Recipe for lowest electricity production costs

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Green hydrogen + solar power + wind power + electrolyser

PV Magazine reports in its online edition on an analysis by Aurora Energy Research on the topic of "Green Hydrogen Prices". According to this analysis, the prices for green hydrogen would drop to around five euros per kilogram by 2025.
According to PV Magazin, a project would be most profitable if solar power plants and wind power plants were combined with a comparatively small so-called electrolyser. You can find out everything you need to know here.

The most important terms explained simply

Before we delve a little deeper into the analysis on the topic of "green hydrogen prices", we will first clarify all the important terms so that you understand what it is all about and can join in the conversation:

The costs incurred when converting a form of energy into electricity are called electricity production costs. They are expressed in euros or dollars per megawatt hour (MWh), for example.
Electricity production costs are basically made up of several individual items that vary depending on how the electricity is produced:
        - the cost of capital (including the cost of financing borrowed capital),
        - fixed and variable operating costs,
        - fuel costs, if applicable 
        - the targeted return on capital over the operating period.

Important: The costs of distributing and buffering electricity according to demand are not included in the electricity production costs.
Knowledge of the electricity generation costs makes it possible to compare different electricity generation technologies in terms of their costs. On the Internet you will find various presentations of such comparisons, as tables, diagrams or texts, for example here.
Thanks to these explanations of terms, you are well prepared for an analysis of green hydrogen prices. Let's go!

What is green hydrogen?

Depending on how hydrogen is produced, i.e. with which technical process, the colourless gas is given a "coloured epithet". Green, in the sense of ecological and environmentally friendly, hydrogen is always spoken of when the hydrogen is produced with the electrolysis of water - and electricity from renewable energy sources, i.e. green electricity, is also used for this purpose. Green hydrogen is therefore considered to be greenhouse gas neutral (CO2 neutral).

While green hydrogen can be produced without the use of fossil raw materials, the situation is different for other hydrogen colours: the fossil natural gas needed to produce grey, blue or turquoise hydrogen must first be extracted from the depths of the earth, writes the Federal Ministry of Education and Research (BMBF) here on its website. This would cause considerable emissions, as small amounts of the greenhouse gas methane (CH4) would escape, which is about 25 times more harmful to the climate than carbon dioxide (CO2). In addition, according to the BMBF, hydrogen production would cause CO2 emissions.

For example, in the case of conventional (grey) hydrogen, about ten tonnes of CO2 are produced as a waste product per tonne (t) of hydrogen during the splitting of natural gas, the Federal Ministry continues. In the case of blue hydrogen, this CO2 is captured and usually stored underground - but storage is also associated with risks and high costs and is therefore not accepted by society in Germany.

What is solar electricity (photovoltaics)?

Solar electricity is electricity generated by a solar power system (photovoltaic system) from the energy the sun radiates onto the earth. A solar power system consists of many solar cells that are joined together to form solar modules. A solar cell is an electronic component. It consists of different semiconductor layers.

Often, high-purity silicon is used for this purpose, which is deliberately "contaminated" with other chemical elements - in such a way that a layer is created which lacks electrons on the one hand, and a layer in which there is an excess of electrons on the other.
A kind of boundary layer then automatically forms between the two layers, into which electrons penetrate in order to compensate for the imbalance. In this way, the charge can be shifted with the electrons: When a sunbeam, which in purely physical terms consists of photons (also called light quanta or light particles), the carriers of electromagnetic radiation, hits the boundary layer of a solar cell, the electrons are activated. They then "migrate" to the positive pole. If you close the circuit between the two layers, electric current can flow.

The solar cell has converted the light energy directly into electrical energy. Each solar cell by itself generates only a small amount of electricity. That is why you connect many of them together to form a module and increase the yield of solar electricity.

What is wind power?

Wind power is electricity generated by a wind turbine. Also called a wind turbine, it uses the natural energy that wind possesses (kinetic energy, kinetic energy of the current) and converts it into electrical energy.
The typical wind turbines that you see in this country in large numbers onshore (on land) and offshore (in coastal water) are so-called three-bladed buoyancy rotors.
They have a horizontal axis and a rotor on the windward side. Between the rotor and the generator, there may be an intermediate gearbox that transmits higher speeds. The common machine housing (the so-called nacelle) sits on a tubular tower and is moved along with the rotor in the direction of the wind - aided by a small electric motor.

What is an electrolyser?

An electrolyser is a technical device that uses electricity to carry out a chemical reaction, also known as material conversion: electrolysis. With the mass production of green hydrogen planned in the course of the energy transition, electrolysers are coming into focus as a production system. This is because they break down water into hydrogen and oxygen (so-called water splitting).

