Purchasing power for electrolysers: production and cost challenges

The Challenge of High Production and Cost Management for Electrolysers

For operators of electrolysers wanting to produce renewable hydrogen out of renewable power, there is a dilemma. To off-set capex as quickly as possible, high production volumes are needed to maximise revenues.   

Achieving high production volumes requires the electrolyser to operate for many full load hours. However, this means power cannot be purchased exclusively during times of high renewable generation, when prices are lower.  

To achieve high full load hours (FLH) for the electrolyser, one would have to accept higher power purchasing costs. Or if there is a cap on power purchasing costs, the amount of full load hours will be relatively little.  

Analysis of Full Load Hours and Power Procurement Costs  

In Table 1 we analysed the achievable FLH and the average procurement price for a trigger price of 20 EUR/MWh. Row a) shows the number of hours of day ahead prices in Germany below that trigger price. Row b) shows the average purchasing costs if one would buy a baseload profile during all those hours when prices are lower than the trigger price. The data is shown from 2015 to 2023 based on EPEX Spot prices and in addition for the year 2030, based on Montel’s power price scenarios (Energy Brain Reports, Central Scenario from the Q3-2024 Update). By the way, in the current RFNBO Delegated Act the 20 EUR/MWh is the price limit below which electrolysers may purchase power at the spot market in addition to a PPA contract, claiming the resulting hydrogen to be renewable.  

Challenges of Achieving Low Purchasing Costs with High FLH

We observe that while single digit purchasing costs for the electricity is certainly welcomed by electrolyser operators, the amount of FLHs connected to these values is less than 1,000 hours per year, which seems to be unacceptable. In the year 2023, we identified 832 FLHs (equivalent to a capacity factor of 9.5 Percent) and the average purchasing price was almost zero. According to our power price scenarios the average cost for the year 2030 would increase to 2.80 EUR/MWh, while the FLH could double to around 1,665. But even that will never make a business case on its own.

Requirements for Renewable Hydrogen Production and Compliance

Based on current RFNBO criteria, electrolysers which should produce “renewable hydrogen” in Germany would need to conclude a PPA with a renewable energy (RE) power plant. But the question is, with PV or wind, or with a mix of both? In addition, compliance with the Delegated Act requires that the RE project (seller of the PPA) must be a new project (COD not earlier than 36 months before the electrolyser) and that this project did not receive funding in the past. In addition, the project must be located in the same bidding zone. So, it has to be a German PV or wind farm essentially.  
  

PV and Wind PPA Case Studies for Electrolyser Power Supply  

We have looked at two sites to demonstrate how far individual PV and wind PPAs can serve as power supply. One site is in the North of Germany, close to Hamburg, which is supposed to become a hydrogen hub in the future. The other one is in the South of Germany, close to Stuttgart, as there is a lot of industry with a potential to consume a lot of hydrogen. For the PV and wind profile, weather data from the year 2009 was used (as this is also the standard year used in our power price scenarios). 

Key Insights from PV and Wind Generation Profiles  

For both sites we simulated a PV and a wind farm of different sizes and a mix of the two (10 / 15 / 20 / 25 MW). We assumed an electrolyser with an electric capacity of 10 MW.  

In the following, some results are presented, starting with the obvious ones, followed by more interesting ones:  
  

Wind Power as a Better Match for High FLH  

• PV in Germany has typically 900 to 1,000 FLH in generation. Wind sites in Northern Germany may have 2,000 or even more. So, if you want to select one of the two technologies, wind is definitely the better match, also because it has a more constant production volume.  

  
Benefits of Overcapacity for Electrolysers  

• A PV or wind power system with a rated capacity of 10 MW will hardly ever produce 10 MW of electricity. In order to increase the FLH of the electrolyser, the RE plants need to be designed with overcapacity. Overcapacity means, that during some hours of the year, the RE plant could produce more than 10 MW (capacity of the electrolyser) hence it has to either curtail power generation or sell the excess electricity otherwise on the market.  
    

