Low-cost green hydrogen through digitalization

Plans to expand Germany’s hydrogen landscape are well underway. A large number of electrolyzers for green hydrogen production and thousands of kilometers of new or converted pipelines for hydrogen transmission will be built in the coming years. This offers us the opportunity to think holistically from the outset about the advancing trends of hydrogen and digitalization and to digitalize the hydrogen sector. This article intends to demonstrate the potential that can be leveraged through the digitalization of the entire green hydrogen value chain.

The German government has announced its ambition for Germany to be supplied entirely by wind and solar power by 2035 and to reach net-zero greenhouse gas emissions by 2045. To cushion the volatility in energy availability that is associated with an accelerated expansion of renewables, the country will in future look to hydrogen-compatible gas power plants as well as flexibility options and energy storage. The plants are expected to run on green hydrogen and ensure a stable electricity supply during lulls in wind and solar generation.

This is one of the reasons why the German cabinet made the decision in July 2023 to update the national hydrogen strategy. The main objective is to increase hydrogen capacity to 10 gigawatts by 2030 and will involve large-scale infrastructure projects to build electrolyzers for green hydrogen production. Ensuring their successful integration into the existing gas supply landscape requires digitalization to be embedded from the very beginning.

Potential applications for digitalization

In the hydrogen sector, digitalization can primarily take over forecasting and monitoring services while also facilitating an efficient exchange of data. This includes projections of excess green power for hydrogen production, certificates for green hydrogen trading, the use of digital twins in a new or repurposed transmission network or innovative digital solutions in the hydrogen nomination process of gas network operators, which are faced with new challenges here due to the decentralized nature of the feed-in supply (see fig. 1).

Fig. 1: Potential applications of digitalization in the hydrogen sector. The hydrogen value chain (production, storage, supply and use) is represented in the inner ring. Positioned in the middle ring are the tasks that digitalization can undertake. The outer ring shows the technologies that can be used to fulfill the tasks.

Particularly during the current ramping-up phase in hydrogen infrastructure, it is crucial that the manufacturing, distribution and utilization of hydrogen are well coordinated. This requires information to flow between individual links of the value chain. For example, hydrogen production has to be coupled with power generation on the one hand as well as with the transmission network and industrial off-takers on the other hand. The supply and storage network downstream of hydrogen production acts as the intersection and needs to be informed about what is being injected on the highly decentralized supply side and what will be required on the consumption side.

What has impeded hydrogen ramp-up activities thus far has been precisely this lack of transparency. Up until now, energy suppliers have been reluctant to invest in costly electrolyzers for hydrogen production due to the absence of a pipeline network for conveying the gas. Network operators in turn have been reluctant to lay pipelines due to a lack of customers. At the same time, industrial companies have been reluctant to conclude fixed off-take agreement without a transmission network being in place. If we do not want this trend to continue affecting day-to-day business over the years ahead, we must take early countermeasures while we still have considerable scope to shape things in the current ramp-up phase.

Digital platform across the H₂ value chain

The ideal solution would be the multidirectional digital connection of stakeholders from across the entire value chain on one common platform. This kind of digital platform (see fig. 2) can be formed of a variety of modules. The hydrogen value chain is thus brought under one umbrella through a digital reproduction of individual entities. This is possible within a company which maps both production and consumption of hydrogen on its own premises. It is also possible between different companies across the value chain. The platform can have various levels depending on network depth and undertake several tasks depending on the application scenario. By way of example, some network levels and their functionalities are described below:

