1. Market Viability of Nuclear Hydrogen Technologies: Quantifying the Value of Product Flexibility Fourth NEA Information Exchange Meeting on Nuclear Production of Hydrogen Oak Brook, IL, USA, April 16th 2009
Audun Botterud 1
Bilge Yildiz 2
Guenter Conzelmann 1
Mark C. Petri 3
1Decision and Information Sciences Division, ANL
2Nuclear Science and Engineering, Massachusetts Institute of Technology
3Applied Science and Technology, ANL

2. Outline Background Nuclear Hydrogen Markets and Technologies
A Model for Financial Analysis of Nuclear Hydrogen Technologies
Real Options Analysis
Product Flexibility (Hydrogen/Electricity)
Hydrogen and Electricity Market Modeling
Analysis of Nuclear Hydrogen Technologies
Profit Comparison
The Value of Product Flexibility
Sensitivity Analysis
Main Conclusions
Product Flexibility improves the Market Viability of Nuclear Hydrogen

3. U.S. Hydrogen Demand in 2003 Methanol Ammonia
Oil - captive
Oil - merchant
Oil refining (4.1M tonnes H2)
Ammonia (2.6M tonnes H2)
Canadian oil sands (0.5M tonnes H2)
Methanol (0.4M tonnes H2)
Chemical, metal, food, etc (0.1M tonnes H2)
Source: Yildiz et al. 2005

4. Each market will have different hydrogen needs.
An Evolving Hydrogen Economy
Near-term markets
Fertilizers
Refining
Mid-term markets
Long-term markets
Peak Power
Transportation
Tar Sands
Coal Liquefaction
• this graph shows a rather remarkable fact: that storing H in hydride materials produces higher density than in liquid hydrogen.
• the vertical axis is the volume density of hydrogen, the horizontal axis is the % of mass of the material that is H.
• gaseous H2 under pressure and liquid H2 are shown on the right vertical axis; they are 100% H2.
• all of the compounds above LH2 are store more H per unit volume than LH2. Liquid CH4 (methane or natural gas) not only has more H/vol than LH2, it has the highest mass density of H among the storage materials shown.
• the fact is that neither liquid or solid hydrogen is very dense. Hydrogen is composed of the lightest of atoms that bounce around energetically even at the lowest temperatures, keeping them from approaching very closely.
• some of the promising hydrogen storage compounds are shown: the boxed compounds are the alanates and borates that have a CH4 like structure with C replaced by Al or B, attached to a cation like N or Li. These have a higher storage density than traditional hydrides like MgH2. In nanoscale form, these are potential on vehicle hydrogen storage compounds.
Each market will have different hydrogen needs.

5. Hydrogen Production Options
Almost all H2 today comes from steam reforming of natural gas (CH4)
Costs rising with natural gas prices
>750oC, CO2 emissions
Low-temperature water electrolysis
Energy intensive (i.e., costly)
Precious-metal catalysts
High-temperature steam electrolysis
Solid-oxide fuel cell technology
Durability?
Thermochemical cycles
Most require high temperatures (800oC oC) and aggressive chemicals
Other options under investigation:
Direct solar production: photo-electrochemical cells; artificial photosynthesis
Biological/biomimetic hydrogen production
Coal gasification
Direct ceramic- membrane separation of water
Thermochecmical cycles problems:
High temp
Corrosive chemicals
Uncertainty about how reactions work

6. Evaluating the Market Viability of Nuclear H2 Technologies
How does an investor decide?
Cost analysis is important
However, levelized cost is not the only input factor for potential investors
The cheapest plant may not be the most attractive investment alternative
Investments in these plants will be based on profitability assessments
Future cash flows are exposed to a high degree of risk and uncertainty
Real options analysis can assess the value of flexibility in future operational and investment decisions

7. A Nuclear Hydrogen Plant will be Linked to Multiple Energy Markets
Electricity
market
Nuclear
Plant
Hydrogen
market el
heat h2
Nuclear
fuels
market
Local
heat
oxygen

8. Electricity Prices Vary over Day and Season
Hourly prices from the PJM electricity market (North East US), :
Source:

9. Seasonal and Day/Night Price Variations in PJM Market
Average monthly price variations, :
Average day/night price variations, :
High: Daytime 16 hours Low: Nighttime 8 hours

10. What about Future Hydrogen Prices?
Gasoline and natural gas prices can give us a clue:
Historical monthly prices,
Source: EIA
Average monthly price variations, :

