Hydrogen’s time as a cost-effective energy source may finally have arrived.
That’s the conclusion of research by Stefan J. Reichelstein, the William R. Timken Professor of Accounting, Emeritus, at Stanford Graduate School of Business, and Gunther Glenk, assistant professor at the Mannheim Institute for Sustainable Energy Studies in Mannheim, Germany.
“We’ve heard a lot about hydrogen as the energy platform of the future,” Reichelstein says. “The familiar joke has been that hydrogen is the energy platform of the future — and always will be.” As far back as 1992, the Clinton administration saw hydrogen as a means to move away from fossil fuels; but it has yet to happen.
That may be changing. Reichelstein’s recent publications in Production and Operations Management and Nature Energy show how a vertically integrated power-to-gas system can use renewable energy to flexibly produce hydrogen for industrial use — without carbon emissions.
“The time for hydrogen has finally come,” Reichelstein says, although he acknowledges that challenges remain, including a continuing reliance on fossil fuels and competition from alternative energy-storage technologies such as batteries.
Hydrogen already is used in large quantities, primarily for the refining of oil and gas and the production of fertilizer, methanol, and other chemicals. To a smaller extent, the gas is also used as a zero-emissions fuel source in rockets and some material-handling vehicles. Because very little of it exists in natural form, hydrogen has to be extracted from other elements. Today, about 90% of it is produced from hydrocarbons like natural gas through a process known as steam reforming. The process is globally responsible for about 830 million tons of carbon dioxide emissions per year, more than Germany emitted in 2019.
The dream of many clean-energy advocates has long been to use renewable sources like solar and wind power to create “green hydrogen” through water electrolysis. But that goal has never been reached, primarily because electrolyzer technology and renewable sources have been too expensive.
Finding Hydrogen’s Break-Even
Reichelstein’s research examined the possibility of producing hydrogen more affordably from renewable energy via electrolysis.
“We wanted to see if hydrogen can be produced at a price that’s competitive with traditional steam reforming but without carbon emissions,” Reichelstein says.
A few convergent factors make it the right time for the research. The maturation of electrolysis technology has caused a decline in electrolyzer prices; the price of both renewable and traditional electricity has fallen; and electricity prices have become more volatile in recent years.
Reichelstein explains why the last factor might help spark more clean hydrogen production: “Power is cheaper at certain hours or in certain seasons. So if you combine a solar photovoltaic facility or a wind turbine with an electrolyzer, you can sell electricity to the market when prices are high and feed your electrolyzer to make hydrogen when prices are low. Hydrogen production effectively becomes a price buffer.”
To understand the feasibility of such a vertically integrated “power-to-gas” system, Reichelstein and Glenk created models to optimize the decision of whether to sell electricity or to produce hydrogen in real time, along with the decision of how to optimally scale investments in a renewable power source and the electrolyzer. “It’s about building an optimal level of capacity and using it efficiently in real time,” Reichelstein says.
Then they ran the models for a power-to-gas facility that is combined with wind power in the market environments of Germany and Texas. “Both regions have lots of renewable power — especially wind — and volatility in wholesale energy markets,” he says. The research considered market data to understand what it would cost to build the system and what hydrogen price would make it a good investment.
“We wanted to find the break-even point,” Reichelstein says.
Based on current cost and price data, the research shows that vertically integrated systems in good locations can break even at a price that is already today close to the price of hydrogen produced at an industrial scale via steam reforming.
The Value of Power-to-Gas
Multiple types of businesses could benefit from such power-to-gas systems, Reichelstein says. “A utility could use a system like this,” he says. “So could a firm with large demand for hydrogen.”
Utilities could take advantage of the intermittency of renewables by earning a premium on the generated electricity through the conversion to hydrogen when demand for power is low but wind and sunshine are strong. Chemicals manufacturers such as BASF or DuPont, on the other hand, could either procure hydrogen from the market or produce it themselves through their own renewable power sources, he points out.
Reichelstein is confident that the power-to-gas systems examined in their model will be widely competitive for large-scale hydrogen production in the near term — three to five years. But he notes caveats. Germany, for instance, offers significant subsidies for renewable power, and it’s not certain whether a company there would still qualify for those if it’s converting such power to hydrogen instead of feeding it into the grid. “You have to keep the regulatory environment in mind,” Reichelstein says.
The applications go well beyond merely replacing fossil fuels to produce the hydrogen used today. “The next generation is things like using hydrogen for transportation,” Reichelstein says, “or converting hydrogen back to power at certain times of day when power is scarce.”
Of course, Reichelstein notes, the fossil fuel industry will continue to defend the energy status quo: “People who are not concerned about carbon emissions will say, ‘Why first produce hydrogen from power, then use hydrogen as transportation fuel? It’s complicated and expensive compared to just taking crude oil from the ground.’”
Moreover, even if climate change is a key consideration, there are alternatives to hydrogen-based energy-storage systems. “Someone like Elon Musk thinks it’s inefficient to use electric power to make hydrogen for transportation and instead supports storing the energy in batteries,” Reichelstein says. “But energy efficiency is not the ultimate criterion for the marketplace.”
Reichelstein thinks of the research as “a stepping-stone” to show that using renewable energy to make hydrogen through electrolysis is at least competitive with current hydrogen-production systems. He also points out that the prices of renewable energy and electrolyzers continue to drop, which is likely to position hydrogen as an even more competitive fuel source.
“It’s currently very much up for grabs,” he says. “We’ll know more soon.”