The Green H₂ Challenge
The success of a hydrogen production project via electrolysis relies primarily on the optimization of electricity sourcing, as it constitutes the majority of the Levelized Cost of Hydrogen (LCOH). The commercialization of the produced hydrogen is directly influenced by this sourcing strategy. Likewise, the robustness of the electricity sourcing strategy is a key factor in securing financial support for H₂ projects.
To structure and size electricity sourcing effectively, several constraints must be considered:
- Electricity sourcing costs: This includes Power Purchase Agreements (PPA) covering price, price structure, duration, market/grid electricity, and potentially off-market or long-term electricity sources.
- Sourced PPA volumes and associated risks, particularly regarding resale.
- Stacking management and interactions between intermittent and dispatchable energy sources, along with the associated cost of aggregation.
- RFNBO/low-carbon hydrogen requirements, maximizing the RFNBO share, and the impact of the RED II Directive (hourly matching, price zone, and additionality requirements) on PPA and grid electricity sourcing.
- Technical design of each project, whether it involves a standalone electrolyzer, an electrolyzer with storage, or an integrated e-methanol or e-SAF (Sustainable Aviation Fuel) production unit. Additionally, the type of electrolyzer technology used influences operational constraints, such as minimum load factor, cold start, ramp-up/down, degradation, maintenance cycles, and replacement needs.
All these elements are integrated into constraint-based optimization models, which help define robust and bankable scenarios and strategies for electricity procurement in hydrogen projects. These scenarios ensure:
- Maximization of RFNBO hydrogen share and optimal absorption of PPAs.
- Cost optimization of electricity sourcing by leveraging opportunities provided by PPAs and market prices.
Hydrogen is considered renewable under the RFNBO (Renewable Fuel of Non-Biological Origin) standard if its production complies with criteria set by the EU RED III Directive, particularly the requirement to source electricity from renewable PPAs. While France’s low-carbon electricity mix might allow some flexibility regarding additionality, hourly and geographical correlation remain essential for true green hydrogen production. This requires precise sizing of PPA-generated electricity to match electrolyzer needs.
To effectively address these constraints, implementing smart electrolyzer management is crucial to:
- Maximize PPA absorption.
- Optimize electricity sourcing costs by leveraging market price fluctuations and temporal correlations.
- Ensure compliance with electrolyzer technological constraints, including minimum load factor, cold start capability, and ramp-up/down dynamics.
Given this complexity, only an electricity sourcing strategy based on a constraint-based optimization model can ensure a competitive hydrogen price while maximizing RFNBO production share.
Greensolver’s Power & PPA team provides a proven, turnkey solution to efficiently size PPAs, structure, and optimize robust electricity procurement strategies for hydrogen projects. Our deep expertise in Power & PPA markets, combined with in-depth knowledge of project requirements and regulatory frameworks, is a decisive factor in ensuring the success of green hydrogen projects. Our ability to identify the necessary electricity volumes guarantees the development of an optimized hydrogen production strategy at the lowest possible cost.
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Written by Alexandre Soroko, Director of Power & PPA Advisory Services