Adani Enterprises Raises $42 Billion via Qualified Institutional Placement

Roofsol Energy Raises ₹255 Million Through Equity Funding

Standard Chartered Bank Finances AMPIN’s 200 MW Wind-Solar Hybrid Project

Prozeal Wins 25 MW/50 MWh Solar Plus Storage Project in Ladakh

Insolation Energy to Raise ₹4 Billion via Preferential Issue of Equity Shares

MERC Approves MSEDCL’s Plea to Procure 1,468 MW Firm Renewable Power

Daily News-Wrap: GUVNL Amends BESS Tender by Providing VGF Support

Germany Awards 587 MW Solar with Storage Projects in Innovation Tender

NTPC Subsidiary Invites Bids for 6.32 MW Solar Projects

Central Regulator Adopts Tariffs for 1,500 MW Solar Power Projects

<table id="amazon-polly-audio-table">
						<tr>
						<td id="amazon-polly-audio-tab">
							<div id="amazon-ai-player-label">Listen to this article</div>
							<div id="amazon-ai-player-container">
			<audio class="amazon-ai-player" id="amazon-ai-player" preload="none" controls controlsList="nodownload" >
				<source type="audio/mpeg" src="https://cms.mercomindia.com/wp-content/uploads/2023/07/amazon_polly_56555.mp3?version=1689831191">
			</audio>
		</div>
							<div id="amazon-polly-subscribe-tab"></div>
							<div id="amazon-polly-by-tab"></div>
						</td>
						</tr>
					</table>A substantial increase in hydrogen production capacities, particularly for green hydrogen, is imperative if climate goals are to be achieved, says a recent report by <a href="https://www.agora-energiewende.de/ueber-uns/agora-industrie/" target="_blank" rel="noopener">Agora Industry</a>.
The report highlights that using electrolyzers powered by renewable electricity is essential to generate hydrogen without any greenhouse gas emissions.
The report illustrates the potential disparities in calculating the Levelized Cost of Hydrogen (LCOH). It also aims to elucidate why real-world projects may exhibit significantly different LCOH values compared to estimates from high-level studies.
The key cost drivers identified in the report are the discount rate, electricity costs, engineering, procurement, and construction (EPC) expenses, stack costs, expected lifetime, and Balance of Plant (BoP) costs. On the other hand, the costs associated with cooling, gas purification, and water treatment are considered minor factors influencing the overall cost of hydrogen production.
Cost Drivers in LCOH Calculation 
Among the biggest cost drivers are the electricity costs and the discount rate.
BoP: The Balance of Plant represents a significant driver of costs. Although there isn&#8217;t a universally accepted definition for BoP, it typically encompasses aspects like power supply, water conditioning, and process utilities, including pumps, process-value-measuring devices, and heat exchangers.
EPC: EPC also plays a crucial role in cost determination. It involves all the necessary work to construct the electrolyzer on a turnkey basis, usually encompassing detailed planning and control, procurement, execution of construction and installation work, and commissioning.
Power Supply: Power supply is another critical factor influencing costs. It includes the stack rectifier, incoming power distribution (comprising grid connection and transformers), and the system control/safety setup, which involves components like the switchboard, programmable logic controllers, safety sensors, process parameter measuring devices, piping, valves, data input/output, and personal computers.
Electrolyzer System&#8217;s Lifetime: The lifespan of the electrolyzer system significantly impacts costs, as a longer lifespan results in greater hydrogen production, allowing for better allocation of CAPEX. A similar consideration applies to full load hours and, if applicable, the size of any associated renewable generation plant, such as photovoltaics.
Lifetime of the Stack: The stack&#8217;s lifespan significantly impacts the LCOH. It is generally shorter than the rest of the electrolysis system&#8217;s lifespan, meaning that it degrades over its operation and requires replacement when it reaches the end of its life. Frequent replacement of the stack leads to higher costs and periodic unavailability of the parts of the plant.
Contingency Costs: Often overlooked in high-level studies, contingency cost is another primary cost driver. These costs account for uncertainties in a project and can be estimated based on past experiences with similar projects.
Operational Expenditures (OPEX): OPEX also plays a significant role as a major cost driver. While electricity costs are typically considered part of OPEX, they are usually presented separately due to their substantial impact.
Water Costs: Water costs and expenses related to water conditioning are considered minor cost drivers. Buildings and properties also fall into this category.
Additionally, costs for gas purification, cooling, compression, and water are classified as minor cost drivers.
By classifying the cost drivers, we can see that some greatly influence the LCOH while others only affect it slightly.
