FUJI1996

STRATEGIES AND SYSTEM CONCEPTS FOR HYDROGEN UTILISATION IN AN URBAN ENVIRONMENT

D. Hart, M.A. Leach and N.J.D. Lucas
Imperial College
London SW7
and
D. Hutchinson
London Research Centre
London SE1

Abstract

The environmental issues concerning the introduction of hydrogen into the energy infrastructure must be considered in depth if it is ever to be used as an alternative fuel. This paper concentrates on analysing the most cost-effective use of a small quantity of hydrogen in the energy infrastructure of a large city (London). Two scenarios are analysed: one in which a small volume of hydrogen is added to the natural gas supply, and one in which pure hydrogen is used in niche applications. In each case the cost of introducing the hydrogen is offset against the environmental benefits which result from reduced emissions. The first scenario is shown to be the most cost-effective but is only suitable for a limited amount of hydrogen. The second scenario is less cost-effective, even in its best application - that of converting turbines to run on hydrogen instead of natural gas.

1. Introduction

This paper describes work undertaken under the WE-NET Project (Phase I) - International Clean Energy Network Using Hydrogen Conversion. This is a 28 year programme initiated by the New Energy and Industrial Technology Development Organisation (NEDO) in Japan. The work reported relates to Subtask 3 of the overall programme, concerning the Conceptual Design of the Total System.

The purpose of the work reported in this paper is to identify the most cost-effective use of a given volume of hydrogen for energy supply in urban areas taking into account the environmental benefits and the infrastructure requirements. In the first instance it was arbitrarily assumed that a volume of hydrogen would be available equal to 10% of the natural gas supply. The costs of producing this hydrogen are not an issue - the paper concerns itself exclusively with the most effective use. In particular the work seeks to clarify:

the relative merits of seeking to minimise new infrastructure by adding hydrogen to existing gas supplies in comparison to a strategy of seeking the individual applications which are most cost-effective - a "hythane^®"1 scenario against a "niche markets" scenario;
the most cost-effective applications of hydrogen within the "niche markets " scenario;
the relative importance of environmental and infrastructure influences on the cost-effectiveness of different scenarios and technologies;
the extent to which these conclusions vary according to the intensity of energy use, i.e. from central to inner to outer urban areas.

The work takes London as a case study, because of the access the researchers enjoy to the data bases of the London Research Centre on energy use, transport movements and environmental emissions in London, although it is intended to extend the work in later phases to include Japanese cities.

2. The Approach

The work is based on case studies of energy supply and use in specific three kilometre squares in central, inner and outer London. The time horizon is taken as about 2015. The study first reviews estimates of the cost of the damage to health and the environment associated with different pollutants and then decides on the most appropriate values to adopt for the present study. It then considers the technologies which are likely to be available to use hydrogen in the future and the technologies using conventional fuels with which they will have to compete. This review attempts to establish the most reliable cost, performance and emissions data for the different technologies. It also considers the factors which are likely to govern the penetration of hydrogen into energy markets and on this basis arrives at certain criteria for selecting technologies which are likely to succeed. According to these criteria, the technologies for detailed study are selected.

We then specify contrasting scenarios of hydrogen use. Competing technologies for using hydrogen can be compared on a one-to-one basis, using cost-benefit analysis, but different strategies for hydrogen use need to be examined on a system basis. Scenarios are developed which represent the most likely alternative strategies. Three scenarios are considered: a reference scenario that attempts to represent how energy is likely to be supplied if hydrogen is not used and then two hydrogen scenarios which are derived from this reference scenario. One of the hydrogen scenarios aims to minimise the infrastructure costs of the introduction by distributing hydrogen as hythane^® (a mixture of natural gas with 5% added hydrogen by calorific value) in existing distribution networks. The other hydrogen scenario (the niche markets scenario) aims to place pure hydrogen in the most cost-effective applications.

An important attraction of the hythane^® scenario is that small additions of hydrogen to natural gas produce disproportionately large reductions in emissions of polluting substances to the air. The effect continues up to about 5% of hydrogen by calorific value after which some emissions begin to increase again.

3. Technologies

The technologies to be used in all three scenarios are selected by first reviewing the factors which are likely to govern change and technology choice in the future and then by examining candidate technologies against these drivers for change.

The technologies which have been considered likely to compete for transport markets and power and heat markets in the period under review are:

Transport

Internal Combustion Engine (hydrogen and natural gas, with remnants of diesel and gasoline)
Hybrid Electric Engine (IC engine for power, batteries for normal running)
Fuel Cells (SPFC) for buses, HGVs and some cars
Electric Vehicles
Internal Combustion Engine running on other fuels such as DME.

Heat and Power Generation

Turbines burning natural gas or hydrogen
Household Boilers burning natural gas or hydrogen
Fuel Cells operating on natural gas or hydrogen
IC Engines burning natural gas or hydrogen

4. The Scenarios

From assessment of the costs and benefits of the "hythane" and "niche markets" scenarios two judgements can be made:

on the relative merits of the "hythane^®" and "niche markets" strategies;
on the technologies within the "niche markets" strategy which are to be preferred.

