Why favour the decentralised production model to meet hydrogen consumption needs?

The hydrogen sector is being structured to anticipate future needs for electrolytic hydrogen in industry and mobility. Nick Hughes, Senior Business Development Manager at Hynamics, discusses how a decentralised production model could be the answer to offering future consumers a competitive and secure supply of decarbonized hydrogen.

Much work has been done at national and local levels to establish an effective hydrogen supply strategy, with a focus around several "basins" located in major industrial and port areas. These discussions are being fed by developers who are carrying out projects designed to meet the challenge of massification of demand.

Some project developers are promoting a centralized model that allows the pooling of production assets associated with hydrogen transport infrastructures to ensure distribution to consumers. The second approach is one of decentralized on-site hydrogen production, as close as possible to the point of use, with a production asset sized according to the needs of the consumer.

These two approaches imply very different investment trajectories, both in production assets and in hydrogen transport and distribution infrastructures. In the context of an emerging market, it is essential to establish a comparative technical and economic analysis between the two models in order to rationalise the development of the sector. Hynamics carried out this work and came to the following conclusions.

Limited economies of scale in production altering the potential of pooling electrolysis capacity.

The projects described as centralized are characterized by production capacities of one to several hundred MW with a view to guaranteeing the supply of large volumes to a defined ecosystem at a competitive price. The aim is to allow smaller consumers to benefit from the scale effects of pooling large production capacities. However, the results of the study show that the economies of scale are limited on the production costs of electrolytic hydrogen and do not compensate for the cost of the logistics that must be deployed to deliver the hydrogen to the consumers.

From 25 MW, the gains linked to the oversizing of electrolysis capacities become almost non-existent, due in particular to a "series" effect on electrolysis rather than to real effects of scale, the stacks being more numerous but not more powerful. If the difference in full cost between a 0.5 MW and a 25 MW electrolyser is 1.5 to 2€/kg, it will only be 0.5€/kg between 50 MW and 125 MW.

Adding the cost of distribution, it is easy to see that the on-site generation model to meet the consumption of a large industrial site (>25MW) is more competitive.

High additional costs related to the logistical supply chain making the on-site production model largely more competitive.

In the large majority of scenarios, in terms of hydrogen volumes and distance between the consumer and the production site, the effects of scale on production costs do not compensate for the costs associated with hydrogen distribution. The study shows that only two cases can reduce the competitive gap between the centralised and on-site production models: truck delivery to many very small consumers (<100kg/d), and pipe supply to very large consumers over very short distances (<2km).

However, even in these specific use cases, the decentralised model with an electrolyser sized according to the consumer's needs is almost iso-competitive (<1€/kg). Modelling the supply of territorial basins shows us that locating production assets directly on consumer sites, both for industry and mobility, makes it possible to offer more competitive hydrogen.

Considering the competitiveness of the on-site production model, the territorial strategies of hydrogen consumption basins must focus on removing non-economic barriers to install electrolysers as close as possible to the uses.

While the on-site generation model appears to be the most competitive, it may face a number of non-economic constraints, particularly in terms of the availability of land at the consumer sites. In the same way, certain constraints linked to the connection may influence the location of the production asset. Finally, the regulations relating to the production and storage of hydrogen on site may require additional administrative procedures.

On the other hand, the logistic chain associated with a centralised model also has specific constraints in addition to the economic aspects: development of pipelines on public space, increase in road traffic, available land for the unloading area of the Hydrogen trucks, increase in the risk of stranded costs in case of loss of one of the customers (the viability of the centralised model being dependent on its capacity to mutualise the distribution costs between several small volume consumers).

To encourage the emergence of hydrogen production projects, the supply strategy for the basins must aim to remove the non-economic barriers to the installation of electrolysers as close as possible to the consumption sites: available land, easing of constraints (modification of the criterion of 1t of hydrogen stored on site requiring an environmental authorisation), facilitation of shared connection solutions (setting up of Priority Industrial Electrification Zones).

Hynamics will continue to work with its Hydrogen South West partners to strengthen the hydrogen economy, and accelerate the change in the South West region.