Levelized cost of blue hydrogen
Blue hydrogen can bring great benefits, both for your business and for the environment.
But as an investor, what should you consider when planning blue hydrogen production? It is a process which requires thought, collaboration, and a large amount of expertise. What it boils down to, however, is profit margins. And to get the highest margins, you need to get the lowest levelized cost.
What is the levelized cost of blue hydrogen?
The levelized cost of hydrogen (LCoH) is a fundamental calculation used in the preliminary assessment of a hydrogen project. It is a powerful tool to compare different hydrogen projects and to prepare the investment case.
The LCoH can be calculated by first taking the net present value of the total cost of constructing and operating a hydrogen plant. This number is then divided by the total hydrogen production over its lifetime.
Reduce CAPEX and OPEX for better future
CAPEX (capital expenditure) and OPEX (operating expenses) are the two types of expenditure that will define the overall levelized cost. How these will affect blue hydrogen production is explored below.
Capital expenditures (CAPEX) represent the funds used to acquire, upgrade, and maintain the physical assets associated with a plant such as property, buildings, technology, equipment, piping, and other parts of the plant.
To best capture economy of scale, it is important to maintain single line production as much as possible. Once single line capacity is no longer feasible, a lot of equipment, instruments and piping will be duplicated, and the relative cost of capacity addition will accelerate. In other words: it is cheaper to increase the size of a reactor, than it is to buy two reactors.
When producing at large scale, single-line capacity is therefore an incredibly important consideration.
Operating expenses (OPEX) are costs associated with manufacturing of goods and typically include cost of material, cost of labor and manufacturing overhead.
Energy consumption during operation falls under OPEX and is an important parameter. Typically, the required energy will come from burning of fuel and will generate a carbon footprint. Reduction of energy consumption is therefore necessary both from an OPEX and climate impact points of view.
To lower the energy consumption in a blue hydrogen plant, the reforming section needs to be fully integrated with the carbon capture section ensuring that any surplus energy from one section is utilized in the other, minimizing or avoiding thereby energy import.
Letting off steam
Steam throughput is another important parameter affecting both OPEX and CAPEX. In the reforming section steam reacts with methane to form hydrogen. The conventional processes operate with a surplus of steam to minimize risk of coke formation. The most effective processes operate with a minimum amount of steam throughput as any excess steam unnecessarily increases the size of equipment and piping as well as requiring more energy to compress the larger amount of steam.
Minimizing steam throughput also has the benefit of allowing more natural gas to be put through the system and therefore enables higher hydrogen production in a single line.
Balanced hydrogen production at scale? We’re ready.
Did you know that our solutions produce every third hydrogen molecule in the world? We have the experience and the depth of knowledge to find the most cost-effective solution for each project.
In every blue hydrogen project, we focus on improving the business case by reducing the levelized cost of output. That means selecting the right technology for the target capacity and carbon capture, while carefully considering the use of existing infrastructure. Blue hydrogen is ready to deploy today – and we are here to make it happen in a balanced, financially viable way.