Steinbeis experts analyze the electrolyzer market
Hydrogen is considered an energy source of the future. Until now, producing hydrogen has almost exclusively involved using fossil fuels. This is for economic reasons. As part of H2 Districts, a research project commissioned by the Federal Ministry for Economic Affairs and Climate Action, the experts at the energieplus Steinbeis Innovation Center have been investigating different ways to produce hydrogen by using water electrolysis in decentralized locations in close proximity to customers. Six showcase neighborhoods have been chosen in Baden-Wuerttemberg as urban and suburban locations for implementing the project and producing so-called green hydrogen.
To understand the technical and commercial challenges of this form of hydrogen production, the Steinbeis team conducted an analysis of the electrolyzer market. Their study was based on interviews with energy providers and producers. They also conducted secondary research. The results provide an overview of current industrial production capacities, investment costs (capital expenditures), efficiencies, stack temperatures, and the challenges faced by providers in selling and distributing green hydrogen.
The sector for water electrolyzer producers has all the hallmarks of new and expanding markets, which tend to be fragmented. The market is occupied by a large number of producers, the majority of which have built up comparatively limited capacities, and in some cases they can still only point to a handful of client references. The reasons for this fragmentation are the regional nature of markets and the low degree of automation in manufacturing.
Water electrolyzers – production capacities
According to the German government’s National Hydrogen Strategy (NHS), the capacity of electrolyzers will increase in the country from 70 megawatts currently to 10 gigawatts in 2030. In other words, industrial ramp-up will increase by a factor of 140 over the next eight years. The providers surveyed for the market analysis indicated that in 2022, their supply capacity stood at 3 gigawatts per year. This is the electrical capacity of electrolyzers that could be made available in a particular year. Supply capacity is expected to rise to a total of 15-20 gigawatts per year by 2025. Even if there is a sharp rise in demand, this should not result in any bottlenecks on the supply side.
Electrolyzers – costs and efficiency
CAPEX levels across all processes for large-scale plants stand at around €1,000 per kilowatt of electricity. It is, however, sometimes difficult to make comparisons because not all producers offer the same scope of services with regard to the balance of plant (plant periphery; BoP). CAPEX levels could also fall significantly, since a growing number of producers plan to expand their increasingly automated production lines. With proton exchange membrane electrolyzers (PEMEL), the share of costs accounted for by BoP in 2020 was 55% [IRENA, 2020]. Market volumes have risen since then, although the Steinbeis experts also believe that economies of scale will continue to fuel significant cost reductions in this area as well.
Electrical efficiencies were on a similar level for all of the products that were surveyed, although solid oxide electrolyzers (SOEL) were not included in the analysis due to process-related heat requirements. It is difficult, however, to compare manufacturer data, as there is no standard or guideline to act as a norm for determining comparable conditions for efficiency.
Waste heat recovery can significantly increase overall efficiency. Regarding stack temperature, all current products are suitable for supplying existing or new districts with heating energy via local heating networks. Furthermore, the stack temperature of most alkaline electrolyzers, which averages 76°C, is theoretically high enough to also provide heated domestic water. In practice, however, there are obstacles that make it difficult to use waste heat: Systems housed in containers often use compact heat exchangers with small transfer surfaces and correspondingly high temperature differences, and this requires very low inlet temperatures for the cooling medium. If heat pumps are used, inlet temperatures are crucial for the evaporation temperature of the refrigerant. To ensure heat pumps achieve high efficiencies or performance coefficients, it would be advantageous to use larger heat exchangers and higher inlet temperatures.
Electrolyzers – performance and funding
There are currently thirteen publicly known electrolysis plants in operation in Germany with a capacity of more than 1 megawatt (as of 2022). They have a total capacity of 70 megawatts. Of the seven electrolysis operators and owners that were interviewed, two were unhappy with the lack of standards in the stack market. In their opinion, it would be good if they were not tied to the original manufacturers when replacing stacks. They also harbor doubts regarding the speed with which service engineers from non-European manufacturers are available in the event of malfunctions.
Regarding the scale-up announced by politicians, five of the seven operators complained that there are not enough customers for further investments and that there is insufficient demand for green hydrogen. This is also reflected in the way green hydrogen has been used until now: Six out of the thirteen large-scale electrolysis plants currently feed hydrogen into the natural gas grid. Only six supply hydrogen to industry. For economic and environmental reasons, green hydrogen should primarily be used in industrial processes that are otherwise difficult to decarbonize [Agora Energiewende, 2021].
“Fast-acting implementation strategies and long-term funding instruments are needed to increase demand for green hydrogen. Although the market ramp-up of P2G technologies and the exploitation of economies of scale can be expected to significantly reduce investment costs in the long term, the decisive factors will be the future price of green electricity and the achievable full-load hours of electrolytic hydrogen production. The hydrogen market ramp-up should be developed and promoted in a European context, thus leveraging economic and geopolitical advantages,” recommends Steinbeis Entrepreneur Professor Dr.-Ing. M. Norbert Fisch. The total production costs of large-scale plants are largely driven by operating and maintenance costs, which is why more attention should also be given to other measures. CO2 prices are currently still too low to have a significant impact. Redefinition and increases are needed in this area. As previously stated in its national hydrogen strategy, the federal government plans to use “carbon contracts for difference” (CCFD). This is where the government covers the additional costs of climate protection projects in the steel and chemical industries, indirectly providing incentives to engage in hydrogen production.
Established in 2021, the H2Global Foundation is also expected to contribute to this. The goal of the foundation, a collaboration between private-sector companies and the federal government, is to establish an auction platform for hydrogen products (similar to an exchange system), which will regulate both international procurement and sales in Germany. Similar to the CCFD approach, the initial price differences between procurement and selling would be covered by the federal government. In addition to previously introduced measures, it might also be worth considering a quota system that obligates selected industries to increase their use of green hydrogen [e-mobil BW GmbH, 2022]. Such a system could amplify the effectiveness of the aforementioned mechanisms. All of the above measures could offer synergies not only in the area of climate protection goals in Germany, but also regarding market ramp-up, and the Steinbeis experts are of the view that both should be pursued more vigorously.
The Agora Energiewende (Energy Transition), Agora Industry:12 Insights on Hydrogen. 2021, p. 16.
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e-mobil BW GmbH: H2 Demand and Generation Potential in Baden-Württemberg: An Analysis of the Current Situation [German only], 2022, pp. 64-68. State Agency for New Mobility Solutions and Automotive, e-mobil BW, Stuttgart
IRENA: Green Hydrogen Cost Reduction: Scaling up Electrolysers to Meet the 1.5°C Climate Goal. 2020, p. 52. International Renewable Energy Agency, Abu Dhabi