Turning the wind into hydrogen: Long run impact on prices and capacity
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Presentation on theme: "Turning the wind into hydrogen: Long run impact on prices and capacity"— Presentation transcript:
1 Turning the wind into hydrogen: Long run impact on prices and capacity Nicholas Vasilakos(with R. Green and H. Hu)Department of Economics University of Birmingham
2 Background and motivation EU renewables target by 2020: 20%For UK:15% renewable energyc. 40% renewable electricity……great part of which is likely to be wind.But wind output is intermittent – issue of storage Vs high backup capacity buildingHydro plants and interconnectorsHydrogen production and storage
3 Outline of questions and main results Hydrogen can be produced when prices are low (i.e. high winds) and stored.What will be the impact of large scale electrolyser capacity on prices and investment (capacity mix)?Increased average price of electricityMore baseload capacity and less mid-merit capacityBut effect on price of hydrogen may not be as steep as previously thought, if capacity mix is allowed to adjust
4 Literature overview Troncoso and Newborough (2007) Korpas and Greiner (2008)Hydrogen as a tool to ease pressure on gridsAguado et al (2009)A wind farm can smooth its power sales through hydrogen storageOnly economical if prices are high enoughFloch et al (2007)Shows how hydrogen production varies with maximum price paid by operators (using Powernext prices).They derive an optimal load factor of 64% - corresponding to a maximum willingness to pay of 48 euros/MWh.
5 Methodology and dataWe derive the optimal capacity mix using a cost-minimisation approachRecent cost data for 5 types of plants is taken from Mott MacdDonald (2010) –“n”th of a kind.Demand data and wind output taken from Green and Vasilakos (2010b)Electrolyser cost estimates are taken from Ramsden (2008a,b)
6 Finding the equilibrium: electricity market (for a given capacity of electrolysers) 1) Select operating plants using screening curve2) Choose max price electrolysers are willing to pay3) Choose total capacity so that peakers make zero profits4) Adjust peakers’ capacity so that 2nd most expensive plants make zero profits5) continue till everyone makes zero profitsElectricity market is now at equilibrium (for a given amount of hydrogen capacity and a given marginal willingness to pay for hydrogen plants)
7 Finding the equilibrium: both markets 6) Using the estimated capacity mix, find AC for electrolysers- if AC>MC, increase marginal willingness to pay and find a new set of generating capacities7) Continue until AC=MC and then this is the price that clears both markets.- will give optimal capacity mix for this price.both markets are now at equilibrium.
9 Main assumptionscarbon price of £50/tonne and all carbon permits are auctionedFuel price: £27/MWh for gas (+7% in winter, -7% in summer) and £6/MWh for coal.30GW of wind capacity, spread across the UK5GW reserve capacityWe follow Pouret et al (2009) in assuming minimum load factor for nuclear plants of 60% of their capacity.Hydrogen plants are price-takers
10 Simulation results: Summer load-duration curve (demand slope -2) GW(excluding electricity used for hydrogen production)Hours10
11 Simulation results: Winter load-duration curve (demand slope -2) GW(excluding electricity used for hydrogen production)Hours11
12 How hydrogen affects the capacity mix GWHydrogen electrolyser capacity, GW
13 Hydrogen supply curve: base case £/kgFixed generation capacityEquilibrium generation capacityMilliontonnes p.a.13
14 Supply curves for hydrogen (higher electrolyser costs) £/kgFixed generation capacityEquilibrium generation capacityMarginal cost with fixed generation and electrolyser capacityMilliontonnes p.a.
16 ConclusionsIntegration of electrolysers has a long-term impact on capacity mixIgnoring this impact can lead to overestimates for the price impact of hydrogen.Fairly flat supply curve, once long-term adjustments in capacity mix are accounted for.Still an expensive way to produce hydrogenour baseload estimate of £4/kgr compares to conventional methods yielding about £2/kgr using current gas prices