• Dashboarding: A dashboard can be integrated as an initial expansion stage at the lowest level of the platform with the lowest degree of cross-linking. This is where expansion targets and the status of current projects are to be listed as well as enabling stakeholders in the hydrogen industry to present their projects. This generally serves the purpose of creating transparency in terms of, e.g., the statuses of previous German hydrogen projects, the active stakeholders in the individual links of the value chain in addition to current trends and best practice.
• Communication and collaboration: In a logical continuation of the initial expansion stage, the platform can be used as a space for communication and collaboration. This function allows a secure, intelligent and efficient exchange of data in real time across the entire value chain. Regardless of whether it is within project consortia or between various projects or stakeholders from the hydrogen sector, when it comes to the simple exchange of news, files or other information, the key problem so far has been how to facilitate effective communication between industry players and provide access to information in one place. For this to happen, it is vital that there is a common database that all industry players can access. Be it verified empirical figures on electrolyzer or pipeline longevity, hydrogen production costs or demand forecasts for the years ahead – there needs to be a trustworthy source that is the focal point for all members of the hydrogen community. Simply by registering on the platform, participants are able to share, retrieve and comment on information as well as being allocated selective read and write permissions or the facility to create various groups. One practical application is the ability to ask companies about their estimated future hydrogen demand via the platform. This works best if companies throughout Germany are surveyed together in one place than if each region carries out a separate survey at considerable additional expense.
• Handling day-to-day business: In addition to use for expansion projects, day-to-day hydrogen operations can also be integrated into the platform. This is where the individual modules that represent the individual entities in the hydrogen value chain become important. The electrolyzer module, for example, contains the electrolyzer operators which receive information about the predicted excess green power from the electricity traders from the power generation module. They, in turn, can transmit their predicted feed-in quantities to the gas network operators in the downstream pipeline network module. The traders and suppliers then receive the current hydrogen prices through real-time data, enabling them to offer their customers various hydrogen packages: a standard package that, similar to the futures market, guarantees a constant hydrogen price over a long period, or short-term packages consisting of green hydrogen derived from low-cost excess green power which are therefore much more economical. In this scenario, the industrial off-takers need to have a certain degree of flexibility in relation to the scheduled delivery time for a certain proportion of the hydrogen they have ordered. Industrial off-takers have to find the right mix of short-term procurement which is usually cheaper and long-term procurement which is more secure but also more expensive.

Fig. 2: Schematic representation of a modular digital platform for the entire hydrogen value chain

This holistic approach allows synergies to be created and for hydrogen to be produced, distributed and used with maximum cost efficiency and energy efficiency as well as in line with the availability of excess renewable energy. The next section provides a detailed illustration of how the electrolyzer module and the electricity module interact and what added value can be created for the German energy supply system.

Concept for lowering production costs

So far, green hydrogen has been seen as the expensive “Champagne” of the energy transition. To change this, the cost of its production must be drastically lowered. While electrolyzer hardware (capital expenditure) is generally decreasing, the price of electricity of a particular location is the biggest factor in operational expenditure and dominates the overall hydrogen production costs in Germany. Therefore, in order to save costs, synergies need to be created between hydrogen synthesis and power generation. Fundamentally, green power from wind and photovoltaics would be the cheapest form of electricity, were it not so volatile. Because of this volatility, expensive gas power plants, which could be made hydrogen compatible in the long term, need to spring into action during lulls in solar and wind generation to cover the residual load. Since it is always the most expensive producer that determines the electricity price of all suppliers on the energy exchange, this raises the electricity price and thereby indirectly also the price for hydrogen produced in Germany (the hydrogen-green power paradox).

One solution to this is certainly to import low-cost hydrogen via pipeline from Portugal or northern Spain. However, this cannot be the only solution due to the need for security of supply and resilience in the German energy system. The key lies in the use of excess renewable energy for hydrogen synthesis. What is also clear is that to meet demand and keep capital expenditure low, electrolyzers require a high level of utilization and cannot just be operated when excess power is available. Nevertheless, hydrogen can ultimately only be produced economically in Germany if at least a large proportion is actually produced during those periods when there is excess renewable power available, thereby making it reasonably priced on the spot market. Hydrogen producers must be proactive in identifying these periods – and this is where digitalization comes into play.

Weather forecasts and spot market

The principle is well known: Weather algorithms forecast periods with especially high wind and PV potential and share this data with electrolyzer operators. They then place orders on the spot market for the low-cost electricity which is available during these periods. This not only avoids the need for network operators to curtail wind farm power generation (in 2021, approx. 6 terawatt-hours of renewable energy was curtailed due to grid congestion). It also enables electrolyzer operators to produce hydrogen more cost-effectively. However, this only works in the case of power purchasing on the spot market.

Many companies shy away from spot market procurement due to the presumed additional effort and price risk and instead prefer to make long-range purchases of electricity on the futures market. Yet those who buy electricity at the right time can save money compared with procurement purely through the futures market. Such obstacles affecting companies can be removed through the creation of a digital tool that combines everything in a single interface whereby weather forecasts and power purchasing are integrated into the electrolyzer control system for hydrogen production, with communication via secure interfaces. Embedding these meteorological predictions can, on the one hand, help Germany exploit more of its renewable energy potential and, on the other hand, enable hydrogen to be produced for German industry at lower cost.

Author: Fabian Rundel, August-Wilhelm Scheer Institut für digitale Produkte und Prozesse gGmbH