Challenges for business models and sustainability criteria for hydrogen in the market ramp-up – FfE at the Hydrogen Dialogue
For the first time, a face-to-face meeting of the Hydrogen Research Network (Forschungsnetzwerks Wasserstoff), sponsored by the Federal Ministry for Economic Affairs and Climate Protection, took place as part of the Hydrogen Dialogue, followed by the H2-Kompass Stakeholder Conference. In addition to technical discussions, the three-day event emphasized personal exchanges. FfE also took part in the conference by organizing two interactive sessions on the topics of “Business models and hurdles” and “Sustainability criteria for market ramp-up”. The results of the sessions will be incorporated into the work of the ongoing Trans4ReaL project.
World-Café: Discussion of business model challenges
Various stations are set up in a world café, with participants moving between the stations during the event and thus being able to discuss and exchange views on several topics. The FfE team prepared one station for each of four business models, with the participants changing stations every 15 minutes. At the stations, the moderator first presented the use case for the business model. Implementation hurdles were then collected, discussed and prioritized.
Operation of an electrolyzer
According to the Delegated Act (DA) for the production of renewable fuels of the Renewable Energy Directive II (RED II), three variants of electricity procurement are relevant for the production of green hydrogen by means of electrolysis in Germany:
- Direct power line between renewable energy plant and electrolyzer
- Power Purchase Agreement (PPA) between the operator of the renewable energy plant and the electrolyser operator
- Electricity purchase in the event of a grid bottleneck if a renewable energy plant would otherwise have to be curtailed (redispatch)
The high production costs of green hydrogen can be mitigated through various applications. Depending on the location, the waste heat from the electrolyzer and the electrolytically produced oxygen can be used in addition. Further, the electrolyzer operator can generate extra revenue by providing power for grid balancing. In principle, it is also conceivable to purchase mixed electricity from the grid (yellow hydrogen) in order to increase the electrolyser’s full load hours.
Significant implementation barriers were identified:
- The goal of high operating hours for the utilization of the electrolyser is not compatible with the production of green hydrogen according to the regulatory requirements of the DA of RED II
- Lack of and unclear regulation for the production of green hydrogen
- High electricity procurement costs prevent hydrogen from being competitive with existing fossil fuels
- Fluctuating demand for hydrogen and a lack of willingness to pay lead to planning and investment uncertainty for electrolysis operators
- High cost pressure for locally produced green hydrogen and subsequent green products due to global competition
Furthermore, a suitable choice of location in terms of infrastructure and the corresponding security of supply as well as the use of by-products was considered important. The need for the availability of water was also pointed out.
Construction and operation of a hydrogen network and trailer transportation
For the market ramp-up of hydrogen and its transportation to users, existing natural gas pipelines are being converted for hydrogen use, or new hydrogen networks are being built. The aim is to create a simple and ultimately inexpensive way of transporting hydrogen. If producers and consumers are not (yet) connected by a hydrogen network, it is also possible to transport hydrogen by truck and trailer. This type of transportation is particularly relevant during the market ramp-up phase and, over the long term, for the local distribution of small quantities of hydrogen (e.g. for filling stations).
Major implementation barriers:
- High capital costs require investment security
- Lack of knowledge about the future development of hydrogen demand at a high geographical resolution
- Lack of regulation (e.g. unbundling issues)
- Technical uncertainties regarding the composition of the gas, required purity, etc.
- Other energy carrier such as ammonia and LOHC as competition for the transportation of pure hydrogen
Usage of hydrogen in refineries and methanol synthesis
Methanol can be used as a fuel, energy source or as a reactant in the chemical industry. Methanol is synthesized from green hydrogen and CO2 captured from industrial processes or from the air. One example process is the substitution of grey hydrogen with green hydrogen in refinery technology for the desulphurization of fuels (hydrotreatment) and for the refining of heavy refinery residues (hydrocracking). This means that process-related greenhouse gas emissions can be reduced.
Major implementation barriers:
- Availability of CO2 sources in sufficient quantities
- Uncertainty about the definition and availability of sustainable CO2 sources (DAC, biogen, industry)
- Logistics of hydrogen to the plant still needs to be established (trailer, pipeline, rail)
- Seasonality in production and consumption
- Production capacities of hydrogen in sufficient quantities are currently not available
- Use of hydrogen in refineries cannot be included in the “GHG quota” (37th BImSchV)
- Uncertain long-term requirements for refineries
- Uncertainty about willingness to pay for green methanol
- Regulation: lack of definition of “partially” green products (e.g. fossil fuel “green” refined)
Conversion of hydrogen into electricity
Hydrogen can be stored and reconverted into electricity for market or grid/system purposes. There are primarily two technological methods for reconverting hydrogen into electricity: reconversion using fuel cells (high efficiency, comparatively high investment costs) and the combustion of hydrogen in gas turbines (lower efficiency with shorter start-up times, hence more flexibility).
Major implementation barriers:
- Lack of profitability of the reconversion plant due to insufficient capacity utilization and conversion losses
- Uncertainties about future hydrogen and electricity prices
- Volume availability of hydrogen is questionable; there are competing applications for hydrogen
- Various regulatory provisions must be taken into account (approval of fuel cells or storage facilities in accordance with the Federal Immission Control Act, EEG electricity procurement), which are not designed for hydrogen systems (e.g. start-up times for the provision of balancing power)
- Unresolved issue of the best possible control of decentralized, virtual power plants
In the meeting, it was concluded that the reconversion of hydrogen into electricity will not initially be a prioritized application of hydrogen, but that it will probably contribute in particular to reliability in the future energy system.
Conclusion of the World Café on business models and challenges
We were very pleased with the lively participation of the participants. The results of the event will help us to adapt and supplement the implementation hurdles for business models previously identified through literature research.
Session on sustainability criteria in the market ramp-up
In view of the current discussions on the requirements for “green” hydrogen, particularly in the context of the Delegated Acts (DA) at EU level, a further session was held on the classification of sustainability criteria over time. This took into account the tension that, on the one hand, strict sustainability criteria are important in order to incentivize the right investments in sustainable technologies at an early stage and avoid lock-in effects. On the other hand, however, strict criteria in the early phases of market preparation and market ramp-up can lead to a slowdown in the required ramp-up due to global competition and complicated verification procedures.
Against this background, using the headstand method, the most important sustainability criteria were initially identified for the following four topic areas: Electricity requirements, climate change, other environmental impacts, social and geopolitical impacts. These were then prioritized in small groups and classified according to the three phases of market preparation, market ramp-up and mass market. The workshop’s aggregated results are summarized in the figure below. It should be noted that there was no consensus for most of the criteria in the discussion, but the result presented represents an average classification of the participants.
We would like to thank everyone for their active participation and the interesting discussions. The findings from the workshop will help to put the analyses on the ecological and energy-economic evaluation of hydrogen in the course of the Trans4Real project into a broader context. We look forward to further exchanges within the hydrogen research network.
