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Can Clean Hydrogen Production Benefit from Battery Optimization Models?

Clean hydrogen is seen as a critical component of a carbon-neutral economy. In 2021, the Department of Energy launched the Hydrogen Shot initiative, with a goal of reducing the cost of clean hydrogen production from about $5 per kilogram to $1 per kilogram in one decade. Currently, electricity is the largest component of hydrogen production cost when produced via electrolysis. Without a low-cost power source, though, the economics of clean hydrogen aren’t viable. Where do you go for large quantities of low-cost renewable power? Wholesale power markets like CAISO and ERCOT might provide the answer. However, operating in these competitive markets will require sophistication and flexibility that mimics grid-scale energy storage participation.

Operating Strategies That Enable Low-Cost Hydrogen Production 

In their recent presentation at the International Conference on Electrolysis, National Renewable Energy Laboratory (NREL) researchers Alex Badgett, Bryan Pivovar, and Mark Ruth showed that by operating in the wholesale power markets with increasing shares of renewable generation, hydrogen electrolyzers could reduce the cost of hydrogen production by operating during times of day where energy prices are low. Their research shows that renewable energy is increasing as a percentage of the generation mix in markets like CAISO, which is creating negative pricing events at certain times of day. According to their research, “Increasing variable renewable generation (wind and photovoltaic solar) increases the number of low or negative cost LMPs”. (See figure 2 below.)

Figure 2. Badgett et al. (2022) “Operating strategies for dispatchable PEM electrolyzers that enable low-cost hydrogen production”.

To produce the lowest cost hydrogen in wholesale power markets and with low electrolyzer purchase costs, electrolyzers need to operate flexibly with frequent cycling to pair their power consumption with times of day that have low prices. This generation-following power consumption is similar to the way many grid-scale storage projects operate today.

Frequent cycling of the electrolyzers may increase the operation and maintenance cost of these projects. The NREL researchers found that hydrogen electrolyzers could benefit from onsite energy storage to maintain optimal capacity factors for their facilities. In particular:   

  • “Batteries can reduce electrolyzer cycling; potentially reducing electrolyzer degradation” 
  • “Storing otherwise curtailed energy in batteries could also reduce the average duration of off cycles” 
  • “Economic optimization would involve tradeoff between battery cost, increased electrolyzer capacity factor, and degradation resulting from on/off cycling”

Onsite storage would reduce the frequency of cycling the electrolyzers so that they can continuously operate the hydrogen facilities in a “standby” mode when power prices are high. Preventing the shutdown of hydrogen production would decrease wear and tear on the electrolyzers, which will decrease the operations and maintenance costs of the facility.  

Operating in the wholesale power markets, with onsite storage and flexible power consumption, will require a high degree of sophistication. There are many decisions that hydrogen electrolyzers would need to make constantly, such as:  

  • Should they buy in the day-ahead market? Or wait to buy in the real-time market? 
  • Which hours should they operate? 
  • How much power should they consume at any given time? 
  • How can they maximize the use of renewable energy to ensure they are producing clean hydrogen? 
  • Can they participate in ancillary services markets for additional revenue streams? 
  • Should they participate in demand-response programs and stop producing hydrogen altogether when the grid is stressed?

These are similar decisions that energy storage managers operating in wholesale power markets are making today.        

Yes Energy Can Enable Hydrogen Production

Our energy storage customers utilize large quantities of power market data to feed battery optimization models and price forecasts. These models require constant input from power market experts and use of machine learning algorithms to ensure maximum performance and profitability. Power purchase agreements, congestion hedging, and power trading may also be required to mitigate the risks of participating in the power markets. Are hydrogen producers ready for the challenge?

We're the trusted provider of North American power market data, and analytic solutions. We're supporting the renewable energy transition by providing unparalleled transparency into wholesale power markets. Our visual analytic solutions help developers find optimal locations for siting renewable, storage, and even hydrogen projects. We also provide comprehensive data solutions for battery optimization modeling, forecasting, and energy management. Whatever new types of market participation the future brings, Yes Energy will be here to support the transition!
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