO2 emissions and criteria pollutants.”
Specifically for power companies, a number of factors are spurring interest in the hydrogen-electric economy:
• The nation’s electric grid could be used to enable the hydrogen-electric economy—improving the load factor of distribution assets.
• The hydrogen-electric economy will create increased off-peak demand for electricity—resulting in added revenue for the same asset base.
• Power companies seeking additional revenue sources could pursue options on the hydrogen value chain to grow their core business or expand beyond it.
• Potential co-production of hydrogen and electricity from clean coal plants, nuclear, renewable, or other central-station technologies may create market synergies, power company system benefits, and other yet-to-be-determined values.
• The proliferation of hydrogen-based generators—such as turbines, engines, and fuel cells—will create both new opportunities and challenges for power-company systems.
• Hydrogen production may be one way for utilities to fulfill the growing requirements for meeting state renewable portfolio standards.
• Power companies engaged in the value chain of the transportation fuel sector could potentially monetize the benefits of reduced greenhouse gas (CO2) emissions from that sector.
To provide some perspective on the potential market opportunity for utilities in a hydrogen-electric economy, the authors of the EPRI paper analyzed publicly available data on the transportation and energy sectors. U.S. Energy Information Administration (EIA) data for 2000 indicates that annual total gasoline usage in the United States is about 129 billion gallons. (One gallon of gasoline is roughly equivalent to a kilogram of hydrogen in energy content.) As a result, hydrogen-fueled internal combustion engines (ICEs) operating with the same efficiency as existing ICEs would require about 129 billion kilograms (129 million metric tonnes) of hydrogen per year. If the hydrogen were used to power fuel-cell vehicles, which are twice as efficient as ICEs, only half as much hydrogen would be required, or 64.5 million tonnes.
Analysis indicates that supplying 129 billion kg of hydrogen via electrolysis alone would require an additional 7,740 TWh of electricity per year. Given that current total electricity generation in the United States is about 3,970 TWh, an additional 7,740 TWh would represent approximately three times the existing electricity generating output. This magnitude of hydrogen supply via electrolysis would require both significant cost reductions in electrolyzer technology and a regulatory tariff framework to encourage this pathway.
Meeting U.S. hydrogen-vehicle fuel needs likely will take place over several progressive transition phases. In the first phase, hydrogen will be produced from centrally produced natural-gas steam methane reforming (SMR). In the next phase, hydrogen will be supplied through combinations of distributed production from smaller SMR facilities and distributed electrolysis stations. Following that, the source may be co-production of hydrogen from coal, nuclear power, and renewables, depending on the growth of hydrogen demand.
Table 1 estimates the magnitude in gigawatts of the equivalent generation resource options needed to address various penetration levels of the transportation fuel market. If fuel-cell vehicles become commercialized, the estimates in this table could be 20 percent to 50 percent lower because of the improved fuel efficiency of these vehicles.
As shown in Table 1, the different penetration levels might be met with different generation options, including:
• Distributed Electrolysis. Meeting 1 percent to 10 percent of the U.S. hydrogen vehicle fuel needs via electrolysis would require installing between 3,500 and 35,000 refilling stations and power generation ranging from 13 to 126 GW, providing 77 to 774 TWh of new power sales.
• Wind/Electrolysis. Meeting the transportation market needs via wind/electrolysis would require substantial new wind generation dedicated to hydrogen fuel production. As an example, if the current 9 GW of wind capacity in the United States were dedicated solely to hydrogen fuel production, its contribution to meeting the annual U.S. fuel needs would total only about 0.3 percent. Therefore, more than 300 GW of new wind power generation would be required to meet 10 percent of the market demand.
• Coal Gasification Co-production. Meeting these needs from coal could involve clean-coal technology, such as integrated gasification combined cycle (IGCC), as part of the growing movement in the United States to deploy advanced technology to exploit the nation’s coal supply. An EPRI study found that a 1 percent slipstream of the syngas from a 500-MW IGCC plant could produce about 1.5 million kg/year of hydrogen. If these numbers are extrapolated and a 20 percent slipstream is assumed, approximately 215 500-MW IGCC plants would be needed to meet 10 percent of the nation’s hydrogen fuel needs.
Figure 1 illustrates the scale of this evolving business opportunity associated with hydrogen production and what this opportunity might be worth to the power industry in additional revenue. Researchers believe a realistic projection for hydrogen fuel penetration might be closer to 2.5 percent to 5 percent by 2025. (The revenue estimates assume revenue from electrolysis at $0.03/kWh, and revenue from the sale of hydrogen fuel from coal and nuclear at $3/kg).
Given the potential size of the hydrogen market, what might the schedule and timing of the transition to a hydrogen economy look like? In the near term (2010 to 2015), the role of power companies might involve the co-production of power and gasoline from coal or combinations of distributed and centrally produced and delivered hydrogen fuel. As the demand for hydrogen fuel increases, opportunities may occur for more centralized co-production of fuel from coal, nuclear, and renewable resources, where it proves economical.
