Hydrogen Fact #7 – The cost of hydrogen produced today from wind power (without any subsidies) would be less than the equivalent of gasoline at $3.50 per gallon

(Note: This is Hydrogen Fact #7 from “Twelve Hydrogen Facts” which is part of the Hydrogen Manhattan Project.)

(Note #2: This analysis was updated on May 24th due to a reassessment of the unsubsidized cost of wind power.  I concluded that my initial cost figure of 5.25 cents per kilowatt hour was too low and that 7 cents per kilowatt hour was more accurate.  Furthermore, the cost of the hydrogen production facilities and hydrogen pipelines and storage were increased.  Therefore, the cost of hydrogen produced from wind power is now estimated to be the equivalent to gasoline at $3.49 per gallon instead of $2.98.)

As shown in the following analysis, wind power could produce enough hydrogen to replace all of the gasoline and still provide 50% of the electricity in the U.S.

Here is a breakdown of the cost of a kilogram of hydrogen from wind power:

Producing a kilogram of hydrogen by electrolysis with wind power

A kilogram of hydrogen can be produced by electrolysis with 50 kilowatt hours of electricity.  GE Wind says on their website that the cost of wind energy is “approximately 3.5 to 4 cents per kilowatt hour and declining.”

However, FPL Energy is “the largest U.S. generator of wind power, with 47 farms currently in 15 states.”  FPL Energy says that the cost of wind power is 4 to 7 cents per kilowatt hour.

A key point is that these figures include the Production Tax Credit (PTC) of 1.9 cents per kilowatt hour.  Therefore, the unsubsidized cost of wind power would be 5.4 to 5.9 cents per kilowatt hour for the GE cost figures and 5.9 to 8.9 cents per kilowatt hour for the FPL Energy cost figures.

Since GE Wind is more into selling wind turbines and FPL Energy has more of a presence with building wind farms and providing electricity (which means they should have a better idea of all of the costs involved), I am going to rely more on the FPL Energy cost figures.

Furthermore, the wind farms to make hydrogen will be extremely large which will lower the cost significantly.  The following fact sheet from the American Wind Energy Association (AWEA) from February 2005 titled “The Economics of Wind Energy” shows how the size of the wind farm can make a big difference in the cost of the electricity.

The fact sheet says that back in February 2005 a 3 megawatt wind farm could provide electricity (including the PTC subsidy) at a rate of 5.9 cents per kilowatt hour, but a 51 megawatt wind farm could provide electricity at a rate of 3.6 cents per kilowatt hour.  The reason is that the transactions costs and the operations and maintenance costs will be lower for a larger wind farm.  These efficiencies will obviously level-off at some point, but they are important to keep in mind.

As previously mentioned, the wind farms used to make hydrogen will be extremely large in order to lower the cost as much as possible.  T. Boone Pickens is building a huge wind farm in Texas that will have 4000 megawatts of wind power by 2014.  This is the type of wind farm that would be perfect for producing hydrogen at the lowest cost.

When all of these factors are considered, the unsubsidized cost of wind energy used for this analysis will be 7 cents per kilowatt hour.  This is a little below the middle of the 5.9 to 8.9 cents per kilowatt hour range given by FPL Energy for the cost of unsubsidized wind power.  Since the wind farms where the hydrogen will be produced will be extremely large, the cost of wind from these facilities should be equal to or below this figure.

When multiplied by 50 kilowatt hours, this will equal $3.50.

Electrolyzers and hydrogen production facilities

The cost listed above for producing a kilogram of hydrogen by electrolysis with wind power only covers the cost of the electricity.  The cost of the electrolyzers and the facilities where the hydrogen will be produced also needs to be taken into account.

GE and ITM Power (UK) are two leading companies with low-cost electrolyzer technology.  An electrolyzer (at a cost of $400/kW) that produces 1000 kilograms per day and lasts for ten years is estimated to cost $1,220,000.  The payment on a ten-year loan at a 7% interest rate on this amount would equal $14,165 per month or $169,980 over an entire year.

The electrolyzers could produce 365,000 kilograms if they were to run at full capacity over an entire year.  However, it will be assumed that they will operate at an average of 75% of the hours at the large wind facilities.  Therefore, the electrolyzers will produce 273,750 kilograms per year.  This will equal a cost of $0.62 per kilogram of hydrogen.

Regarding the cost of the hydrogen production facilities, the closest comparison that can be made is with oil refineries.  Currently, refinery margins are pretty low with gasoline.  In February 2008, refineries received $0.24 per gallon of gasoline.  However, they received $0.33 per gallon in 2004 and $0.43 in 2005.

Since the cost of the electrolyzers and the electricity needed to produce the hydrogen have already been taken into account, this figure should be much lower than what the refineries are receiving per gallon of gasoline.  Therefore, the cost of the hydrogen production facilities is estimated to be $0.24 per kilogram.

The total for both the electrolyzers and the hydrogen production facilities is $0.86 per kilogram.