<a href="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1.png"><img loading="lazy" decoding="async" class="alignnone wp-image-56557 size-full" src="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1.png" alt="LCOH -1" width="646" height="462" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1.png 646w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1-300x215.png 300w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1-624x446.png 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1-600x429.png 600w" sizes="(max-width: 646px) 100vw, 646px" /></a>
Calculating LCOH
To ensure the consistent calculation of LCOH in future studies, the report presents recommendations for adopting a pragmatic approach to guide researchers during the study preparation. It allows for certain simplifications, particularly suited for researchers who have more flexibility compared to project developers.
<a href="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1-1.png"><img loading="lazy" decoding="async" class="alignnone wp-image-56560 size-full" src="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1-1.png" alt="LCOH 2" width="715" height="517" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1-1.png 715w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1-1-300x217.png 300w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1-1-650x470.png 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1-1-624x451.png 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-1-1-600x434.png 600w" sizes="(max-width: 715px) 100vw, 715px" /></a>
On the right is an instance with relatively high CAPEX (€1,700/kW) and low electricity costs (€0.02/kWh). On the left is a scenario with relatively low CAPEX (€800/kW) and high electricity costs (€0.07/kWh).
Notably, the impact of these cost drivers can vary significantly.
Cost Drivers
CAPEX: CAPEX encompasses all integral components of a complete electrolyzer system. Moreover, the CAPEX is heavily influenced by the performance of the electrolysis system and should be included in the LCOH calculation. The electrolyzer investment costs can be summarized as a function of module size using various sources.
Based on these data points, the following polynomial can be approximated:
CAPEX scaling factor=X raised to the power of -0.1976, where X stands for the electrical rated power of the electrolyzer system (1 ≤ X ≤ 100 MW) in MW.
Using this scaling factor, one can compare CAPEX or LCOH values across electrolyzers of varying capacities. Notably, for a 10 MW electrolyzer system, the CAPEX is approximately 63% of the specific CAPEX of a 1 MW system. Furthermore, for a 100 MW electrolyzer, the specific CAPEX decreases to about 40%.
<a href="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-2.png"><img loading="lazy" decoding="async" class="alignnone wp-image-56561 size-full" src="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-2.png" alt="LCOH 3" width="713" height="436" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-2.png 713w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-2-300x183.png 300w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-2-650x397.png 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-2-624x382.png 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-2-600x367.png 600w" sizes="(max-width: 713px) 100vw, 713px" /></a>
EPC: Including EPC costs in the LCOH calculation is recommended, as they can vary significantly based on the specific project requirements.
Contingency Costs: It is advisable not to include contingency costs in the LCOH calculation, as they are typically not factored into high-level studies and can vary widely.
Buildings, Foundations, and Properties: Buildings, foundations, and land are crucial in constructing an electrolyzer system. The report suggests including building costs in the LCOH calculation, as data gathering for this aspect is relatively less complex.
Electrical Network: Assuming that an existing electrical network is accessible and can directly connect to the electrolyzer plant is a standard approach. Nevertheless, in scenarios where the electrolyzer is linked to a high-voltage grid, additional costs for a high-voltage substation, including a transformer, may need to be accounted for in the CAPEX calculation, considering the specific energy consumption.
Water Supply: The LCOH calculation assumes that an existing water supply network is available for direct connection to the electrolyzer. However, if a seawater desalination plant is necessary to provide water for the electrolyzer, these costs should also be included in the overall expenses.
Transport &amp; Storage: The pragmatic approach omits the costs associated with the subsequent use or transportation of hydrogen due to its diverse potential applications, which are challenging to account for easily in the calculation.
To ensure comparability, it is advisable to establish the system boundary for LCOH calculation at the hydrogen outlet of the electrolyzer. Additionally, (on-site) storage should be excluded from the calculation for the same reason. However, merely defining the system boundary is not enough; one must also consider the impact of hydrogen quality and the pressure at which it is released from the electrolyzer.