Figure 2 illustrates the potential timing of a hydrogen-electric economy and the potential market opportunity for power companies. The figure illustrates how an initial strategy based on distributed electrolysis can jumpstart this transition until larger, centralized co-production plants from advanced coal, biomass, and nuclear are implemented.
Roles exist for power companies to participate in the development and operation of all five stages of the hydrogen economy shown in Figure 3, including production, storage, delivery, conversion, and end-use.
• Production. This is the best area for early contributions by power companies to the hydrogen-electric infrastructure. Hydrogen is an energy carrier, not a primary source of energy. Production of hydrogen requires a source of energy. Hydrogen can be produced from fossil fuels, renewable energy, or nuclear energy. As the primary energy producers in the United States, power companies have a unique opportunity to provide the power for hydrogen production.
• Storage. Hydrogen may be stored as a compressed gas, as a liquid, or in a chemical compound. Industrial gas companies already own this area of expertise; it is not a core competency of power companies. However, power companies could gain added revenue through the sale of electricity required to compress and liquefy hydrogen.
• Delivery. At present, hydrogen is transported primarily by industrial gas companies via pipeline or by road via cylinders, tube trailers, and cryogenic tankers. Again, this is not a current core competency of power companies. However, a potential business opportunity for power companies may be “delivery of hydrogen by wire,” which may be more cost-effective than installation of new hydrogen pipelines.
• Conversion. Hydrogen may be converted to energy through gas turbines, ICEs, or fuel cells. Power company opportunities might include owning or operating gas turbines, ICEs, and fuel cells for electric production using hydrogen fuel. In addition, power companies could market and distribute these devices for distributed generation applications.
• End-Use. End-use areas include transportation (highway, rail, and maritime), stationary power generation, industrial markets, and other (military and portable power generation).
Despite the significant market opportunities for utilities in a future hydrogen economy, challenges also confront its advancement—both as technology barriers and economic/institutional barriers. Table 2 identifies some of the targets that must be met to enable a hydrogen-electric economy.
Critical-path technology barriers are as follows:
• Storage. Storage is the main technological problem of a viable hydrogen economy. At present, most vehicle storage systems are inadequate to meet customer driving range expectations (>300 miles).
• Production. Current fossil-fuel technologies produce CO2 and are not optimized for making hydrogen as an energy carrier.
• Fuel Cells. Fuel cells are about five times more expensive than internal combustion engines, according to the 2005 Multi-Year Research, Development, and Demonstration plan of DOE’s Hydrogen, Fuel Cells and Infrastructure Technologies Program.
• Electrolysis. Electrolysis is a key enabling technology for utilities to monetize the value of distributed hydrogen production at a local refueling station. However, significant challenges exist in the development of electrolysis systems, including achieving higher system energy efficiencies, lower capital costs, low-cost membranes, and higher system operating pressures.
Economic and institutional barriers include the following:
• Cost of Production. Hydrogen production costs are high relative to conventional fuels. Low demand inhibits development of production capacity.
• Fueling Infrastructure. At present, little infrastructure is devoted to hydrogen production and delivery, and the costs to develop it will be substantial.
• Safety Codes and Standards. There has been a great deal of progress in the development of uniform model codes and standards to ensure safety, insurability, and fair global competition. However, more progress is required, and this lack of codes and standards hinders insurance, investments, demonstrations, and local action.
Alternative competitive options to hydrogen include renewable fuels such as E85, liquid fuels derived from coal, bio fuels, and plug-in hybrid and all electric vehicles. (E85 is an alcohol fuel mixture of 85 percent ethanol and 15 percent gasoline by volume.)
Each of these options is in the early stages of development and deployment, and will have to be closely monitored. Nevertheless, each of these options offers unique roles and opportunities for power companies.
EPRI and HUG, with support from NREL and the National Hydrogen Association, will be looking for near-term markets and applications involving hydrogen as well as related potential business opportunities. Follow-on work also will involve the development and better understanding of relevant future hydrogen-electric marketplace scenarios, and the most promising business opportunities for integrated power-industry involvement.
EPRI and HUG also will support efforts to establish key relationships (at an industry level) with other important stakeholders in the hydrogen-electric economy, such as automobile manufacturers, government and regulatory agencies, and other infrastructure industries and system suppliers that will be critical to the transition.
A shared appreciation for each key stakeholder’s needs—along with a clear vision of the power industry’s role(s) in the future hydrogen-electric economy—will enable barrier-breaking, joint industry initiatives and will make a real contribution to the efficient transition to a hydrogen-electric economy.
A copy of the EPRI white paper can be downloaded within the EPRI Web site (www.epri.com) at http://my.epri.com/portal/server.pt?Product_id=000000000001013365.