The future is bright for hydrogen fuel cells. Especially if it’s green hydrogen powering the fuel cells. That’s because the cost of solar and wind have come down dramatically over the years. And that translates into hydrogen fuel cells becoming competitive in certain applications. Here’s a look under the hood on fuel cell economics.
Hydrogen Supply Chain
Before we dive into hydrogen fuel cells, it’s important to understand the hydrogen supply chain and where fuel cells fit in. You might think of cars first, but fuel cells are just one of several end-use applications of hydrogen. Hydrogen is also used in a variety of industry applications like metals refining, synthetic fuels and chemicals. It can also be combusted.
No matter what the end use is, what ultimately matters for fuel cells is the cost per kilogram, $/kg, of hydrogen. To get there, we need to take a ride on the hydrogen supply train and make a couple of stops.
There’s many ways of producing hydrogen. However, today, two primary methods are mainly discussed, electrolysis and steam reformation. Electrolysis is essentially using electricity to break apart the water molecule H20 into the hydrogen molecule H2 and oxygen O. I’ll be focusing on electrolysis for this post.
The other primary method, steam reformation, pretty much utilizes natural gas as a feedstock and, through a thermal process with steam, breaks up methane CH4 to produce hydrogen. By the way, this is currently the cheaper way of producing hydrogen.
When people talk about Green Hydrogen, they’re really talking about electrolysis. If you think back to high school chemistry, you probably learned about it or even did an experiment with electrolysis. And it’s rather simple. Electricity and water in, hydrogen and oxygen out.
There are different types of electrolyzers, but Polymer Electrolyte Membrane (PEM) electrolyzers are all the rage right now for green hydrogen. PEM electrolyzers work well with renewable energy like wind and solar. Because of it’s high current density, it handles fluctuations of power well at higher efficiencies. It’s also simple in system design, with electricity and water as the only inputs.
In terms of cost, electrolyzers are projected to decrease especially as production goes up. It’s projected to go from about $1,100 to about $500 per kilowatt as annual production hits 50,000. In my post titled, “Going Platinum,” I talk about the use of platinum in PEM electrolyzers, where installed capacity of electrolyzers is expected to grow 12x in the next five years.
In hydrogen lingo, the “stack” is where the electrolysis and the hydrogen production happens. Given that, you’d think that the stack would be the highest cost component of an electrolyzer. However, it’s actually the “balance-of-plant” or the support systems that handle power and water intake and other processes that make up the bulk of the hard costs.
Hydrogen Fuel Economics
For the sake of getting a handle on hydrogen fuel costs, I took a look at a hypothetical hydrogen fuel production supply chain. This includes production, compression, storage and dispensing. What I was interested in was more of a future look when electrolyzer costs and renewable energy prices come down a lot.
I assumed a 3.5 megawatt electrolyzer that could produce up to 1,500 kg of hydrogen in a day. I also assumed $500/kW for the cost of the electrolyzer, about $1.9 million if you factor in the cost of installation. In addition, for the cost of electricity, I assumed 4 cents/kWh from solar PV – which for a small utility-scale solar farm is not a reach. Especially if you can contract for the power through a long-term power purchase agreement (PPA). Lastly, I used generic financial and maintenance costs embedded in NREL’s H2A model.
In total, we’re looking at an all-in hydrogen to pump price of $5.05/kg levelized over 20 years. If we look at some drivers of production costs, every 10% change in electrolyzer capital costs would result in a $0.07/kg change in the cost of hydrogen. Interestingly, the cost of electricity has a bigger impact with every 10% change resulting in a $0.23/kg change in hydrogen costs.
Impact of Renewable Energy
So in this example, I assumed the cost of solar at 4 cents/kWh for a small utility-scale solar farm. Now this analysis assumes that in order to produce 1,500 kg/day, you’re running this 3.5 MW electrolyzer at an 85% capacity factor. Solar farms have an average capacity factor between 25-30%. So obviously the solar would have to be sized large enough and be paired with energy storage to allow continuous production. But with the cost of solar and storage coming down dramatically, 4 cents/kWh is not a stretch. Even a 20% decrease to 3.2 cents/kWh is already here in some parts of the country.
Rather, if you’re taking grid power with very high penetrations of solar PV, then the electrolyzer itself can be used to smooth the fluctuations of solar. And in some electricity markets, you’re compensated for doing that. In the chart below, you’re seeing an example of energy storage smoothing all the peaks and valleys of solar. You can use an electrolyzer in a similar way.
Hydrogen Fuel Cells
I think the end-use is the most exciting part of the hydrogen supply chain. There’s a range of applications for fuel cells.
For starters, hydrogen fuel cells pretty much works in reverse of electrolyzers. If you guessed right, fuel cells take hydrogen H2 and oxygen from the air as the input. Then as the reaction happens, it kicks out electricity and water. See a fuel cell in action:
Competition with Batteries
There’s often been talk about a breakeven point for hydrogen to compete with batteries. One of the things that hydrogen has going for it is energy density. And that translates into range. Naturally, some of the low-hanging fruit for hydrogen is with heavy and medium duty fuel cell vehicles. And by 2030, you can expect fuel cells to compete against batteries in heavy trucks and longer range vehicles like buses if hydrogen is between $4-6/kg.
I think things get more interesting when you get below $4/kg. Apparently, small passenger cars are in play for hydrogen at about $3.50/kg. And that’s the prized turf of battery EVs. You’ve got to give credit to Tesla (NASDAQ: TSLA), they dominate right now in electric cars.
So while there’s some hope for hydrogen fuel cell cars … perhaps in 10 years, there’s some exciting stuff happening with drones and even VTOL aircraft. That’s right, vertical takeoff and landing.
In the Sky
Drone technology is nothing new and they’re everywhere. And batteries have been the lynchpin for the explosive growth in drones, from toys to ones used for commercial use. However, one area that is getting more and more attention is delivery. Amazon (NASDAQ: AMZN) made waves with Prime Air years ago.
What made this famous was the first Prime Air delivery which took 13 minutes.
Now imagine a drone being able to stay in the air for 2 hours. It’s actually possible with hydrogen fuel cell drones. And that’s because of energy density. Hydrogen usually gives you about 3 times the air time than lithium polymer batteries. With that, the market really opens up for drone deliveries. Amazon, by the way, made a strategic investment in Plug Power (NASDAQ: PLUG) in 2017. It agreed to acquire the rights to purchase 55.3 million Plug Power shares and $70 million in equipment.
As for other futuristic applications, I’m really excited about the possibility of hydrogen VTOL. Essentially, we’re talking about a much larger and heavier drone that can carry passengers.
I believe the drivers are there for VTOL: urban densification, zero emissions, noise, maintenance and distance. You ought to remember these words together, Hydrogen and UAM, urban air mobility.
However, while hydrogen has less specific power than batteries, it has the range. So if it can get past that barrier, it might have a niche with urban to suburban transport. Especially if we’re talking about a 100 mile range.
Overall, you’ve got a lot of positive forces pushing in the same direction for hydrogen fuel cells. It’s clean, it’s a growing industry, it solves certain technology gaps and it opens up new markets. Moreover, I see game-changing investment potential with fuel cells.