As global efforts to reduce carbon emissions gain momentum, renewable hydrogen and its byproducts emerge as a promising substitute for fossil fuels.
However, there are currently no large-scale renewable hydrogen production facilities in operation worldwide.
The demand for clean hydrogen is projected to soar, necessitating substantial investments of around $700 billion to align with the 2030 net-zero trajectory.
At present, industries such as fertilizer and refining primarily drive hydrogen demand, predominantly relying on grey and blue hydrogen production. To support net-zero goals, developers and investors seek a reliable technical and financial framework to quantify risks and expedite the establishment of green hydrogen plants.
Digital twins, capable of simulating plant operations from inception to decommissioning, offer a solution to mitigate investment risks, cut costs, and hasten project timelines.
Today, renewable hydrogen production encounters various challenges hindering its widespread implementation. These include costly infrastructure, hydrogen storage requirements, and the intermittent nature of renewable energy sources.
Developers face difficulties securing final approvals and investments due to uncertainties surrounding technology, interest rates, regulations, market demand, and electrolyzer availability.
Electrolyzers, critical components of renewable hydrogen projects, have witnessed a substantial increase in capital expenditure, driven by financing, labor, and materials costs.
While cheaper electrolyzer options exist, their performance may fall short, necessitating maintenance shutdowns. Developers must carefully balance capital expenditure against performance, considering electrolyzer size and sequencing.
Investors demand a high level of confidence to commit to megascale projects, often requiring guaranteed offtake agreements to secure financing.
However, volatile interest rates make securing low-cost debt challenging, prompting developers to seek increased equity shares, thereby raising upfront costs.
Legislative frameworks, though favorable for renewable hydrogen demand, pose challenges in navigating multiple regulatory requirements across different regions.
To address these hurdles, megaprojects must prioritize minimizing production costs while adhering to regulatory constraints.
Digital twins offer a valuable tool in this endeavor, enabling developers to explore numerous design options and optimize plant configurations, thereby enhancing investor confidence.
Despite these challenges, momentum is building for hydrogen megaprojects, with early adopters transitioning to pre-investment decision (FID or final investment decision) stages.
Digital twins play a crucial role in solidifying business cases by reducing production costs and optimizing plant designs.
Leveraging advanced analytics and AI techniques, digital twins quantify the impact of external factors on project viability, potentially reducing production costs by 5 to 15 percent. By identifying optimization opportunities, developers can enhance returns on investments.
Moreover, digital twins facilitate rapid evaluation of plant complexities, allowing for comparison of alternative setups and adherence to regulatory requirements. Through continuous monitoring and optimization, digital twins offer long-term benefits, aiding in operations, financing, project delivery, and auditing throughout the plant’s lifecycle.
Source: Mckinsey & Company