Hydrogen: Risk vs Rewards
DISCLAIMER - Discussions on our energy future are critical. It is time that those attempting to debate reveal their allegiances. In my case, I am consultant having previously worked with a major US OEM in developing conventional and environmental powertrains, a major fuel cell developer, a hybrid truck developer, several hydrogen technology outfits, a micro fuel cell company, and a natural gas infrastructure provider. Today, I have a client interested in hybrid vehicle technology. I am also interested in renewable fuels. I have presented extensively on the challenges of fuel cell vehicles.
The generic high level analysis that is based on scientific analysis and aesthetics is becoming less meaningful in understanding where and how hydrogen should be implemented. There is continued confusion over whether a hydrogen economy is viable. Billions of private and governmental dollars are being spent on hydrogen despite this absence of clarity. I intend to address two underlying assumptions used in analysis for hydrogen.
First, the debate assumes thermodynamics and efficiency determine adoption of technology. In fact, what drives our energy infrastructure is profit and risk. To consider the viability of hydrogen in an energy grid or transportation we must consider who will invest large sums of money with an assurance that these individuals will control a market with large profits.
Business models require a more comprehensive cost accounting that has largely been by academics. The additional elements include tax burdens, retail costs, aggressive amortization, and other business costs. This accounting must address realistic utilization of capacity rather than the idealized utilization common in other studies.
A second false assumption is that an energy carrier is more valuable for any single industry if it is universal. Energy infrastructure in any industry is developed based on constraints and objectives that include much more than environmental considerations. Industry and regional realities also further define environmental objectives. For real projects, focusing on aesthetic factors like universal applicability are counter-productive.
Both methanol and electricity have “universal properties” but are not a viable technology (although they are much closer to viable) for transportation. Each industry evolves to the energy carrier that best suits what provides value to consumers and profit to suppliers. There is much that can be considered from prior experience with alternative transportation fuels.
The next two sections analyze the implication of these false assumptions.
CONSIDERING MORE THAN THEORETICAL COST
Industrial gas companies currently make and sell hydrogen all over the world. These companies use all the different techniques for hydrogen production including electrolysis (in remote regions), steam reforming, partial oxidation, and are the leaders in evaluating new technologies for production. Despite this experience, these companies are only able to supply hydrogen at costs between $7-$10/kg to their most special industrial customers. To get the low rate you really have to negotiate and sign a big long-term contract. Despite what technology companies might say the best any commercial activity can deliver hydrogen is somewhere between $4-7/kg. But to secure a reasonable margin, it is necessary to inflate the price substantially. Hydrogen fuel must be serviced, marketed, there has to margin to return the 3-5 year return on investment by proprietors of fuel stations.
Let’s consider the examples of gasoline and natural gas fueling. Gasoline price today is ¼ taxes, ¼ distribution and refining, and the other ½ from crude prices. Natural gas fuel price today is ½ pipeline price, ½ distribution and delivery. Why is natural gas fuel distribution / compression so expensive compared to petroleum? All natural gas fuel must be compressed at the fuel station.
If we make hydrogen at the fuel station, then the reasonable mark-up for hydrogen is larger than for natural gas. Prior to compressing the gas, hydrogen must be produced. Reforming is more complicated and expensive than compression. Also compressing hydrogen is more expensive than compressing natural gas (H2 is 3X as sparse as CH4). With these factors, the most favorable theoretical price of hydrogen is $4-5/kg. This is more than 4 times the price of feedstock.
Now let’s consider some other commercial factors. Maintenance technicians for hydrogen stations are going to be expensive. On call service technicians will add $0.25 per gge. Additional costs for fueling would add $0.25 per gge. To fund marketing, sales, and other administrative functions an additional $0.25 per gge is needed.
A reformer should not be turned off even if it is not being used. Stationary reformer suppliers have stated that when these units idle, fuel consumption is 20% of full-load capacity. In the busiest fuel station you expect 50% (12 hours) utilization of the reformer. This leads to at least a 15% additional premium on energy costs. In stations that are utilized moderately, it is easy to imagine 50% in additional energy costs. The per gge cost of idling may vary from $0.50-$1.00.
What does this analysis imply for profit, and certainty in achieving a profit? Business people need an assurance that the fueling station will have a long-term customer base that will buy fuel for at least 15 years. This is possible for a fleet installation. Still, reformers should be able to last at least 10 years with minimal service. What kind of profit is sustainable today or even in the near term future for a company that wants to sell a fuel at $7-10/kg? Who will be willing to pay that? The answer is no one.
