The challenges of climate change and global warming are demanding an urgent transition from fossil fuels to renewable or low-carbon energy sources to decarbonise our energy system.
Hydrogen is gaining momentum as an energy carrier since it can link different sectors that are hard to decarbonise such as industry and transport.
Most of the hydrogen production globally is derived from fossil fuel-based processes without carbon capture with only a very small percentage coming from low-carbon processes. This is primarily due to the low economic competitiveness of low-carbon production processes like electrolysis. However, there is a burgeoning interest in countries worldwide in developing green hydrogen production strategies.
Economic Challenges and Opportunities in Green Hydrogen Production
As anticipated, one of the challenges of green hydrogen production is the associated high cost, which is reflected in the Levelised Cost of Hydrogen (LCOH). LCOH is one of the most common metrics used to benchmark the cost competitiveness of hydrogen production projects taking into account the capital and operating costs over the lifetime of the project.
To reduce the LCOH, many are exploring the possibility of selling oxygen (O2), which is a byproduct of the electrolysis process. Oxygen is a valuable commodity used in several industries such as healthcare, steel, cement, metallurgy, glass, cellulose and paper, refining, water treatment and others. By selling O2, companies can offset the cost of producing green hydrogen and reduce its levelised cost.
O2 sales impact on the LCOH depends strongly on market demand and pricing for O2 (healthcare or industry), the regulatory framework governing the sale of O2 (mainly related to product purity), and O2 conditioning and handling costs.
Case Study: Impact of Oxygen Sales on Green Hydrogen Costs in Italy
Genesis conducted a comprehensive analysis of green hydrogen production emcompassing the renewable energy sourcing strategy, electrolyser technology screening and hydrogen final usage, along with O2 sales. The study shows that selling O2 can significantly reduce the LCOH. The analysis was developed based on a case study in Italy.
It shows that O2 sales always have a positive impact on the LCOH with a more significant impact for smaller electrolysers. For a 1 MW electrolyser powered by solar energy and/or a virtual power purchase agreement (VPPA), the LCOH is reduced below 5 €/kg of H2 when O2 is sold due to a higher proportion of economically valorised O2.
The study also calculates the break-even green hydrogen (GH2) selling price required to achieve a 15% internal rate of return (IRR). O2 sales significantly narrow the break-even price range, making the investment more attractive. For example, the break-even price range for a 20 MW electrolyser shifts from 8.0–15.2 €/kg H2 to 7.4–9.7 €/kg H2 when O2 is sold.
Sensitivity analyses on energy and O2 prices (±30%) reveal that smaller electrolysers are more sensitive to O2 price fluctuations while larger electrolysers are more reactive to energy price variations.
The study concludes that byproduct O2's economic potential is significant and warrants consideration in GH2 project feasibility studies. The key takeaway is that integrating O2 sales, particularly for smaller electrolyser projects, can significantly enhance the economic viability of GH2 production, contribute to broader decarbonisation efforts and de-risk the investment.
Read the full article published in the International Journal of Hydrogen Energy: Comprehensive analysis on Green Hydrogen production in Italy and oxygen sale impact on LCOH.
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