The first of these judgements depends on a comparison between the two scenarios. If the two scenarios are constructed quite independently, then there is a risk that the comparison will be distorted by factors introduced accidentally - the playing field will not be level. To avoid this we have developed both scenarios from a common, third, "reference" scenario, in which there is assumed to be no hydrogen. The "reference" scenario is defined on the basis of judgement as to what are the likely technologies and fuels to dominate future urban systems in the absence of hydrogen, bearing in mind the discussion of technologies given earlier. The assumption is that even if the definition of this scenario is uncertain, the implications for the choice between the two hydrogen scenarios will not be excessive. This assumption may not be true and will eventually need to be tested by varying the reference scenario and studying the consequences for the hydrogen scenarios derived from it.

The Reference Scenario is derived from the actual situation in London now. London is chosen because the data is easily available to the project. Typical three kilometre by three kilometre blocks are taken indicative of conditions in central, inner and outer London. Data on present energy use, energy using activities and emissions is available on a kilometre square basis from the London Research Centre and the scenarios are built up from this information.

The time horizon has not been precisely fixed, because there is no need to do so. Notionally, it is around 2015, when hydrogen using technologies can be expected to be available at significantly lower costs and higher performance than now, whilst city structure and economic activities are roughly comparable to the present.

5. The Economic Evaluation

The economic case for hydrogen is influenced by four factors: the value of other fuels displaced, possible changes in the amount of electricity produced by cogenerating to meet a specified heat load, the changes in the environmental impacts and changes in the capital cost brought about by new infrastructure and equipment.

We have tried to devise a method for estimating the value of hydrogen which is as little dependent as possible on our assumptions about fuel prices in the future. We have done this by noting that 1 GJ of hydrogen will displace approximately 1 GJ of natural gas. The value of 1 GJ of hydrogen can therefore be expressed as the value of 1 GJ of natural gas plus various corrections. There is a correction due because not exactly 1 GJ of natural gas is displaced; there are corrections arising from other minor changes to the energy balance; there are corrections due to changes in environmental impacts and capital costs. The collection of these corrections per GJ we can define as the premium value for hydrogen in that application.

The components of the premium vary from scenario to scenario and from application to application. In the hythane^® scenario there are few differences in the costs of infrastructure and equipment over the reference scenario, so the main components of the premium are the environmental benefits plus small adjustments for extra electricity generated in cogeneration. In the niche markets scenario there will be these components plus corrections arising from the infrastructure and equipment costs plus perhaps corrections due to the fact that not exactly 1 GJ of natural gas is displaced.

The equipment and infrastructure costs also introduce the problem of how to balance these initial costs against the benefits from using hydrogen, which accumulate over the life of the equipment. To do this we must use discounted cash flow methodologies to assess the levelised premium for hydrogen. The levelised premium for hydrogen is the extra value that hydrogen needs to be assigned (compared to natural gas) for the hydrogen and natural gas using technologies to have the same present value taking into account environmental, energy and capital costs.

To evaluate these components of the premium requires assumptions about fuel prices and also data on the costs of environmental externalities and capital costs. Fuel price assumptions are described in the main report; because they are used only to calculate relatively minor corrections they do not greatly affect the estimated premiums.

The report reviews various estimates of the economic costs of a range of environmental impacts. The review reveals that there is a very wide range of estimates. Higher and lower values are selected for the purposes of this study.

The analysis of the premium values for hydrogen in a hythane^® scenario show that the saving in the costs of environmental impacts forms a large part of the economic advantages of hydrogen.

6. Conclusions

Our conclusions are tentative and need to be confirmed by further work, but the analysis so far appears to indicate:

Hydrogen using technologies would allow a large generation of electricity in central city areas in excess of demand for electricity in the area. The centre of the city and to a lesser extent the immediate ring around it can be seen as a potential electricity exporter to the outer areas of the city.
the reduction in environmental damage brought about by use of hydrogen can be very significant and amounts to a substantial premium on its value as a fuel;
the premium is greatest in city centres;
the estimates of the costs of environmental impacts vary over a wide range and correspondingly the calculated premium for hydrogen varies also;
the substantial effects on emissions from vehicles of a small concentration of hydrogen distributed in natural gas (hythane^®) appear to make this the most cost-effective initial use of hydrogen;
used as hythane^® with a concentration of 5% hydrogen by energy and taking the highest estimated costs of environmental damage, the premium for hydrogen over natural gas in city centres is estimated at $48/GJ; taking the lowest estimates the premium falls to $7/GJ;
concentrations of hydrogen in hythane^® greater than about 5% do not give correspondingly increased benefits, consequently the cost-effectiveness of increasing hydrogen concentrations in hythane^® is poor;
the next best use of hydrogen as a fuel is as pure hydrogen for decentralised power generation in gas turbines in the centre of cities; the premium for this application is between $12/GJ (high estimates of external costs) and $2/GJ (low estimates);
the value of the hydrogen is better maintained by extending the hythane^® scenario to the outer areas of the city than by directing more hydrogen to specific applications; in outer London the premium is $36/GJ (high external costs) and $4/GJ (low external costs).

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