In today’s industrial gas markets as well as tomorrow’s hydrogen energy markets, the choices we make in how we generate hydrogen for use as fuel are critically important. From several practical perspectives, electrolysis – the production of hydrogen from water – offers a number of advantages over other methods of hydrogen production. In this RE Insider, we will focus on the economic benefits of electrolysis and present the first argument in a compelling case that identifies electrolysis as a practical answer to the question: where will the hydrogen for fuel cells and the hydrogen economy come from?RE Insider, June 21, 2004 – Proton Exchange Membrane (PEM) electrolyzer technology has been used successfully for nearly three decades on submarines and in spacecraft to generate oxygen for human life support needs. Fuel cells use the same technology, converting hydrogen into electricity. To produce hydrogen instead of electricity as the end product, the fuel cell is literally run in reverse: taking in water and electricity and producing hydrogen and oxygen. PEM electrolyzers incorporate a solid polymer membrane that helps manage the electrolysis process in such a way that hydrogen ends up on one side of the membrane, while oxygen remains behind, suspended in the water that serves as the “feedstock” for the system. The result is a supply of pure hydrogen and, if needed, pure oxygen. One might wonder where the practicality is in making a fuel cell that runs backward. After all, if the excitement surrounding fuel cells is that they can cleanly and efficiently convert hydrogen into electricity, what would be the sense in squandering that electricity by turning it back into hydrogen? From a “net energy” perspective, it would seem that it takes more BTUs of electricity than are contained in the hydrogen produced from electrolysis. The answer begins with an acknowledgement that the amount of energy consumed in PEM electrolysis is indeed greater than the amount of energy in the resulting hydrogen. But this trade-off can make good economic sense in a variety of circumstances. For example, if the electricity used to make electrolytic hydrogen comes from low-priced coal or nuclear power sources, and if the hydrogen is then used to replace high priced fuels such as gasoline, we have effectively transformed coal or nuclear resources into transport fuel. In such practical applications, the economic value added overwhelms the net energy loss. An even more compelling justification for electrolysis comes from the desire to see renewable power make an impact on transportation markets. Renewables give us electricity, but not fuel. The only practical way to turn renewably-generated power (wind, solar, hydro, geothermal) into fuel is through electrolysis. Another key to the good economic basis for electrolytic hydrogen is that the hydrogen can be made “on-site,” that is, at or near the point of end-use, thereby minimizing or eliminating transport costs. In effect, electrolysis takes advantage of the existing infrastructures for electricity and water. The all-in cost of an electrolyzer sited at a gas station and sized to fill 10-20 cars per day is far less than the total capital cost of a new large scale steam-methane reformer that requires a new pipeline or truck-based delivery infrastructure. For this reason, various experts have concluded that electrolysis will have a role in the introductory stages of the hydrogen fueling marketplace. The longer-term role of electrolysis for fueling will depend upon how the economics of converting electricity to hydrogen compares with the economics of other fueling options. The electrochemical efficiency of electrolysis is fairly high. Electrolyzer stacks exhibit an inverse relationship between efficiency and “current density” (or amps per square foot). When low levels of current are applied to the stack, resulting in lower output of hydrogen, the efficiency of the process can exceed 85%. That is, more than 85% of the BTUs of electrical energy are converted to BTUs of hydrogen chemical energy. Much like an internal combustion engine, a PEM stack gets less efficient the harder it is “driven.” Our systems today confront a trade off between efficiency and capital cost. The stacks in our commercial systems operate at below 80% efficiency because the PEM cells are expensive. As the cost of cells and cell stacks comes down, we will be able to put more cells into each stack (with correspondingly lower current density per cell) and higher resulting efficiencies. The math for translating electricity into hydrogen-based fuel cell transport is fairly straightforward. The theoretical efficiency of converting electricity into hydrogen via electrolysis is 39.4 kWh per Kg of hydrogen. Assuming we place a 75% efficient electrolyzer system at a typical gas station, the electricity requirement per Kg of hydrogen rises to 39.4 divided by .75, or 52.5 kWh per Kg. Now let’s put that hydrogen into a current-generation fuel cell demonstration vehicle that can travel 90 – 100 Kilometers (or 55 – 60 miles) on one Kilogram of hydrogen. Net result: a Kg of hydrogen “costs” 52.5 kWh to produce and provides better than 55 miles of driving, or just about 1 kWh of electricity to drive one mile. If the cost of electricity at the gas station is, say, 7 cents per kWh, this equates to 7 cents per mile as the fuel cost of driving a fuel cell vehicle. That cost is perfectly competitive with today’s gasoline internal engine automobile. If gasoline costs $1.70 per gallon, then a 20-mile per gallon car costs 8.5 cents per mile. Most analysts are quite surprised when they first work through the economics of hydrogen fuel from electrolysis. The presumption is that the net energy cost of making hydrogen from electricity is prohibitively high. How can the fuel value at the gas station possibly be greater than the fuel value that went into making electricity in the first place? The answer of course is that the cost of the BTUs used to make the electricity is much lower than the value of transport fuel. The variable (fuel and operations and maintenance) cost of electricity at a coal-fired generating plant is only about 1 cent per kWh (or about 15-20% of typical commercial electric prices). Again, on a gasoline equivalent basis, the generating cost of base load electricity is perhaps one-eighth the value of the fuel that it can replace if electrolyzed and used in a fuel cell vehicle. It’s as if we start with a gallon of water at the utility generator but when it gets to the gas station the water has turned into wine. Sure, we spilled some, but wine is worth enough more than water to overcome the shrinkage. So the reality is that the variable cost of fueling a fuel cell vehicle with hydrogen from water is much more interesting than most people initially anticipate. Now take into account that electrolysis permits us to leverage existing electricity and water infrastructures. And because electrolysis technology is modular and scalable, it is clear why hydrogen from electrolysis is gaining credibility as perhaps the most logical way to achieve the introductory phase of the hydrogen fueling infrastructure. One final issue to consider is that if we begin using the utility grid to make part of our transport fuel mix, the economics of the utility may shift for the better. Generating capacity and wires that are not fully utilized during off peak periods can now be effectively harnessed to meet transportation fuel needs. Capacity factors thus improve, and rates charged to fueling stations may be beneficially impacted. Couple this with the inevitable political interest that will derive if utility ratemaking and practices become intertwined with retail transportation fuel costs, and the implications for electrolysis as a source of fuel get ever more intriguing. Watch for some of these ideas to take root in California, as the new governor applies his formidable political strength to the development of 200 fueling stations as part of the “hydrogen highway network” running up and down the state. Many of these stations may well incorporate PEM electrolysis. About the author… Chip Schroeder is currently President of Distributed Energy Systems Corp. and is one of the founders of Proton Energy Systems. Schroeder has served as the president and chief executive officer of Proton, and as a director, since the Proton’s founding in August 1996. From 1991 to August 1996, Schroeder served as an officer of AES Corp., an independent power company. From 1986 to 1991, Mr. Schroeder was a vice president in the investment banking division of Goldman Sachs & Co. Schroeder holds BS and MS degrees from Massachusetts Institute of Technology. The formation of Distributed Energy Systems Corp. follows Proton’s acquisition of Northern Power Systems.