I have been playing around with my hydrogen spreadsheet in my spare time for a while now and I am starting to draw a few conclusions.
Just a warning before you read further, this blog contains several assumptions and forecasts. These assumptions and forecasts are subject to changes that will affect the outcomes discussed. Please read on and feel free to contribute to the discussion, but please do not rely on the content of this blog.
As a time-shifting mechanism, the value proposition is that you generate hydrogen when you have surplus intermittent renewable generation, then you store it, and then burn it in a gas turbine during peak periods.
I like this concept as it has the potential to use our existing infrastructure like gas pipelines and most of our gas turbines, to create truly green energy storage facilities at a lower new capital spend than the installation of an entirely new storage plant. This avoids their obsolescence in a carbon constrained world. There is also nothing I love more than the sound of a gas turbine running up.
This sounds easy and fun, but how does this compare with natural gas firing into a gas turbine?
Playing with my spreadsheet (using typical heat rates, publicly available performance data and a few assumptions), I find that the ratio between short run marginal cost of peak power is about five to six times the cost of the incoming power that you collect during the middle of the day. For example, if you can buy distressed power at $10/MWhr, your gas turbine’s SRMC will be about $50-60/MWhr.
The storage value proposition relies upon the shape of the Duck Curve to be able purchase power at low prices and then resell that power at higher prices. The lower the duck’s belly and the higher the duck’s beak (I call this the ‘beak to belly ratio‘), the greater the opportunities for storage to add value.
So, an SRMC of five to six times the cost of incoming power means that, if the ‘beak to belly ratio’ is greater than five to six, then spot prices in the evening will exceed SRMC and an opportunity to make a trading profit will exist.
Typical spark spreads on an open cycle gas turbine are about 10 x gas price (HHV). For example, a gas price of $8/GJ (HHV) will generate an SRMC of about $80/MWhr.
So to compare hydrogen storage to the purchase of gas, to obtain an equivalent SRMC, then:
- Belly x 5 = Gas price x 10
- Belly = Gas Price x 2
That is to say if the noon time power price (assuming that this is when you buy electricity to make hydrogen) in $/MWhr is less than twice the HHV gas price in $/GJ, then a hydrogen storage system will have a lower SRMC than supply from a conventional gas source. This is if all assumptions are correct.
I haven’t mentioned green hydrogen as a feed stock into fertiliser production, motor vehicle fuel or liquid fuel production or even powering a fuel cell at home. These are all interesting aspects to explore and some of the future spin offs that might come from establishing a base of off peak hydrogen production in Australia.
When I think about the quantity of solar and wind in Australia currently under construction, restricted access to new gas, export parity net back gas pricing, our existing gas turbine fleet, the new build cost of batteries and the flow on to other hydrogen uses; maybe off peak hydrogen production and storage has a major role to play in our future. I also think batteries do as well, but that is for another blog.
I’m really keen to do a hydrogen project, so feel free to call me or comment below if you would like to progress the discussion.
Disclaimer: The estimates above are for discussion only and should not be relied upon by any person for any purpose. Arche Energy and the author disclaims all liability to all persons for the use of these estimates.
