Green hydrogen: a newcomer to the energy sector

According to the "net-zero" scenarios proposed by the International Energy Agency and the Energy Transitions Commission (Commission aux Transitions Energétiques or "ETC"), hydrogen should meet between 15 and 20% of the global final energy demand in 2050, all of which must be low-carbon. This would increase hydrogen demand from less than 80 tonnes today to well over 1,000 tonnes by mid-century, and create a gigantic opportunity for renewables, especially solar PV. In addition, it can be pointed out that large volumes of low-carbon hydrogen from excess production from renewable energies could contribute to decarbonizing the economy, and therefore allow States to achieve their carbon neutrality objectives.

Before we even know the significant long-term role large-scale hydrogen will play in providing long-term storage to power grids, the production of green hydrogen from electrolysers of medium scale offers considerable short-term potential. Nevertheless, it is essential to make such a business model viable in order to help solve the problems of integrating renewable energies into the grid.

To date, green hydrogen from electrolysers powered by renewable energy is used in small volumes in demonstration projects, but the technology is on the way to commercial maturity. A question remains, what would make the co-location of electrolysis and renewable energy production financially attractive?

Revenue linked to network balancing

RTE, the transmission network operator, ensures network stability by balancing electricity production and demand. Three network balancing services are currently offered by RTE, which differ in required activation time, duration and service occurrence, as shown in the table below.

Some electrolyzers can operate below their nominal capacity and therefore adapt their demand in one direction or the other according to the needs of the network. This capacity, and in the same way as certain manufacturers, allows them to participate in the balancing of the network via calls for tenders. The primary and secondary reserve are needed every day to balance the network frequency; the capacity market is only necessary during the months of the year when supply is tightest and ensures that there is always sufficient supply to meet demand. These electrolyzers would produce hydrogen at higher efficiency when there is an abundance of energy that might otherwise be clipped, and decrease production when the renewable supply is more limited and the market is saturated.

Increased IRR

As part of his Master's thesis, Sacha Lepoutre analyzed the ability of an electrolyser to provide services to the network by coupling it with a photovoltaic or wind power plant. The potential economic value of a commercial pilot project has been quantified. The scenarios modeled were: "solar + storage", with part of the electricity supplied by the grid, as well as "solar + grid" and "wind + grid", with grid electricity guaranteed as renewable by means of certificates green (GO or original warranty).

The results of this analysis are presented in the graph above, which represents the Internal Rate of Return (“IRR”) obtained for each scenario with a hydrogen purchase price set at €7/kgH< sub>2.

Several conclusions can be drawn from this analysis. The main one is that the presence of an electrolyser to provide one or more services to the grid improves profitability, with a systematic increase in the IRR of the project regardless of the type of renewable energy with which it is associated. Revenues from grid services contribute up to 10% of total project revenues for a low additional investment compared to an EnR project. In addition, on the French market and in this specific case, powering the electrolyser with wind energy can be more efficient than with solar energy. Finally, higher TRIs are observed for electrolysers that are only reserved and not activated on the secondary reserve.

In other words, although not the primary purpose of a chlorinator, the ability to provide services to the grid can create additional revenue streams and significantly improve the profitability of a solar project photovoltaic or wind power. Small and medium-sized electrolysers could thus become an important new player in the network services market. The potential impact on battery storage business models and the economic pressure on grid service revenues warrants the need for further study.

However, major obstacles remain to achieving bankable systems. Although several innovative projects have emerged recently and manufacturers mention the feasibility of such projects, practical feedback from real demonstration projects is currently lacking. In addition, to date, the lack of a regulatory definition of “renewable” or “low-carbon” hydrogen adds significant uncertainty to the potential revenue streams explored here.

Changing renewable energy generation is already a problem, and this problem will rapidly exacerbate in the absence of large-scale, economically viable sources of demand that can be increased when an excess of renewable energy is available. In the long term, electrolyzers may well supply some of this demand.

About the authors

Following a bachelor's degree in mechanical engineering at EPFL, Sacha Lepoutre undertook an MSc as part of the Sustainable Energy Futures program at Imperial College London to specialize in renewable energies. He is currently in charge of the development of the hydrogen activity in France for Neoen, the first French independent producer of exclusively renewable energies.

Nicolas Chouleur is a partner at Everoze, a technical and commercial energy consulting firm specializing in renewable energy, energy storage and energy flexibility. Since 2006, he has been dedicated to the design, construction and operation of all types of photovoltaic solar systems worldwide, from residential installations to ground-based power plants.

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