Economic Modeling of Cost Effective Hydrogen Production From Water Electrolysis by Utilizing Iceland's Regulartoy Power Market
Author: Jeffrey David Jacobs
Year: 2016
Supervisor: Einar Jón Ásbjörnsson & Guðmundur Gunnarsson
The project was conducted in cooperation with Iceland Innovation Center.
Abstract
Water electrolysis technologies have demonstrated their ability to perform sufficiently enough for electrical grid balancing services while also producing gaseous hydrogen, which is a useful product in today's society. As installed renewable energy capacity increases, and hydrogen demand increases as well, electrolytic technologies will be needed to serve as flexible demand side management (DSM) techniques for a transmission grid operator to use in times of grid instability. A financial analysis was performed on hypothetical alkaline electrolysis plants attempting to lower manufacturing costs by participating in Iceland's regulatory power market as a DSM tool. The market is based on bidding to provide up or down regulation power, and this analysis focused more so on up-regulation bidding because of higher profits available (>4000 ISK per bid). Production prices not including bids ranged from 2,7 – 3,1 €/kg amongst the cases, which were characterized by a different number of electrolyzers. Production prices including bids reached lower than 2€/kg. Wholesale electricity costs positively correlate with production price when not including revenue from bids. Revenue from bids both positively and inversely correlated with production prices depending on the frequency of bids at a specific target price. The 11,5 MW (5 unit) case study in particular showed the most promise due to its favorable capital costs and mid-sized capacity. Results from the financial model do indicate that it is possible to lower production prices by participating in the regulatory power market. However, more structured secondary markets, and more competition in these markets in the future could be even more beneficial to the success of these energy-balancing technologies.