Hydrogen has been used for local, off-grid energy storage, but now that renewable energy for cracking water is getting much cheaper, electrolysis co-located with renewable energy facilities is being proposed as a major component of grid storage. During periods of surplus generation from variable sources, the cost of electricity can go negative. The technical terms in the world of finance are hedging and arbitrage. Using them for speculation can be disastrous, but using them as tools to flatten supply and demand fluctuations gives us much greater certainty about costs, and thus makes the economy work much better.
The solar highway to Australia’s renewable hydrogen economy
The Australian Renewable Energy Agency [ARENA] says that on-site solar electrolysis is not just the most cost-effective way of developing a domestic and export hydrogen economy, but perhaps the only way.
The new Renewable Hydrogen Market Report, produced by ANT Energy Solutions and backed by the Australian Renewable Energy Agency (ARENA), features a number of key findings in the race to develop an Australian renewable hydrogen economy. The main conclusion is that on-site solar is the only way to go.
The report’s authors ran two models for renewable hydrogen produced by electrolysis, The first is a high OPEX, low CAPEX model (grid-connected, high capacity-factor), while the second is a high CAPEX, low OPEX model (behind-the-meter, low capacity-factor). The analysis indicated “that despite the much lower utilization rate, behind-the-meter solar renewable hydrogen generation can produce hydrogen at approximately half the cost per kilogram to a grid-connected system” with an electricity cost of AU$0.11 (US$0.07) per kilowatt-hour.
What this means is that the most cost-effective way of producing renewable hydrogen is by powering an electrolyzer with on-site solar. Indeed, the report suggests that hydrogen can be produced via on-site solar at a cost of $3.19 per kilogram of hydrogen versus $6.08 if produced from the grid.
Of course, considering that the costs of solar continue to decrease as efficiency rises, the cost of behind-the-meter solar hydrogen will only continue to drop, possibly below the AU$2 mark.
We also see technology enabling conversion of diesel trucks to hydrogen, at far less cost than making new electric trucks. Electric trucks will eventually take over, but I won't fight anything that helps in the meantime.