H2@Scale: Economic Potential of Hydrogen as an Energy Intermediate
The H2@Scale concept envisions hydrogen as an energy intermediate across multiple energy sectors. The concept is motivated both by the opportunity to produce hydrogen from low-cost energy resources, and by the many potential applications of hydrogen, including as energy for transportation - used directly in fuel cell electric vehicles (FCEVs), as a feedstock for synthetic fuels, and to upgrade oil and biomass - feedstock for industry (e.g., for ammonia production, metals refining, and other end uses), heat for industry and buildings, and electricity storage. A key hydrogen production opportunity is using variable renewable electricity (i.e., electricity generated by wind turbines or solar photovoltaic panels) during hours when generation exceeds the load on the grid as a source of low-cost, dispatch constrained electricity (LDE). In addition to producing low-cost hydrogen, electrolysis can also serve as a form of responsive load on the electric grid, which can enhance grid stability, reduce curtailment, and create a supplementary revenue stream for generators. The future use and adoption of hydrogen across end-use applications depends both the cost of hydrogen production and on each application's threshold price (i.e., the maximum price each application will pay for hydrogen - above that price, the application has an alternative that is more economic). We estimate economic potential of the hydrogen market - the quantity of hydrogen at an equilibrium price at which suppliers are willing to produce and consumers are willing to buy the same quantity of hydrogen - by developing supply and demand curves for hydrogen production and use. The demand curves are based on the threshold price for various quantities of hydrogen in each market, which is affected by projected prices for alternatives that could provide the same service (e.g., fuel for vehicles, feedstock for metals refining). The supply curves include hydrogen produced via natural gas steam methane reforming, high-temperature electrolysis coupled with nuclear power plants, biomass gasification, and low-temperature electrolysis using LDE. We use a range of market and technology-advancement assumptions to estimate the economic potential for five scenarios in the mid 21st century timeframe, and the corresponding impacts on energy use and emissions. We estimate hydrogen's economic potential to be 14-48 MMT/yr in the contiguous United States - corresponding to 1.5-5 times current annual consumption - depending on key assumptions about the future market conditions and the success of hydrogen production research and development (R&D) in our five scenarios. As a result of the estimated economic potential markets, we also approximate that grid-integrated electrolysis can increase the penetration of wind generation in the electricity market by providing a value stream for LDE, and that total U.S. fossil fuel use could decline below a scenario with high renewable penetration on the grid. We find that hydrogen has potential to provide technical and economic synergies when integrated across multiple sectors of the U.S. energy system, but continued R&D, infrastructure, and market development for LDE are required.