Levelised Cost Reporting

[NeilGrant]

Hi Antti/Amit/all,

I'm trying to understand why a model I'm using at the moment (UK TIMES) struggles to produce H2 from electrolysis, preferring to make H2 via blue-H2 routes, even when very low cost renewables/electrolysers are assumed.

I'm comparing two technologies - PHYGEYALKL01 which consumes electricity to produce HYGL (hydrogen), and PHYGNGALQ02 which consumes natural gas to produce HYGL and SKNHYGCO2N (captured CO2 from blue hydrogen production).

To explore why the model always chooses blue H2, I produced a run where I forced electrolysis into the solution from 2025 onwards, and looked at the levelised cost of H2 production across the three reporting options.

As you can see in the attached file, when using Option 1 (no byproduct./emission prices included), electrolysis is cheaper than blue H2. But when you include byproduct/emission prices (Option 2), then blue H2 is cheaper. This shouldn't be the case in reality, as blue H2 is a net emitter of GHGs, which are being priced. 

But in UK TIMES, the GHG emissions from natural gas consumption are accounted for at the production step (i.e. upon extraction). So this means there's a disconnect between CO2 emissions from natural gas consumption, which are accounted for in the upstream sector, and the capture of CO2 emissions from blue hydrogen, which are accounted for here.

TIMES should be making decisions based on total system cost, not LCOH, so in one sense I am not worried about this, but I wanted to ask

a) Whether you think there could be an issue with disconnecting CO2 emission and CO2 capture, and associating them with two different processes? Could this explain the model's preference for blue H2 over green?

b) Is this why my levelised cost for blue hydrogen doesn't behave properly (i.e. realistically)? I would have hoped that when including emission prices, then the price of natural gas being consumed by blue H2 production would go up, so that even if captured emissions are rewarded with a price, the overall levelised cost under option 2 should increase, not decrease (captured emissions being less than total emissions). Does the levelised cost reporting feature in TIMES include upstream emission prices in the process inputs as well as downstream emission prices on the process outputs? Or is this already included even in Option 1?

[Antti-L]

As described in the documentation, the "Do not include emission prices" option (-1) means that when accounting the costs of the input fuels, an attempt is made to eliminate the emission prices embedded in them.  As described in the documentation, that corresponds to the most commonly used convention for the Levelized Energy Cost (LEC) calculation. However, this elimination is done only one level upstream (looking at the processes producing those inputs), not the full energy chain.  But in most models, that's where the "Fuel Tech" emissions are accounted.

Then, with the second and third options (1/2), the prices of the input fuels are left untouched, and the prices will thus include the impact of the prices of any upstream emissions, if those emissions have prices.

[NeilGrant]

Thanks so much Antti - that's really helpful information