PV and Wind Mix vs. Wind-Only Supply  

• Mixing PV and wind generation will always create fewer full load hours for the electrolyser than using a wind farm of the same generation capacity alone. So, it is of prime importance to have a PPA with a wind farm at a very good site in order to maximise FLH of the electrolyser.  
    

• A wind farm of 15 MW in the northern location allows for a capacity factor of ~48% for the electrolyser, while around 1,000 MWh of excess generation needs to be curtailed or sold otherwise. Adding 5 MW of generation capacity to the wind farm leads to an increase of the capacity factor of approx. 10 percentage points, while the excess electricity increases manifold. (see Table 2)  
    

• Wind farms of the same size in the southern location (where wind conditions are less favourable) obviously provide fewer FLH or a lower capacity factor for the electrolyser.  
    

Capacity Factor Insights from Northern and Southern Germany  

Minimum FLH Requirements for Investor Viability  

In many cases, 5,000 FLH or a capacity factor of 57 % is a minimum requirement for investors of electrolysers in order to have acceptable payback periods. That would mean, we need around double the generation capacity of a wind farm compared to the consumption capacity of the electrolyser (in our case: 20 MW wind farm in northern location, 10 MW electrolyser capacity).  

Cost Implications of Operating in Low-Cost Power Hours Only  

Let’s turn back to our initial dilemma: let’s assume we could have predicted the hourly prices perfectly in the past and we would operate the electrolyser only in the 5,000 cheapest hours of each year. Then the average purchasing costs for electricity at the German wholesale market between 2018 and 2023 would have been in the range of 20 to 138 EUR/MWh (see Figure 1). According to our power price scenario “Central”, the costs would be 47 EUR/MWh in the year 2030 (Q3-2024 Version).  

Synchronising Wind Generation with Electrolyser Demand  

Accurately predicting and purchasing power for only the lowest-cost hours isn’t feasible in practice. This perspective has two flaws:   

1. We cannot predict the 5,000 hours with lowest prices for a full year  

2. We should rather consider those prices at times when the wind farm actually produces electricity (as we have to demonstrate hourly synchronisation of generation and consumption in the future).   

Consequently, we need two time series to calculate the actual value of the electricity produced by the wind farm and consumed by the electrolyser:  

• The Hourly Price Curve: (either historic or from power price scenarios)  

• Renewable Generator Feed-In Profile: the real-time generation pattern of the renewable energy source.  

Case Study of a 10 MW Electrolyser with a 20 MW Wind Farm 

For this case study we used the hourly prices from our “Central” scenario together with the 20 MW wind farm, a 2009 weather pattern and the 10 MW fully flexible electrolyser. We find that:  

• The electrolyser consumes 51,664 MWh in that year, equivalent to 5,166 FLH or a capacity factor of 58%.  

• The base load power price is at 74 EUR/MWh in that year.  

• The volume-weighted average value of the consumed electricity of the electrolyser (10 MW if available or less) is around 60 EUR/MWh. We could call it the capture price of the electrolyser. It is lower than the base load price due to the cannibalisation effects.  

• During those hours, when the wind farm produces more than 10 MW, the average revenue for selling the excess electricity is around 21 EUR/MWh. During days and hours with strong wind speeds, our wind farm would sell half of its rated capacity at very low prices due to the cannibalisation effect.  
    

This case study does not consider minimum load criteria for the electrolyser. It also does not consider power consumption in standby mode. A site-specific analysis for your project including actual load curves of the electrolyser is available upon request.  

Conclusion: Strategic Power Purchasing for Electrolysers  

Balancing full load hours with economically viable power costs is a complex yet essential goal for electrolyser operators, especially those aiming to produce renewable hydrogen under regulatory constraints. Achieving this balance requires dynamic procurement strategies and a clear understanding of renewable generation profiles, highlighting the importance of detailed, site-specific analyses for optimizing electrolyser operations.