1. Introduction
This report evaluates the economic feasibility of using Proton Exchange Membrane (PEM) electrolyzers for hydrogen production across various European countries. The analysis focuses on two primary use cases: hydrogen-to-power generation as an alternative to traditional grid electricity and on-site hydrogen production compared to purchasing bottled hydrogen. By examining capital expenditures (CAPEX), operational expenditures (OPEX), and local market conditions—including industrial electricity rates and hydrogen prices—this report aims to provide insights into the viability of hydrogen production projects in Europe, particularly those involving PEM hydrogen generators.
2. System Sizing and Assumptions
To assess the feasibility of PEM electrolyzers, key parameters must be established. The efficiency of PEM electrolyzers is approximately 4.94 kWh/Nm³, which translates to about 55 kWh per kilogram of hydrogen produced. Each unit has a hydrogen production capacity of 200 Nm³/h, corresponding to a power output of 246.92 kW when integrated with a fuel cell. For a target power output of 2.5 MW, calculations indicate that approximately 10 electrolyzers are required, yielding a total hydrogen production of 2000 Nm³/h and a total power output of 2.47 MW, which is slightly below the target but still acceptable for this feasibility study.
In terms of cost assumptions, the price of each PEM electrolyzer is estimated at 1.3 million USD, which includes the balance of plant (BOP). The fuel cell system is assumed to cost 1.2 million USD per megawatt of power output. Additionally, optional hydrogen storage is priced at 0.5 million USD, while installation and engineering costs are estimated at 20% of the electrolyzer cost. The preliminary estimate for the total CAPEX for ten units is approximately 15.5 million USD.
3. Scenario 1: Hydrogen-to-Power vs. Grid Electricity
When comparing hydrogen-to-power generation with grid electricity, the CAPEX breakdown reveals that the total cost for the electrolyzers amounts to 13 million USD, while the fuel cell system for a 2.47 MW output costs about 2.96 million USD. Including storage and balance of plant, along with installation and engineering, the total CAPEX reaches 19.06 million USD.
Operational expenditures primarily stem from electricity consumption. For hydrogen production at a rate of 2000 Nm³/h, the electricity requirement is approximately 9,880 kWh per hour, translating to 9.88 MWh. Given the average industrial electricity rate in Europe is around 0.10 USD per kWh, the annual electricity cost would amount to approximately 6.93 million USD. Additional OPEX components include maintenance costs for the electrolyzers and fuel cells, estimated at 2% and 5% of CAPEX, respectively, along with labor, insurance, and overhead costs, leading to a total OPEX of approximately 7.84 million USD per year when including electricity costs.
When calculating the levelized cost of electricity (LCOE) for hydrogen-to-power generation over a 10-year horizon, the total cost sums to 97.46 million USD. Dividing this by the total energy output of 216,300 MWh results in an LCOE of approximately 0.45 USD per kWh. This figure is significantly higher than the average grid electricity cost of around 0.10 USD per kWh in many European countries, indicating that hydrogen-to-power generation is currently uneconomical under existing conditions.
4. Scenario 2: On-Site Hydrogen Production vs. Bottled Hydrogen Purchase
In the second scenario, the analysis compares on-site hydrogen production with the purchase of bottled hydrogen. The market price for bottled hydrogen in Europe typically hovers around 10 USD per kilogram. Given that 1 kilogram of hydrogen is approximately equivalent to 11.2 Nm³, the production capacity of 2000 Nm³/h translates to about 178.57 kg/h. Thus, the annual cost for purchasing bottled hydrogen would be around 15.65 million USD.
Conversely, on-site hydrogen production incurs a different cost structure. The CAPEX for the electrolyzers alone is estimated at 13 million USD. The OPEX, which includes annual electricity costs of approximately 6.93 million USD and maintenance costs of about 0.26 million USD, brings the total OPEX to roughly 7.19 million USD per year. Over a 10-year period, the total cost for on-site production would be about 84.9 million USD.
When calculating the cost per kilogram of hydrogen produced on-site, the total cost of 84.9 million USD divided by the annual hydrogen production of 178.57 kg/h results in a cost website of approximately 5.42 USD per kilogram. This is approximately 46% cheaper than the market price for bottled hydrogen, making on-site production a more economical choice.
4.1 Sensitivity Analysis
A sensitivity analysis reveals how various factors impact the cost of hydrogen production. For instance, if the electricity price were to drop to 0.05 USD per kWh, the cost per kilogram of hydrogen could decrease to approximately 4.12 USD. Similarly, improving the electrolyzer efficiency to 4.5 kWh/Nm³ could lower the cost to about 4.95 USD per kilogram. Additionally, a reduction in CAPEX to 1 million USD per unit could further bring the cost down to around 4.20 USD per kilogram.
5. Conclusion & Recommendations
5.1 Key Findings
The analysis highlights significant differences in economic viability between the two scenarios. The hydrogen-to-power generation option is currently not viable, with an LCOE of 0.45 USD per kWh compared to the grid electricity price of 0.10 USD per kWh. In contrast, on-site hydrogen production is economically viable, with a cost of 5.42 USD per kilogram, significantly lower than the bottled hydrogen price of 10 USD per kilogram.
5.2 Strategic Recommendations
Based on these findings, it is recommended that industrial users, such as refineries and ammonia plants, prioritize on-site hydrogen production to replace expensive bottled hydrogen. The hydrogen-to-power option should be avoided for grid replacement unless supported by government subsidies or paired with ultra-low-cost renewable energy sources. Additionally, exploring hybrid systems that utilize excess solar photovoltaic (PV) energy could help reduce electrolyzer OPEX.
Monitoring policy incentives related to green hydrogen in Europe is crucial, as these initiatives may improve the return on investment (ROI) for hydrogen projects. Furthermore, collaboration with leading hydrogen generator manufacturers could enhance the efficiency and reliability of PEM hydrogen generators, driving down costs further.
Overall, the final verdict is to proceed with on-site hydrogen production for cost savings while deferring hydrogen-to-power projects until technological or economic conditions improve.
References
European Commission. (2020). Hydrogen Strategy for a Climate-Neutral Europe.
International Energy Agency (IEA). (2021). The Future of Hydrogen.
Hydrogen Europe. (2022). Hydrogen Market Update.
BloombergNEF. (2023). Hydrogen Economy Outlook.
European Renewable Energy Council (EREC). (2022). Renewable Hydrogen: Key to a Sustainable Energy Future.