ABANDONING “HOLY-GRAIL” BASED THINKING
Automakers, government officials, and academics have made so many statements on the inevitability of hydrogen. I tried for a long time to figure out rational arguments and found very few. I now believe that the optimism is based on the universality of hydrogen. Hydrogen can be made from any primary fuel and then made into heat or electricity. But exactly the same is true of heat, kinetic energy, potential energy, and electricity. Universality is neither a necessary or sufficient condition to drive a commercial implementation. I have learned that bringing hydrogen into an energy or transportation system only forces a new constraint.
A good example of the impact of hydrogen is in California where “believers” include the Governor, the head of CARB, the head of the CEC, and the head of the SCAQMD. Recently funds have been allocated to help establish a “hydrogen highway” with the foregone assumption that hydrogen is a superior environmental solution even though repeated analysis has shown inferior results for hydrogen when considered on a value for dollar basis. In other words, even though hydrogen does help reduce emissions and can in cases provide an efficient means to provide electricity these benefits are subject to and are often negated in a particular implementation.
What is even more frustrating is that well-known lessons from the past are being ignored as well. For example, with any new fuel, deployment of vehicles must occur together with infrastructure. Hydrogen demonstrations all over the country have completely failed in providing suitable load for the installed infrastructure. In most cases hydrogen fueling stations are capable of supporting one to four dozen passenger vehicles and most of these stations are lucky to have even a couple of regular vehicles. This lack of effective execution is an irresponsible waste of tax dollars.
Government agencies entrusted with taxpayer dollars should use that money in the most cost-effective manner not in the most aesthetically pleasing manner. There must be a burden of proof on the promoters of a hydrogen project to show why it results in real environmental benefit. Clean air and water is a real concern in California. California has had great success in implementing regulations that led the nation in establishing clean air rules and now CO2 legislation. California has also failed at attempts to mandate a particular aesthetic in the case of electric vehicles.
Progress on environmental and sustainable dimensions is hampered by this search for a "holy grail". Both government and investor funds have been squandered on valuing an attribute that in no way increases the commercial viability or environmental effectiveness of a system. Furthermore, it represents a kind of immaturity in the hydrogen community because it requires an active neglect of what we should have learned from previous experiences in alternative energy and fuels.
HYDROGEN TODAY IS A MICRO-NICHE FUEL
If we recognize these false assumptions, then we can look for effective hydrogen projects rather than dreaming about a "hydrogen economy". As GM and Dow have reported, one effective use of hydrogen is to use it directly in a fuel cell rather than as a source of heat. Dow and other chemical companies produce hydrogen in many facilities around the world and much of this hydrogen is either vented or combusted to produce heat. The relative value of hydrogen as an electricity feedstock is higher than as a heat source even with today’s relatively expensive stationary fuel cells.
Making hydrogen from electricity is almost never a good idea. However, in some cases where energy must be stored for a long time more than a month and cannot be carried to a remote location, making hydrogen from off-grid solar or wind and then burning it in a generator might be a viable solution. To identify an effective use of hydrogen requires that hydrogen must enable an organization to replace an existing system with a more profitable and environmentally/socially effective system.
IS THERE ANY HOPE FOR A HYDROGEN ECONOMY?
Today, large-scale hydrogen production occurs when hydrogen is being used as a necessary chemical in making fertilizer, fuels, and many other industrial products. There appears to be no example of economic large-scale production of hydrogen as an energy carrier. But further necessary research is under way.
One area of research that may have potential to produce hydrogen in a manner that is both highly profitable and socially beneficial is through conversion of biomass and coal. Making energy from coal and biomass usually produces lots of contaminants. There are several concepts being research to extract the energy/hydrogen content from a hydrocarbon while leaving the minerals and ash sequestered or in solid form.
Another area that might prove profitable is by producing hydrogen from high temperature processes like waste heat from nuclear reactors and from direct solar processes. It is not clear if these processes are competitive with just making electricity straight. A major obstacle to nuclear hydrogen is the need to design, develop and validate any change to a nuclear power plant. Direct solar production includes solar thermal and direct photo-catalytic production.
We need to continue to fund research on hydrogen but with a balance. To this regard some of what I have stated here is in support of Joseph Romm’s position whom I recently met along with Dan Sperling at a debate yesterday on the “Hydrogen Debate”.
Areas that I believe deserve equal funding as hydrogen are:
One element that no one including myself have properly addressed is how this analysis should be conducted if we adopt a finite world model. I know that Romm definitely does not accept this model although many, including myself, believe it at a “gut” level.
blog comments powered by Disqus