Hydrogen Production

A friend alerted me to a recent Popular Mechanics article on the "Hydrogen Economy": a concept frequently promoted by politicians (especially Bush and Schwarzenegger). The article is an excellent overview on the Production, Storage, Distribution, and Use of Hydrogen energy. Needless to say, the article brings up lots of hurdles that need to be overcome before Hydrogen becomes a viable source of clean energy. I also recommend the National Hydrogen Roadmap, published by the DOE in 2002. In this post, I will summarize the state of Hydrogen production.


In 2002, about 9M tons of Hydrogen was produced in the U.S., the small fraction used for energy purposes was consumed mostly by NASA. As far as I can tell the "Hydrogen Economy" refers to Federal and State initiatives to promote the use of Hydrogen as a transportation fuel. Critics point out that other applications of Hydrogen Energy -- batteries for mobile electronics, electricity generation -- would require less infrastructure investments than the construction and deployment of Hydrogen fueling stations. However one feels about the near term viability of Hydrogen-powered vehicles, in order for the Hydrogen economy to come to fruition, the U.S. needs to produce Hydrogen cleanly on a much larger scale. Let's look at the current production methods:


Currently 95% of all Hydrogen produced in the U.S. comes from natural gas, using a process called steam methane reformation. This production method generates emissions in order to arrive at an emission-free source of energy! Some forecasters predict that fossil fuels will remain the primary feedstock over the next decade or two. There are research initiatives (BP has even announced plans to build plants) aimed at developing technologies that can generate Hydrogen from natural gas while capturing the resulting CO2 and trapping it underground. It is important to emphasize that these carbon capture technologies are unproven on large scale. These next generation steam methane reformation plants would be clearly better than the current technology, but they still involve the use of fossil fuels -- natural resources subject to mining, and the usual supply and demand fluctuations.

Electrolysis involves the use of electricity to split "... water into its constituent parts, hydrogen and oxygen". While not yet as cost and energy efficient as steam methane reformation, given that it relies on electricity, electrolysis leads to more distributed generation facilities. Unfortunately as I noted in an earlier post, the U.S. currently gets close to 70% of its electricity from fossil fuels. Ideally one can use renewable energy to generate the required electricity. Proponents of Nuclear Power will point to Hydrogen production as yet another argument in favor of generating electricity using Nuclear power.

Other methods being developed include " ... thermochemical water-splitting using nuclear and solar heat, photolytic (solar) processes using solid state techniques (photoelectrochemical electrolysis), fossil fuel hydrogen production with carbon sequestration, and biological techniques (algae and bacteria)." Thermochemical water-splitting from Nuclear heat won't be viable for another decade:

Next-generation nuclear power plants will reach temperatures high enough to produce hydrogen as well as electricity, either by adding steam and heat to the electrolysis process, or by adding heat to a series of chemical reactions that split the hydrogen from water. Though promising in the lab, this technology won't be proved until the first Generation IV plants come on line — around 2020.

Ignoring the challenges with large-scale Hydrogen production for a moment, how would the different production methods scale from the current 9M tones per year to 150M tons per year? 150M tons/annually, is based on the stated goal of replacing fossil fuels used in cars with Hydrogen, by the year 2040. First we look at the TOTAL cost (infrastructure + raw materials) of scaling production to 150M tons:


The total cost using only solar energy is prohibitive, while relying solely on wind is still thrice as expensive as natural gas. While scaling wind and solar in their current form doesn't make sense, can next generation solar PV or solar thermal systems be viable? Using the total cost estimates cited above, what would be the cost to consumers at the pump? We look at the cost of the Hydrogen equivalent of a gallon of gas:


This chart is reminiscent of estimates I presented on the cost per kilowatt hour of electricity. Wind is cost-competitive, but the estimate for solar makes it a non-starter. On financial costs and CO2 emissions, Nuclear appears to be the most sensible option. The U.S. Federal goverment is providing huge subsidies for Nuclear energy, I wonder if the costs reflected are based on having equal subsidies regardless of technology? In a future post, I will highlight challenges which face Nuclear Energy: Waste, Accidents, Terrorism, and the High Costs without subsidies.

Depending on the mode of production, the total cost estimates should reflect the CO2 emissions which results from producing the 150M tons of Hydrogen. Using Solar, Wind, Nuclear results in no CO2 emissions, while Natural Gas is estimated to result in 300M tons. Using optimistic assumptions ("90% will be captured and stored underground") Coal is estimated to lead to 600M tons of CO2 emissions. In the following treemap, the size of a square reflects the total cost required to produce 150M tons of hydrogen, the color of a square represents the amount of CO2 emissions resulting from producing that amount of hydrogen. A large square implies the project is costly; a red square implies the project will generate a lot of CO2 emissions, a green square implies no CO2 emissions:


To summarize, here is a list of some of the key (large-scale production) challenges listed in the National Hydrogen Roadmap:

• Hydrogen production costs are high relative to conventional fuels.
• Low demand inhibits development of production capacity.
• Current technologies produce large quantities of carbon dioxide and are not optimized for making hydrogen as an energy carrier.
• Advanced hydrogen production methods need development.
  