Hydrogen pipelines and storage

The cost to transport gasoline through pipelines and for storage is 4 cents per gallon.  This will be used as the operating cost of the hydrogen pipelines and storage facilities.

However, the hydrogen pipelines and storage facilities have yet to be built, so the amount to pay back loans for them must be included.  The cost to build the hydrogen storage facilities is difficult to estimate, but I will use a figure of 3 cents per kilogram.

The cost of the hydrogen pipelines is a little easier to estimate.  Polymer hydrogen pipelines are estimated to cost $500,000 per mile.  Regarding the number of miles of hydrogen pipelines that will be needed, the closest comparison that can be made is with the current U.S. natural gas pipeline infrastructure.  Although there are about 2.2 million miles of natural gas pipelines, only 300,000 miles are long-distance transmission pipelines.

Trucks will be the most practical way to distribute hydrogen locally to fueling stations.  Therefore, the number of miles of long-distance natural gas pipelines will be used as a starting point.  I am going to increase this figure by 50% and estimate that 450,000 miles of hydrogen pipelines will be needed.  This will equal a cost of $225 billion.

The collective payment (this would obviously be the total of many individual hydrogen pipeline projects) on a 20-year loan with a 7% interest rate for $225 billion would be $1.74 billion per month or $20.93 billion per year.  Furthermore, as shown in the following analysis, 70.9 billion kilograms of hydrogen must be produced in the U.S. each year to completely replace gasoline.

This equals a cost per kilogram of $0.30 for the hydrogen pipelines.

Therefore, the total cost for the hydrogen pipelines and storage will be $0.37 per kilogram of hydrogen.

Compression

At the storage facilities, the hydrogen will need to be compressed to higher pressures.  The cost must include both the compressors and the energy required for compression.

The cost for a 1500 kilogram per day compressor that will last ten years is $600,000.  For a ten-year loan at a 7% interest rate, the payment will be $6967 per month or $83,604 over an entire year.  With 547,500 kilograms of hydrogen compressed per year, the cost per kilogram for the compressors is $0.15.

In order to compress hydrogen to 10,000 pounds per square inch (psi), between 10-13% of the energy in a kilogram of hydrogen (which is 39 kilowatt hours of electricity) is required.  A figure of 12% will be used which will equal approximately 5 kilowatt hours.

The average cost of electricity for industrial facilities was 6.16 cents per kilowatt hour in 2006.  Therefore, a figure of 7 cents per kilowatt hour will be used.  This will equal a compression cost of $0.35 per kilogram of hydrogen.

The total cost for both the compressors and the energy required to compress the hydrogen is $0.50 per kilogram.

Trucking

The trucking cost for gasoline is 3 cents per gallon.  This amount must be greatly increased for hydrogen, because the trucks will need to take many more trips to fueling stations.  The reason is that trucks of the same size will hold far fewer kilograms of hydrogen than gallons of gasoline.  Therefore, this amount will be $0.30 per kilogram of hydrogen.

Retail fueling stations

The cost to operate retail fueling stations was $0.17 per gallon of gasoline in 2005.  However, the cost to build the hydrogen fueling stations must be added to this figure.

Although this amount will be much lower in the future, hydrogen fueling stations currently cost about $2 million each to build.  A loan for this amount over 20 years with an interest rate of 7% will have a monthly payment of $15,506.

If each hydrogen fueling station sells an average of 1500 kilograms per day (388.6 million gallons of gasoline are currently sold in the U.S. each day at 170,000 fueling stations which equals an average of 2286 gallons sold per fueling station), the total loan payments of $186,072 each year would be spread over 547,500 kilograms of hydrogen sold during the entire year.  This equals $0.34 per kilogram.

Therefore, the cost for the retail hydrogen fueling stations will be $0.51 per kilogram of hydrogen.

Taxes

The average total of federal, state, and other gasoline taxes in January 2008 was $0.47 per gallon.  Since a kilogram of hydrogen in a fuel cell will get twice the mileage of a gallon of gasoline in an internal combustion engine, the taxes must be doubled to $0.94.

Total cost

The total cost of hydrogen produced from wind power (without any subsidies) would be $6.98 per kilogram.

Since a kilogram of hydrogen in a fuel cell will get twice the mileage of a gallon of gasoline in an internal combustion engine, this is equivalent to gasoline at $3.49 per gallon (without any subsidies).

A key point to mention is that this cost will be even lower in the future.  Fuel cells will be even more efficient and the cost of clean sources of energy, electrolyzers, compressors, and fueling stations will all go down over the coming years.  It is very likely that hydrogen from clean sources of energy will cost the equivalent of gasoline at levels close to $2-2.50 per gallon in 10-15 years.

(Note: Although wind power is used in this analysis, other clean sources of energy could economically produce hydrogen either by electrolysis or other methods now or in the near future.  In particular, hydrogen from solar power by methods other than electrolysis will likely become economical in the next couple of years.  Due to the availability of high-quality solar power at various locations around the world such as the Mojave Desert in the southwestern U.S., hydrogen from solar power has a tremendous amount of potential.)