Electrolyzers exhibit considerable internal pressure variations.
The report points out that most surveyed studies mention the pressure levels of the examined electrolyzers, with commercially available ones typically operating at around 30 bar. While most electrolyzer models function at this pressure, some do differ. In cases where electrolyzers operate at relatively lower pressures but a uniformly higher pressure is used in a study, it becomes essential to determine the cost of external compression.
<a href="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-3.png"><img loading="lazy" decoding="async" class="alignnone wp-image-56562 size-full" src="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-3.png" alt="LCOH 4" width="713" height="421" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-3.png 713w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-3-300x177.png 300w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-3-650x384.png 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-3-624x368.png 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-3-600x354.png 600w" sizes="(max-width: 713px) 100vw, 713px" /></a>
The figure below illustrates the LCOH calculation for an electrolyzer, with the costs of additional compression shown separately. The assumptions for this calculation were based on a central Europe MW-electrolyzer. In the left-hand diagram, the hydrogen is compressed downstream from the 30 bar internal pressure of the electrolyzer to 85 bar, possibly for transmission network integration. Conversely, the right-hand diagram depicts a scenario where the electrolyzer operates at 1 bar, and the hydrogen is externally compressed downstream to 100 bar.
However, it&#8217;s important to note that these cost estimates are approximate. The report recommends calculating LCOH based on a reference pressure of 30 bar, which aligns with the typical operating pressure of most electrolyzers available.
<a href="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-4.png"><img loading="lazy" decoding="async" class="alignnone wp-image-56563 size-full" src="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-4.png" alt="LCOH 5" width="711" height="479" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-4.png 711w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-4-300x202.png 300w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-4-650x438.png 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-4-624x420.png 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/07/LCOH-4-600x404.png 600w" sizes="(max-width: 711px) 100vw, 711px" /></a>
Reference Pressure: When conducting LCOH calculations using a reference pressure of 30 bar while the investigated electrolyzers operate at lower internal pressures, additional costs should be factored into the LCOH. This includes entries for the cost of the compressor, its efficiency, and pressure ratio.
Hydrogen Quality: This section focuses on the significance of hydrogen purity. Hydrogen quality is categorized into levels, such as 3 (99.9% purity), 3.5 (99.95% purity), and 5 (99.999% purity). Although the studies provide information on hydrogen quality, they do not offer a correlation between quality and cost. Notably, gas purification costs are identified as a minor cost driver in classifying cost drivers.
OPEX: OPEX is typically reported as a percentage of CAPEX per year, commonly ranging between 1.5% and 5%. This variation arises from the different types of electrolyzers, predicted price developments, and varying manufacturers across different countries.
Stack Lifetime and Replacement Costs: The lifespan of the stack varies based on the electrolyzer type and predicted start date. The report recommends incorporating stack replacement costs in the CAPEX calculation to ensure accuracy.
Stack Degradation: To account for stack degradation, the project suggests using an average specific energy requirement in the single-period calculation method presented. In the case of a discounted cash flow analysis, degradation in individual periods can be considered.
The aim of the presented simplified approach is twofold: first, to offer clear guidance for preparing future studies, and second, to elucidate the reasons behind discrepancies observed between published LCOH values and estimates for various projects.
According to Deloitte&#8217;s 2023 Global Green Hydrogen Outlook, the capacity of the clean hydrogen market is expected to <a href="https://www.mercomindia.com/clean-hydrogen-market-expand-600mt-2050" target="_blank" rel="noopener">expand</a> to 170 million tons by 2030 and reach 600 million tons by 2050.
Earlier in March this year, the U.S. Department of Energy <a href="https://www.mercomindia.com/us-announces-750-clean-hydrogen-technologies" target="_blank" rel="noopener">announced</a> a $750 grant for research, development, and demonstration efforts to reduce the cost of clean hydrogen significantly.

Calculating Levelized Cost of Green Hydrogen

agora-industry

Get the most relevant India solar and clean energy news.

RECENT POSTS