11. Outline Background DOE’s Nuclear Hydrogen Initiative
A Model for Financial Analysis of Nuclear Hydrogen Technologies
Real Options Analysis
Product Flexibility (Hydrogen/Electricity)
Hydrogen and Electricity Market Modeling
Analysis of Nuclear Hydrogen Technologies
Profit Comparison
The Value of Product Flexibility
Sensitivity Analysis
Main Conclusions
Product Flexibility increases Expected Profits and lowers Risk

12. Real Options Analysis
Developed for financial analysis of investments under uncertainty (Dixit and Pindyck 1994)
Estimates the value of flexibility in future decisions regarding operations and/or investment
The option value of flexibility is not included in traditional Net Present Value (NPV) calculations
Operational/
Investment
Decisions
Stochastic
Deterministic
Dynamic
Flexible
Static
Inflexible
Uncertain
Variables
Real Options
Static NPV

13. A Model for Financial Assessment of Nuclear H2 Plants
Cash flow analysis of nuclear hydrogen plant
Spreadsheet model calculates annual revenues and costs
Revenue depends on hydrogen and electricity prices, which are uncertain
Monte-Carlo simulations to represent price uncertainty
Same cost structure as in Technology Insights’ levelized cost analysis
Implemented in Excel
Botterud A., Yildiz B., Conzelmann G., Petri M.C. “Nuclear hydrogen: An assessment of product flexibility and market viability,” Energy Policy, Vol. 36, No. 10, pp , Oct

14. Uncertainty in Annual Electricity and Hydrogen Prices
Represented as discrete stochastic processes (Geometric Brownian Motion or Mean Reversion) with correlation
Annual Electricity Price, PELt:
Annual electricity price is multiplied with monthly and day/night price factors to obtain monthly day/night prices:
month factor
day/night factor
Annual Hydrogen Price, PH2t:
Annual hydrogen price is multiplied with monthly price factors to obtain monthly prices:
month factor

15. Product Flexibility and Dispatch Decision
A nuclear hydrogen plant which can produce hydrogen and electricity can take advantage of variations in hydrogen and electricity prices
Three assumed modes of operation for flexible plants:
A flexible plant selects the operating mode that gives the highest operating profit within each month
A switching cost is added in the switching mode of operation (mode 3)
A minimum hydrogen production level can be imposed
May be necessary to maintain low hydrogen production (e.g. 10%), e.g. to avoid thermal cycling in hydrogen process
Could represent fixed contractual hydrogen delivery
Operating mode, φ
Description 1
Produce hydrogen only, no electricity generation 2
Produce electricity at constant output, possibly with a fixed amount of hydrogen production 3
Produce hydrogen at night and electricity during the day when the electricity price is high

16. Outline Background Nuclear Hydrogen Markets and Technologies
A Model for Financial Analysis of Nuclear Hydrogen Technologies
Real Options Analysis
Product Flexibility (Hydrogen/Electricity)
Hydrogen and Electricity Market Modeling
Analysis of Nuclear Hydrogen Technologies
Profit Comparison
The Value of Product Flexibility
Sensitivity Analysis
Main Conclusions
Product Flexibility increases Expected Profits and lowers Risk

17. Comparison of Four Nuclear Hydrogen Technologies
Hydrogen Production Process
Nuclear Reactor Type
Product Flexibility
Hydrogen/Electricity?
High-pressure, low-temperature water
electrolysis (HPE)
Advanced Light Water Reactor
(ALWR) MWth
Yes
High-temperature steam electrolysis
(HTE)
High-Temperature Gas-Cooled Reactor
(HTGR) MWth
High-temperature sulfur-iodine cycle with
extractive HI (SI)
Pure hydrogen
Hybrid sulfur thermo-electro chemical
(HyS)
Fixed hydrogen and
electricity production
Cost and performance assumptions based on information from Technology Insights (06, 07).
Plant
Annual H2 prod.
[M kg/year]
Levelized Cost H2
[$/kg]
HPE-ALWR
221
2.98
HTE-HTGR
241
2.93
SI-HTGR
283
3.26
HyS-HTGR
158
2.97
Pure hydrogen production:

18. Plant Evaluations: Summary of Results
Price assumptions
Average prices: Electricity 50 $/MWh, Hydrogen 3 $/kg
Price volatility: 0.12 (per year), GBM process
Hydrogen/electricity correlation: 0.5
Technology
Product
Flexibility
Expected Profit
[M $]
Expected IRR
[%]
Exp.H2 prod.
HPE-ALWR No 17
9.99
100.0
Yes
283
10.85
69.2
HTE-HTGR 83
9.80
295
10.52
82.4
SI-HTGR
-348
8.89
HyS-HTGR 19
9.72
With our cost and performance estimates, the flexible electrochemical technologies (HPE-HTGR and HPE-ALWR) are the most profitable
Hydrogen remains the main product for these plants, but they switch to electricity production a substantial amount of time

19. The Expected Value of Product Flexibility
The option value of flexibility is significant for flexible plants:
Scenario
Option Value of Flexibility
[M $]
HPE-ALWR
266
HTE-HTGR
212
SI-HTGR
HyS-HTGR

20. HTE-HTGR: Profit Distributions
Inflexible
Flexible
Flexibility in output product
Increases upside of profit distribution
Reduces downside of profit distribution
Increases expected profits and lowers risk for investor

21. Sensitivity Analysis: Average Annual Electricity Price

22. Sensitivity Analysis: Average Annual Hydrogen Price

23. Sensitivity Analysis HTE-HTGR: Switching Cost and Minimum Hydrogen Production

24. Sensitivity Analysis HTE-HTGR: Price Correlation

25. Sensitivity Analysis HTE-HTGR : Price Uncertainty
Correlation between electricity and hydrogen prices: 0.5
Price volatility generally increases the value of flexibility
However, not monotonically increasing

26. Outline Background Nuclear Hydrogen Markets and Technologies
A Model for Financial Analysis of Nuclear Hydrogen Technologies
Real Options Analysis
Product Flexibility (Hydrogen/Electricity)
Hydrogen and Electricity Market Modeling
Analysis of Nuclear Hydrogen Technologies
Profit Comparison
The Value of Product Flexibility
Sensitivity Analysis
Main Conclusions
Product Flexibility increases Expected Profits and lowers Risk

27. Main Conclusions Main Conclusions
Real options analysis is a good tool for analyzing operations and investment decisions under uncertainty in future market conditions
Product flexibility makes nuclear hydrogen plants more attractive for potential investors: increases expected profits and lowers risk
Assumptions about costs and price distributions are highly uncertain
DOE should consider R&D efforts towards developing processes and durable materials that can enable product flexibility
Full documentation of model, assumptions, and results:
Botterud A., Yildiz B., Conzelmann G., Petri M.C. “Nuclear hydrogen: An assessment of product flexibility and market viability,” Energy Policy, Vol. 36, No. 10, pp , Oct

28. Market Viability of Nuclear Hydrogen Technologies: Quantifying the Value of Product Flexibility Fourth NEA Information Exchange Meeting on Nuclear Production of Hydrogen Oak Brook, IL, USA, April 16th 2009
Audun Botterud 1
Bilge Yildiz 2
Guenter Conzelmann 1
Mark C. Petri 3
1Decision and Information Sciences Division, ANL
2Nuclear Science and Engineering, Massachusetts Institute of Technology
3Applied Science and Technology, ANL

29. US Department of Energy’s Nuclear Hydrogen Initiative
The goal of the Nuclear Hydrogen Initiative is to demonstrate the economic, commercial-scale production of hydrogen using nuclear energy
A large-scale, emission-free, domestic hydrogen production capability
Important for environment and energy independence
Several nuclear hydrogen plant configurations are being considered
Electrochemical cycles
Thermochemical cycles
Assessment of costs and market viability of different plant designs
Plant performance and costs
Market potential for nuclear hydrogen

30. Nuclear Hydrogen Production Plant Configuration Options
Multiple energy products
Dedicated H2 vs. hydrogen plus electricity
Flexibility of changing product output rate
Follow either electricity or hydrogen load/price without changing the reactor power
Plant size
Large-scale vs. modular
Direct vs. indirect heating of the electricity production cycle (if electricity is produced)
Parallel vs. series arrangement of heat loads
Heat transfer to the H2 production process at the exit of the reactor or the turbine
Implications for
Efficiency
Location
Cost
Profits
for the specific technology in a specific market.

31. Technology Assumptions

32. Monthly Price Parameters for Hydrogen and Electricity

33. Optimal Dispatch Regions for Flexible Plants

34. Sensitivity Analysis HTE-HTGR : Price Uncertainty (ρ=0)
Correlation between electricity and hydrogen prices: 0
Price correlation important
Less correlation gives higher value of flexibility
And monotonic increase along both volatility dimensions