The corresponding chemical reaction equation looks like this:
   2 H2O 4 H+ + 4e- +O2
   4 H+ + 4e- 2 H2
Electrolysers can be differentiated according to the way they perform the water splitting.

What are electricity production costs?

The costs incurred when converting a form of energy into electricity are called electricity production costs. They are expressed in euros or dollars per megawatt hour (MWh), for example.
Electricity production costs are basically made up of several individual items that vary depending on how the electricity is produced:
        - the cost of capital (including the cost of financing borrowed capital),
        - fixed and variable operating costs,
        - fuel costs, if applicable 
        - the targeted return on capital over the operating period.

Important: The costs of distributing and buffering electricity according to demand are not included in the electricity production costs.
Knowledge of the electricity generation costs makes it possible to compare different electricity generation technologies in terms of their costs. On the Internet you will find various presentations of such comparisons, as tables, diagrams or texts, for example here.
Thanks to these explanations of terms, you are well prepared for an analysis of green hydrogen prices. Let's go!

This is how the electricity production costs for green hydrogen can be minimised!

The author of the report "Lowest electricity production costs for green hydrogen with photovoltaics + wind power + electrolyser" in PV Magazine, Sandra Enkhardt, starts with the statement that green hydrogen is considered essential, i.e. "vital", in this country, especially for industry, when it comes to the energy transition, i.e. the move away from fossil energy sources and towards renewables and thus decarbonisation and an energy supply fit4future.

The potential for green hydrogen in Germany

According to her, however, the hydrogen economy is still in its infancy: if the plans of the German government are anything to go by, German capacities for the production of green hydrogen should increase to 10 gigawatts (GW) by 2030. With reference to the analysis by Aurora Energy Research, green hydrogen projects have already been announced in Germany with a total capacity of 21 gigawatts, of which only a fraction has been implemented so far. According to Enkhardt, the analysts of Aurora Energy Research have put the industry's demand for green hydrogen up to the year 2050 at up to 300 terawatt hours (TWh).

But, Enkhardt continues, in order for German industry to actually use green hydrogen, it has to be profitable. She writes that the analysts of Aurora Energy Research assume that the average costs for the production of green hydrogen (production costs) in combination with a renewable generation plant will be reduced to about five euros per kilogram of hydrogen by 2025.
According to the study, they also expect that industrial customers will be willing to pay more than the five euros per kilogramme for green hydrogen in the coming years.
According to Enkhardt, the analysts of Aurora Energy Research were even optimistic that the production costs for the period from 2030 onwards would be further reduced thanks to imports of green hydrogen. Provided that the associated transport infrastructure is built, for example ports and pipelines.

These are the advantages of co-locating hydrogen electrolyser and renewable generation plants

With regard to a so-called co-location of photovoltaic or wind power plants, the analysts of Aurora Energy Research found out in the report of PV Magazin online that at prices of more than five euros per kilogram of hydrogen, it is most profitable to combine onshore wind farms with an electrolyser directly at the site. This would be more profitable than combining an electrolyser with a solar power plant (photovoltaic plant).

However, the highest profitability would be achieved if, within the framework of a green hydrogen project, both a wind farm and a solar farm (open-space photovoltaic plant) were combined with an electrolyser to produce green hydrogen. In this case, it is important for the highest possible profitability that the electrolyser is rather small.

According to Sandra Enkhardt, the analysts of Aurora Energy Research had suggested the following ingredients to achieve the lowest production costs for green hydrogen.
        - 50 megawatts of wind power
        - 50 megawatts of photovoltaic power
        - 20 megawatts of electrolyser

Production costs for green hydrogen via PPAs

According to Enkhardt, the analysts from Aurora Energy Research also assumed that green hydrogen produced via PPAs, i.e. not in the form of a direct co-location with a renewable plant, would have a production cost of around five euros per kilogram. 
Enkhardt quotes the analysts of Aurora Energy Research as saying that in such cases the locations for the renewable plants could be optimised and the electrolyser could be built closer to the customers' locations.
This would also reduce the costs for hydrogen transport and potentially also for hydrogen storage.

In conclusion, Enkhardt writes that the European Union (EU) has recently laid down corresponding requirements in its "RED II Delegated Act" to ensure that green hydrogen is actually "green". According to this, a monthly correlation between the production of the renewable plant and the production of the green hydrogen must be achieved by 2026. From 2027 onwards, this determination would apply on an hourly basis. In addition, the renewable generation plant must be completed a maximum of 36 months before or after commissioning of the electrolyser.
And finally, the plants would have to be located in the same or at least in adjacent zones.