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How Lowering the Costs of CO2 Electrolysers Can Enable Cheap Renewable Fuel Production

The fluctuating power from renewable energy sources like wind and solar presents challenges for directly connecting to CO2 electrolysers to produce renewable fuels. But reducing the capital costs of CO2 electrolysers could enable cheap decentralized production leveraging intermittent renewable electricity.

Capex Influences Levelled Fuel Costs

The upfront capital expenditure (capex) of building a CO2 electrolyser system includes costs like materials, reactors, instruments, and infrastructure. This fixed capex investment is spread over the total fuel production when calculating levelled fuel costs.

How Lowering the Costs of CO2 Electrolyzers Can Enable Cheap Renewable Fuel Production

A higher electrolyser capex directly increases levelled fuel costs. Capex must be balanced against factors like operating costs, electricity consumption, utilization rate, and system lifetime.

Maximizing Utilization Lowers Levelled Costs

The key to minimizing the impact of capex on levelled costs is to maximize utilization – the amount of hours annually the electrolyser can run at full capacity. Greater utilization spreads the fixed capex over more fuel production, lowering overall costs.

Connecting electrolysers directly to renewable energy sites enables maximum utilization. Wind and solar provide cheap, intermittent power that allows steady operation when renewable electricity is abundant.

For example, doubling annual operating hours from 4000 to 8000 can lower levelled fuel costs by 41% in cost analysis models. So the more hours an electrolyser can be utilized annually, the faster the initial capex is paid down through fuel production.

Capex Targets for Competitive Fuel Costs

Experts estimate CO2 electrolyser capex must fall below $250/kW with renewable power input to produce hydrocarbon fuels costing $100-200/ton. Current capex remains over $1000/kW, indicating 4-10X cost reductions are needed.

Potential strategies for lowering capex include new earth-abundant catalysts, improved manufacturing techniques, larger volumes, and simplified system designs. The rapid growth of renewables provides ideal timing for adopting cost-competitive CO2 electrolysers.

Intermittency Challenge of Renewables

But the intermittent nature of renewables makes full utilization of high capex electrolysers difficult. For example, wind may only enable 30% annual capacity factor. This means an electrolyser designed for continuous 24/7 operation would sit idle 70% of the time!

Grid Dependence Locks in High Costs

High capex systems have large fixed costs for equipment depreciation and financing. The only way to spread this is maximum production by paying for grid electricity during idle times.

For a $100M electrolyser, fixed costs of $5M annually require 8000 hours of operation. Purchasing grid power for $50/MWh during idle times leads to $13M total annual costs.

Low Capex Enables Grid Independence

In contrast, a $20M electrolyser with $1M annual fixed costs can be profitable with just 4000 operational hours annually. Avoiding grid power purchases offsets lower utilization rates.

This grid independence enables locating directly at renewable sites to leverage intermittent wind and solar power once capex is low enough. On-site production from renewables can potentially lead to very low fuel costs.

The Bottom Line

Reducing CO2 electrolyser capex will be key for unlocking favourable economics of renewable fuel production. Low capex systems can overcome the intermittency of renewable electricity sources to produce low-carbon fuels and chemicals at costs capable of competing with fossil fuel incumbents.

Related Topics

The future of renewable fuels and their significance for climate protection

“Today, Germany is already an international leader in innovative production technologies for renewable fuels. We want to increase the competitiveness of e-fuels and advanced biofuels. Therefore, the Federal Ministry of Digital and Transport (BMDV) promotes the further development and market ramp-up of renewable fuels with the overall concept of renewable fuels,” said Oliver Luksic at #BioPtX23 in Berlin two days ago The first professional conference on renewable fuels in Germany, organized by NOW GmbH.

Oliver Luksic
Oliver Luksic

The Federal Ministry of Digital and Transport’s overall concept for renewable fuels includes four funding measures that support both the further development and market ramp-up of renewable fuels. We pursue a technology-neutral and cross-modal approach.

We need renewable fuels to achieve climate protection goals in transportation.

Uta Maria Pfeiffer

Uta Maria Pfeiffer, Head of Mobility and Logistics Division, Federation of German Industries, says: Fuel switching is our biggest and most important lever. If we want to achieve climate goals, it must happen!

Overall concept:

The German government has set binding greenhouse gas emission reductions in the Federal Climate Protection Act. To achieve this, transportation must make a significant contribution. In 2030, the transport sector may only emit 85 million tonnes of CO2, which corresponds to a reduction of 48% compared to 1990. To achieve this goal, renewable fuels play a crucial role because not every application in transportation can be electrified.

A cross-modal and technology-neutral concept

Our current transportation is diverse. Due to different usage requirements in passenger and freight transport, various propulsion technologies and fuel types will also be needed in the future. In addition to the widespread market ramp-up of electromobility, renewable fuels – especially electricity-based fuels such as hydrogen and e-fuels, as well as advanced biofuels from waste and residues – will play an important role in replacing fossil fuels in the long term. The Federal Ministry of Digital and Transport (BMDV) promotes renewable fuels with a technology-neutral and cross-modal overall concept, which is flanked by regulatory measures of the federal government.

What does the overall concept of renewable fuels look like?

The BMDV addresses the technical challenges of market entry and plant scaling with the support of development and demonstration projects: on the one hand, in the form of a technology-neutral funding guideline for the development of renewable fuels (pillar I) and, on the other hand, with the promotion of the establishment and operation of a development platform for electricity-based liquid fuels for air and maritime transport (pillar II). To address the economic barriers to the market ramp-up of renewable fuels, the BMDV is currently developing two funding measures. One funding guideline will support investments in renewable fuel production plants (pillar III). Another funding measure will promote the market ramp-up of electricity-based kerosene (pillar IV). The aim is to strengthen Germany’s technological leadership in this area.

Why do we need the overall concept of renewable fuels?

The electrification of transport with the help of batteries or hydrogen fuel cells will make an important contribution to climate neutrality. However, the application possibilities of these technologies are limited – air, heavy-duty, and maritime transport will be particularly dependent on liquid fuels on long distances due to their high energy requirements. To make these transportation applications climate-neutral, the use of renewable fuels is essential in the long term. From the BMDV’s perspective, electricity-based fuels and advanced biofuels from waste and residues are preferably suitable for this purpose. However, the use of renewable fuels is not yet competitive due to technical, economic, and regulatory barriers. The BMDV’s overall concept of renewable fuels helps to overcome these barriers.

Together we will succeed in making renewable fuels make an even greater contribution to achieving climate goals.