Schalk Cloete starts by explaining that it is unrealistic to expect clean electrification to carry the main burden of energy supply. Even a fast roll out will be constrained by a range of infrastructure and cost limitations. Hence our continued dependence on fuels, with their high energy density and ease of transport. Those fuels will have to be made clean, so he summarises his co-authored papers that model the cost of green and blue ammonia and methanol. Even in best-case scenarios, green fuel costs will be high in 2050, even after the projected cost-cutting innovations and scale-up. The modelling shows that prices will be as high as the crisis-driven costs of gas we are seeing today. Blue fuels (i.e. made from fossil fuels with carbon capture) will be more affordable. The study should be a wake-up call to policy makers who see green fuels made from clean electricity as the only option, says Cloete.
Variable renewable energy (VRE) in the form of wind and solar has long been enthusiastically marketed as humanity’s energy future after fossil fuels. While these generators can certainly make a large and cost-effective sustainable energy contribution when deployed to reasonable market shares in the electricity sector, the claim that they can displace fossil fuels as humanity’s dominant source of primary energy faces a long list of serious problems.
One of these problems is that VRE generators supply electricity, which accounts for only 20% of final energy consumption today. Hence, a VRE-dominated energy system will require vast additional efforts to electrify many sectors (with many associated challenges, e.g., electric vehicles) and convert large amounts of energy to fuels (at substantial added costs and conversion losses).
Fuels have insurmountable advantages over electricity
Even though electrification has considerable potential, its impact must always be limited. There are many applications in long-distance transportation, industry, and secure power supply that simply cannot happen without fuels. In many more, fuels will retain such a clear techno-economic advantage that electrification will not happen without perpetual subsidisation. Furthermore, the longer-term energy storage capacity and easy international trade facilitated by fuels will support their majority share in global final energy consumption. Hence, the slow progress projected in Figure 1.
Figure 1: Projected shares of electricity in final energy consumption in different scenarios in the latest IEA World Energy Outlook. Absolute electricity output is similar in the three scenarios with market shares growing mainly from reduced final energy consumption in scenarios with greater climate ambition (incredibly, global energy demand is expected to fall in the sustainable development scenario).
Ammonia and Methanol
Given the large role that fuels must continue to play in the global energy system going forward, this article takes a realistic look at the prospects of producing cleaner fuels from VRE (green) and natural gas with CO2 capture (blue). The source material will be two peer-reviewed articles we recently published on the prospects of these primary energy pathways to produce ammonia and methanol.
We selected ammonia and methanol instead of hydrogen because it is likely that these hydrogen carriers will play a dominant role in a practical hydrogen economy. Due to hydrogen’s low volumetric energy density, extreme requirements for liquefaction, and high flammability, its storage and distribution bring large costs and safety concerns to most applications. Hence, most hydrogen will be converted to liquid fuels like ammonia (under mild refrigeration) and methanol to avoid these challenges, especially in the case of intermittently produced green hydrogen.
What are the realistic costs of green fuels?
Several highly optimistic estimates of future green fuel costs can be found (e.g., this IRENA report). These estimates usually assume extreme long term cost reductions, often accentuated by low financing costs that can only exist when supporting policies transfer risk from investors to taxpayers.
For example, extrapolations of learning rates toward long-term solar costs of 200 €/kW create the absurd situation that the fully installed technology cost approaches the cost of the raw materials required. For example, the costs for the raw materials required by solar PV in Figure 2 amounts to about 160 €/kW at historical prices. If we want materials to be made using green technologies in the future (e.g., steel made from green hydrogen at 80 €/MWh instead of 15 €/MWh coal) and account for continuously declining ore grades and tightening socio-environmental mining regulations, material prices will rise far above these levels. Obviously, the cost of building a complete solar farm will be several times higher than the cost of the raw materials going into it.
Similar arguments hold for other green technologies like electrolysers and batteries. If we add the much-needed diversification from cheap Chinese imports to the material constraints discussed above, our green technology cost assumptions (outlined in the next section) start to look highly optimistic.
