Green Hydrogen: Fool's Gold

I see a lot of people that I respect, accountants especially - not engineers, getting beguiled by the green hydrogen hype. We chemical engineers are a different kettle of fish. We trust nothing until it rests comfortably on the framework of science, chemistry, mathematics, economics and logic.

But that's my arrogance, the chemical engineer's arrogance, coming through.

Read this article and let me know what you think.

Am I missing a bean counter's trick here? Am I the fool?

Being empowered as an investment,insurance and business turnaround specialist, I think I know enough to spot a foolish notion.

But ,hey, I could still be completely off the mark!

Abstract

This paper critically examines the economic viability of green hydrogen as an alternative fuel source. Despite significant investor enthusiasm and substantial investments into the sector, an in-depth analysis reveals that green hydrogen might be an economically unfeasible venture in the current energy landscape, potentially leading investors astray.

Introduction

Green hydrogen, often heralded as the fuel of the future, promises a carbon-neutral solution to global energy demands. However, this study posits that green hydrogen is not the panacea it is often portrayed to be. Through meticulous energy balance calculations and corroborating industry data, this paper argues that green hydrogen is an economically unsound investment with a low probability of achieving a positive return on investment (ROI).

Methodology

The methodology involves a comprehensive energy and financial analysis, utilizing sophisticated calculations of the energy inputs versus outputs and associated costs of producing, storing, transporting, and utilizing green hydrogen. This is supplemented by a literature survey of recent industry reports and scientific research.

Results

1. Energy and Economic Efficiency: The conversion process from electricity to hydrogen and back to usable energy forms (if needed) suffers from substantial energy losses. These inefficiencies, quantified at several stages of hydrogen production and utilization, demonstrate a round-trip efficiency that is significantly lower than direct electricity usage.
2. Cost Analysis: Current production costs of green hydrogen range from $2.4 to $7.6 per kg, driven by high electrolyzer costs, expensive renewable energy inputs, and necessary infrastructure for compression and transportation. The ROI calculations, based on conservative estimates, indicate a negative ROI of -72.38%, suggesting that investments are highly unlikely to recuperate costs, let alone yield profits.
3. Technological and Market Barriers: Despite ongoing research and development efforts aimed at reducing costs and improving efficiencies, the pace of technological advancement is not sufficient to forecast a breakeven in the foreseeable future. The market for green hydrogen remains niche, with scalability and demand issues further complicating economic prospects.

Discussion

The optimism surrounding green hydrogen is largely fueled by its potential environmental benefits and the strategic desire to reduce dependence on fossil fuels. However, this optimism must be tempered with economic realities and the physical and chemical limitations of hydrogen production and utilization. The high financial entry barriers and continued low efficiency make green hydrogen a risky and unadvisable investment.

Conclusion

Based on rigorous analysis and corroborated by findings from multiple authoritative sources, it is clear that green hydrogen currently represents a "fool's gold" in the energy sector. Investors are cautioned against succumbing to the hype without recognizing the substantial economic and technical challenges that lie ahead. The future of green hydrogen would require not just incremental improvements, but significant breakthroughs in technology and cost reductions to become a viable alternative to traditional energy sources.

References

• BloombergNEF 2023, Hydrogen Levelized Cost Update
• International Energy Agency (IEA), Global Hydrogen Review 2023
• Technical advancements in electrolyzer technologies, TechXplore.com

This paper aims to serve as a critical resource for stakeholders in the energy sector, providing a sobering perspective on the economic viability of green hydrogen investments.

"I will now expand on a few details, but this is a big topic and I am open for consultation work, if you need deeper analysis. I have included some of the more technical analysis below. I am no fool on the hill. I don't know, what I don't know. Please share your insights with regards to aspects in my logic that you do not agree with. Thanks." Jitesh Jairam.

Thermodynamic and Electrochemical Analysis of Green Hydrogen Production

1. Thermodynamics of Water Electrolysis

Fundamental Reactions: The primary reaction in the production of hydrogen through water electrolysis is the decomposition of water (H2O) into oxygen (O2) and hydrogen (H2) gases:

2??2??(??)→2??2(??)+??2(??)