In future posts, I will cover the other aspects of the Hydrogen Economy: Storage, Distribution, and Usage. Detroit has always hinted that they are investing in Hydrogen powered vehicles, and that current technologies (i.e. hybrids) are a compromise. As we delve into other aspects of the Hydrogen economy it will become clear that Hydrogen powered vehicles are years away. In the meantime, the Big 3 should embrace hybrids, plug-in hybrids, and electric cars. Current generation green cars are not only great for market share , they could resuscitate Detroit's less-than-hip brands.

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U.S. Clean Energy Investments

In a previous post, I estimated Big Oil's investments in Renewable Energy, and concluded that total investments are still a small percentage of overall profits. Fortunately, the U.S. Venture Capital community is starting to invest Billions into Clean Energy. Before we dive into the numbers, a note about terminology: I've been noticing the use of the term "Clean" over "Green". Clean Tech is a term used to describe energy efficient and environmentally friendly technologies. VC's prefer it over Green Tech, since for whatever reason, they feel Green implies "... greater interest in the environment than in profit."

First we look at the annual survey of VC investments, from Nth Power and Clean Edge. In the graph below, we compare total VC investments (left axis), with total Clean Energy investments (right axis):


(To enlarge an image, click on it.) Total VC investments was still off 75%, from the high of $103B in 2000 -- last year's total was $25.5B. After a slow decline from 2000 to 2005, Clean Energy investing took off in 2006, growing 164% from 2005 ($917M) to 2006 ($2.4B). While total VC investments are still significantly lower compared to the levels seen during the dotcom era, Clean Energy is grabbing an increasing share of total VC investments:


From a mere 1.3% in 2000, Clean Energy accounted for close to 10% of total VC investments 2006! In terms of geographic breakdowns, I have seen estimates which suggest that 26% of all Clean Energy VC investments in North America go to California based companies. What technologies are VC's investing in? The graph below looks at investment levels for a few sectors -- note that for Wind Energy, the estimate I found was for North America:


Energy Intelligence refers to investments in energy efficiency and grid infrastructure technologies. $813M was invested in Biofuels, representing 34% of total Clean Energy investments. The large amount that went into Biofuels (ethanol, biodiesel), leads one to wonder whether there is a bubble in that sector. Exploding valuations would be a clear sign of a bubble. According to CleanEdge, overall, valuations are growing modestly: from a median valuation of $6.5M in 2005, to $8M in 2006.

Federal Investments
How do the VC bets line up against the Bush administration's Advanced Energy Initiative (AEI)? The goal of the AEI is to lessen America's dependence on fossil fuels. To uncover the AEI's priorities, I used budget reports from the DOE's Office Energy Efficiency and Renewable Energy (EERE). In the graph below, we look at the 2006 appropriations and 2007-2008 budget requests for some of EERE's larger programs:


Rising budget requests reveals the types of research the DOE will focus on over the 2007-2008 budget years. Biomass & Biorefinery includes research into biofuels, infrastructure, collection and other industrial processes. The growth in Solar Energy funding is primarily in the area of photovoltaics, which includes semiconductor materials research, and initiatives to promote the widespread deployment of solar PV systems. Hydrogen Technology focuses on technologies designed to lead to the commercial viability of hydrogen and fuel cell systems. Finally Building Technologies refers to techniques and technologies designed to make commercial and residential buildings more efficient and affordable. Declining levels of funding for Weatherization are planned for the same time period. Weatherization is the program which " ... develops, promotes and accelerates the adoption of energy efficiency, renewable energy and oil displacement technologies and practices by a wide range of stakeholders."

Conclusion
The amount of VC investments in Biofuels stands in contrast to the more balanced Federal budget requests, reflecting the private sector's belief that Biofuels is close to being commercially viable. In a previous post, I gave a brief introduction to some of the challenges facing ethanol in the U.S. Ethanol powerhouse Brazil needed twenty years before ethanol started gaining traction. While the U.S. will probably get to the same point in less time, it does face challenges. Besides the need to use feedstocks other than corn, the U.S. will need to overcome distribution and infrastructure problems to make Biofuels readily available.

Was 2006 an aberration, or will the amount of VC investments in Clean Energy increase in 2007? Based on recent media coverage, 2007 looks to be another banner year for Clean Energy investments. While valuations grew modestly, the rapid rise in VC funding for Biofuels does raise some red flags. Hopefully, we will see better portfolio diversification and less emphasis on Biofuels over the next year.

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