Figure 2: Material demands of different electricity generation technologies by the year 2050. The numbers are adjusted for capacity factor assuming 35% for wind, 18% for solar, 90% for nuclear, 70% for coal, and 50% for natural gas (NG). Data from Carrara et al. and Deetman et al.
Another important factor that is almost universally ignored when comparing green hydrogen costs to that of grey and blue hydrogen is the cost of turning intermittent input energy into a steady supply of fuel. This conversion requires a lot of equipment oversizing and additional storage capacity. To capture this effect, we built an energy system model to optimise technology investment and dispatch of the value chains for green ammonia and green methanol illustrated in Figure 3 under various idealistic assumptions such as perfect foresight of wind/solar availability, zero downtime, zero performance degradation, and no interannual variation in wind/solar resources.
Figure 3: The process configurations simulated for green ammonia (top) and green methanol (bottom). Although not shown, cheap ammonia and methanol storage tanks were also included in the simulation.
As illustrated in the ammonia value chain, storage can be positioned at three points: as batteries after wind and solar, as hydrogen storage tanks after electrolysis, or (not shown) as ammonia storage tanks after ammonia synthesis. Battery storage is expensive, but it can facilitate a steady supply of electricity that allows the downstream units to operate continuously. If cheaper hydrogen storage is chosen, the electrolysers must be oversized to handle wind and solar peaks. Choosing the almost negligible cost of ammonia storage requires both the electrolysers and the ammonia synthesis loop (with the associated cryogenic N2 production unit) to be oversized. Similar trade-offs are involved for methanol, although the need to source CO2 introduces some additional complexity in that case.
Model results
The green fuel value chains outlined in Figure 3 were compared to blue fuels from natural gas with CCS under a consistent discount rate of 8% and plant economic lifetime of 25 years. Wind, solar, and electrolyser costs were taken from the IEA announced pledges scenario for Europe in 2050 as 1,117 €/kW, 317 €/kW, and 358 €/kW, respectively, assuming a currency conversion rate of 1.2 $/€.
Wind and solar availability profiles were gathered from Renewables Ninja for three locations: North Germany, South Spain, and Saudi Arabia to illustrate the effect of resource quality. For the blue hydrogen plants, a natural gas price of 6.5 €/GJ was assumed for Europe and 2 €/GJ for Saudi Arabia.
The breakdown of costs for ammonia production is given in Figure 4. Clearly, resource quality plays a central role in the cost of green fuel with costs falling substantially in solar-rich regions like Spain and Saudi Arabia relative to Germany thanks to the optimistic solar cost reduction to 317 €/kW assumed. However, relying exclusively on solar energy input requires the electrolysers to operate at a low capacity factor, increasing their contribution to the levelised cost relative to the German scenario that relies on a mix of wind and solar with a higher combined capacity factor.
The least-cost energy storage option was hydrogen tanks for short-term variability combined with ammonia tanks for longer-term variability. In Saudi Arabia, where the seasonal variation in solar availability is quite small, storage costs are the lowest.
Figure 4: A breakdown of the levelised costs of ammonia (LCOA) by mid-century for several green and blue options in Europe and Saudi Arabia.
Green fuel is substantially more expensive than blue
In all cases, the green fuel is substantially more expensive than the blue alternatives. Two blue process configurations are presented: the commercially available Linde Ammonia Concept (LAC) and the advanced Gas Switching Reforming (GSR) concept for natural gas reforming with integrated CO2 capture. As shown, GSR can achieve moderate cost reductions relative to the state-of-the-art today.
The difference in cost is even more pronounced for methanol (Figure 5). Here, the cost of sourcing CO2 plays a large part in the levelised costs of the green value chain. A region with extraordinary wind resources (Patagonia in Argentina) was also included in this study, but the costs remained higher than those achieved in solar-rich regions like Southern Spain and Saudi Arabia.
