Hydrogen in the European energy system - The cost dynamics and the value of time-shifting electricity generation

Licentiate thesis, 2022

If the European Union is to become climate-neutral by Year 2050, as envisioned in the European Green Deal, the European energy system must undergo an unprecedented transformation towards eliminating its carbon emissions. For this transition, renewable electricity plays a central role, not only in replacing the current fossil-based electricity generation, but also in promoting the electrification of other sectors, such as transport and industry, sectors which are currently based on fossil fuels. In the European Hydrogen Strategy, hydrogen is considered a key priority for enabling the transition outlined in the European Green Deal. This is because hydrogen can reduce emissions levels across several sectors, including the hard-to-abate sectors, and can act as an energy carrier, reactant, or feedstock. Thus, this work aims to elucidate the dynamics of future energy systems, focusing on how different applications of hydrogen will affect the costs of electricity and hydrogen, and how these demands for hydrogen interact with variations arising from renewable electricity generation.

This work applies a techno-economic optimization model, which includes both the historical electricity demand and new demands from an electrified transport sector and several electrified industrial processes, to evaluate the dynamics of a future European energy system with zero-carbon emissions. The model includes both exogenous (industry and transport) and endogenous (time-shifting of electricity generation) hydrogen demands, to allow evaluation of the impacts of hydrogen demands with different characteristics and the value of shifting electricity generation in time through the use of hydrogen.

The results show that electricity is the main parameter that influences the cost of hydrogen, although cost-optimal dimensioning of the electrolyzer and hydrogen storage capacities also affects the hydrogen cost, as these capacities recurrently limit hydrogen production over the year, and thus set the marginal cost of the hydrogen supply. Another decisive factor is the nature of the hydrogen demand, where a flexible demand can have a considerable impact on the hydrogen cost, reducing it by up to 35%, as compared to a constant demand for hydrogen. Moreover, it is shown that a lower level of flexibility with respect to the hydrogen demand is often sufficient to attain this cost reduction.

We conclude that time-shifting of electricity generation through the use of hydrogen provides a value to the system by reducing the average electricity cost by 2%–7%, and this strategy is primarily competitive in regions with large shares of wind power. The reason for the stronger competitiveness in regions that are dominated by wind power is linked to the characteristics of the variations of the electricity generation patterns. Thus, fluctuations in generation from wind power can be described as fewer, more-irregular, and longer in duration, as compared to variations from solar PV, which are shorter in time and occur at a higher frequency (diurnal), and for which batteries are a more-suitable time-shifting technology. For reconversion of hydrogen back to electricity, gas turbines are shown to be the most-competitive technology, where flexible mixing of hydrogen in biogas increases the competitive edge, as the gas turbine can be used also when the cost of hydrogen is too high to generate a gross margin profit, which is required to recover the investment.