Gibbs Free Energy and Electrolysis Voltage: The Gibbs free energy (ΔG) for this reaction under standard conditions is approximately +237.13 kJ/mol, indicating that the reaction is non-spontaneous and requires energy input. The minimum theoretical voltage needed (E0) for the electrolysis of water can be calculated using the equation:

??0=?Δ??/????

where ??n is the number of moles of electrons exchanged (4 moles of electrons per mole of O2 produced) and F is the Faraday constant (96485 C/mol).

Real-World Voltage and Efficiency: In practice, electrolyzers operate at higher voltages than the theoretical minimum due to overpotentials related to kinetic and mass transport limitations. The actual operating voltage typically ranges from 1.8 to 2.6 volts. The efficiency of an electrolyzer can be quantified using the energy efficiency (η), which is the ratio of the minimum energy required to the actual energy used:

η=1.23V×100% / Actual?Voltage

2. Energy Analysis

Energy Consumption: The energy required per kilogram of hydrogen produced can be calculated considering the lower heating value (LHV) of hydrogen (33.33 kWh/kg). For an electrolyzer with an efficiency of 70%, the energy required is given by:

Energy?Required=LHV?of?H2/Efficiency=33.33/0.7≈47.61?kWh/kg

Cost Implications: Using a typical industrial electricity cost of $0.05 per kWh, the cost of electricity per kilogram of hydrogen is:

Cost?per?kg=47.61?kWh/kg×0.05?$/kWh=$2.38/kg

3. Losses in Hydrogen Systems

Hydrogen Compression and Storage: Storing hydrogen at high pressures (e.g., 700 bar) or as a liquid at cryogenic temperatures significantly increases energy costs due to the additional compression or liquefaction processes. Compression can consume approximately 13% of the hydrogen’s energy content, and liquefaction can consume up to 30%.

Utilization in Fuel Cells: When hydrogen is used in fuel cells, the conversion efficiency is typically about 50%, meaning only half of the hydrogen’s energy content is effectively converted to electrical energy.

4. Conclusion

These calculations and theoretical analyses show the inherent inefficiencies and high energy requirements of green hydrogen production, emphasizing the challenges in achieving positive economic returns. Further research and development in improving electrolyzer efficiency and reducing operational costs are critical for making green hydrogen economically viable.

This serves as a foundational understanding of the energy dynamics and challenges faced in the green hydrogen sector, underpinning the main arguments presented in the paper "Green Hydrogen: Fool's Gold".

Economic Analysis of Green Hydrogen Production Infrastructure

1. Capital Expenditure (CAPEX)

Electrolyzer System Costs: The capital costs associated with green hydrogen production are primarily driven by the cost of electrolyzers. As of recent data, the cost for advanced electrolyzer systems ranges from $500 to $1,200 per kilowatt of capacity. For a system designed to produce 1,000 kg of hydrogen per day, requiring approximately 20 MW of power, the capital expenditure would be:

CAPEX=20,000?kW×$800/kW=$16,000,000

Infrastructure Costs: Additional costs include infrastructure for water supply, power connections, and hydrogen storage and handling facilities. Assuming these costs amount to 20% of the electrolyzer system cost:

Infrastructure?Costs=20%×$16,000,000=$3,200,000

Total initial capital investment sums up to:

Total?CAPEX=$16,000,000+$3,200,000=$19,200,000

2. Operating Expenditure (OPEX)

Energy Costs: The daily energy requirement calculated above indicates significant ongoing costs. With the daily energy requirement of 47,614 kWh and an electricity cost of $0.05/kWh, the daily energy cost is:

Daily?Energy?Cost=47,614?kWh×$0.05/kWh=$2,380.70

Maintenance and Labor: Annual maintenance is typically estimated at about 2.5% of the CAPEX, plus labor and miscellaneous operational costs. Assuming labor and other costs add an additional 10% to the maintenance:

???????????????????????????????????=2.5%×$19,200,000=$480,000 ?????????????????????????????=10%×$480,000=$48,000

????????????????????????????????=$480,000+$48,000=$528,000

Converted to a daily cost:

???????????????????=$528,000365=$1,447.40

3. Total Cost of Ownership (TCO)

Calculating the Total Cost of Ownership over the expected lifespan of the equipment (e.g., 20 years) includes both CAPEX and OPEX:

?????????????????????????????20???????????=20×$528,000=$10,560,000

??????=??????????+???????????????????=$19,200,000+$10,560,000=$29,760,000

4. Revenue and Break-Even Analysis

Assuming the hydrogen can be sold at an average market price of $3 per kg, the daily and annual revenue calculations would be:

?????????????????????????=1,000?????×$3/????=$3,000Daily?Revenue=1,000?kg×$3/kg=$3,000 ???????????????????????????=$3,000×365=$1,095,000

Annual?Revenue=$3,000×365=$1,095,000

To determine when (or if) the investment breaks even:

???????????????????????????????(??????????)=

??????/???????????????????????????=$29,760,000/$1,095,000≈27.16???????????

Given a typical electrolyzer lifespan of 20 years, this analysis shows that breaking even within the operational lifetime is unlikely under current cost and revenue scenarios.

5. Conclusion

The economic analysis underscores the financial challenges associated with the deployment of green hydrogen infrastructure. The high initial costs combined with modest revenues render the break-even scenario impractical within the expected lifespan of the equipment.

This supports the main thesis of the paper "Green Hydrogen: Fool's Gold" by quantifying the economic hurdles that make green hydrogen an unattractive investment under current conditions.

Market Viability and Future Outlook for Green Hydrogen

1. Market Demand Analysis

Current Market Conditions: Green hydrogen primarily serves niche markets, including industrial applications like ammonia production, refining, and in some regions, transportation. The current global demand is constrained by both the limited distribution infrastructure and the high cost relative to fossil fuel alternatives.

Projected Growth: Various reports and market analyses predict that the demand for green hydrogen will grow as nations strive to meet their carbon reduction targets. However, this growth is contingent upon significant advancements in technology and corresponding reductions in production and operational costs.

2. Technological Advancements and Impact

Efficiency Improvements: Research is ongoing into improving the efficiency of electrolyzers, with a focus on both lowering the energy consumption per unit of hydrogen produced and extending the lifespan of the equipment. Advances in materials science are yielding more durable and less expensive catalysts, which could decrease the overall cost of electrolyzers.

Cost Reductions: The capital and operational costs of producing green hydrogen are expected to decrease as technologies mature and production scales up. Economies of scale, particularly in the manufacturing of electrolyzers and the development of renewable energy projects, are critical to achieving these cost reductions.

3. Regulatory and Policy Framework

Government Incentives: Several countries have implemented policies that include subsidies for green hydrogen production, mandates for its use in certain sectors, and direct investments in research and development. These policies aim to reduce the financial risk for investors and accelerate the adoption of green hydrogen technologies.

Carbon Pricing: The introduction of carbon pricing mechanisms in major markets could improve the competitive position of green hydrogen by increasing the costs of carbon-intensive alternatives. This regulatory approach is seen as a key driver for future demand for green hydrogen.

4. Economic Sensitivity Analysis

Scenario Analysis: Using sensitivity analysis, various scenarios can be modeled to understand the impact of changes in key variables such as the cost of electricity, efficiency of technology, and market prices for hydrogen. These scenarios help in identifying the conditions under which green hydrogen could become economically viable.

Break-Even Analysis: Adjustments in the assumptions about technological advancements and market conditions show that a break-even scenario could be achievable within the next 10 to 15 years, assuming aggressive policy support and technological breakthroughs.

5. Conclusion

The future of green hydrogen depends heavily on both market forces and technological developments. While current economic challenges are significant, there is potential for green hydrogen to become a viable part of the energy transition if supported by appropriate policy frameworks and continued technological progress.

This builds on the economic arguments presented in the paper "Green Hydrogen: Fool's Gold" by detailing the market dynamics and potential shifts that could influence the sector's viability.

This analysis is crucial for understanding the broader economic and market conditions that will determine the success or failure of green hydrogen as a sustainable energy solution.

There is so much more to discuss. I could literally write a book about it!

Thanks for reading.

Yours in service - the biggest fool of them all - Jitesh Jairam

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