Market Competitive Electrolysis in ERCOT

Across US and global markets, demand for hydrogen is increasing. Simultaneously, the cost of producing hydrogen via electrolysis using electricity is decreasing, creating new market opportunities for this low-carbon hydrogen production process. To assess this opportunity, three key cost factors for hydrogen production using an electrolyzer need to be considered: capital, operating, and electricity cost. Of these three, the electricity cost can be assumed to vary most widely by location due to local availability of generating sources and local market rate structures. Although conventional wisdom holds that electrolyzers can only operate profitably if given very low electricity prices, this paper highlights an existing electricity market where electrolysis could be an attractive and profitable option for hydrogen production today. Since electricity prices vary over time, an electrolysis facility can choose when and to what extent to adjust its hydrogen production to target lower electricity prices and consequently reduce its hydrogen production costs. This white paper uses historical electricity price data from the Electric Reliability Council of Texas (ERCOT), the grid that serves 90% of Texas, coupled with a basic techno-economic model of electrolysis to explore the costs and benefits of flexible electrolysis operation considering variable wholesale electricity prices. With strategic operating schedules, cost reductions, and efficiency improvements, electrolysis shows promise as a low-carbon, cross-sector, market competitive, and flexible source of hydrogen.
Electric Reliability Council of Texas (ERCOT
Deetjen, Thomas A.; Rhodes, Joshua D.; Hebner, Robert E.; Lewis, Michael C.; Davidson, F. Todd; and Lloyd, Alan C., "Market Competitive Electrolysis in ERCOT" (2021).