CO2 could be sourced from direct air capture (DAC) or nearby CO2 pipelines. The cost of supplying CO2 via DAC was partially offset by assigning a CO2 credit of 100 €/ton to the green plants for removing CO2 from the atmosphere. However, as can be shown in the comparison between DAC and pipeline (P/L) CO2 in Argentina toward the left of Figure 5, the DAC option remained more expensive.
Figure 5: A breakdown of the levelised costs of methanol (LCOM) by mid-century for several green and blue options in Europe and Saudi Arabia.
Compared to methanol production from natural gas, the green fuel cost achieved in Saudi Arabia are more than three times higher than the conventional alternative. Comparisons in regions such as the Middle East are highly relevant because the easy international trade of liquid fuels makes production at the source of the cheapest primary energy input an obvious choice.
Future green fuel prices will be like today’s crisis-driven gas prices
The long-term green fuel costs resulting from Saudi Arabia’s excellent solar resource using optimistic mid-century solar PV technology at 317 €/kW are compared to natural gas alternatives in Figure 6. As shown, the green fuels cost about 100 €/MWh – comparable to the extraordinary natural gas prices in Europe at the time of writing.
Here, it is important to discuss the difference between costs and prices. The numbers shown in Figure 6 are costs. For an internationally tradeable commodity like ammonia or methanol, the prices paid by importers will inevitably be higher than the cost of the least-cost producer. If the market becomes badly imbalanced, as is the case in Europe at present, this difference can blow completely out of proportion. For example, countries like Russia and Norway can profitably supply Europe with natural gas at prices well below 20 €/MWh, but the shortage created by reduced Russian pipeline flows and the ongoing coal/nuclear phase-out has pushed the price up well beyond 100 €/MWh. Over here in Norway, we are making natural gas profits amounting to about €100 per citizen per day as a result.
Figure 6: Levelised costs of green and blue fuels by mid-century in Saudi Arabia.
Thus, the fuel prices currently experienced by Europe is a best-case scenario in a green fuel future. If importers like Germany want energy security by producing these fuels locally, the costs will be closer to 200 €/MWh, but reliance on lower-cost imports from regions like the Middle East introduces the energy security risks so painfully illustrated by the current situation in Europe.
…but blue fuels will be much cheaper
Meanwhile, imports of blue fuels present a much cheaper option. For example, a CO2 price of 50 €/ton should suffice to make imported ammonia competitive with imported liquified natural gas (LNG). Of course, natural gas cannot be directly substituted with ammonia in existing engines and industries, but a coordinated transition can allow ammonia to take over many of the energy-related applications where natural gas is used today.
Conclusions
Fundamentally, the finding that green fuels are far more expensive than blue alternatives should not surprise anyone. Here are the simple reasons behind this finding:
- Easily exportable liquid fuel products allow fossil fuels to be converted where they are cheapest to produce, and fossil fuel resources with unbeatable production costs will be available to us for the remainder of the century (Figure 7).
- Converting fossil fuels to other fuel products is more efficient than the conversion of electricity to green fuels.
- The broadly neglected additional costs associated with converting intermittent electricity fluxes into a steady fuel stream are substantial.
Figure 7: The cost of supplying fossil fuels for the next 100 years at 2019 production rates derived from Welsbey et al.
Furthermore, fuel production will remain among the lowest-value uses of carbon-free electricity for decades to come – yet another example of the green movement’s determination to pick the highest hanging fruits first. Today, wind and solar account for 10% of global electricity production, and they are still expanding slower than global electricity demand. Wind and solar market shares in the electricity sector will probably need to climb to about 50% before self-cannibalisation reduces the value of new installations far enough to justify electricity-to-fuel conversion. That landmark is only reached by 2050 in the IEA announced pledges scenario (which makes the dubious assumption that all countries deliver on their climate promises).
In conclusion, the hype around green fuels from wind and solar cannot be justified. It is doubtful whether we can sustain a complex global civilisation on such expensive energy, let alone uplift 6 billion current world citizens (and 2 billion additional souls by 2050) to decent living standards (and high climate resilience). We need to get our priorities straight.
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Schalk Cloete is a research scientist studying different pathways for decoupling economic development from emissions and environmental degradation
