(36d) Assessing the Key Factors in the Transition to a Hydrogen-Based Economy through Agent-Based Simulation

Emerging concerns regarding global warming and climate emergency have induced many countries to consider environmentally-benign cleaner fuels that help in decarbonizing the national energy basket. It is imperative to consider and evaluate viable technological alternatives that can serve both economically as well as environmentally in the transition to a low-carbon economy. Among the different greener fuels of interest, hydrogen has recently drawn global attention and is increasingly considered a cleaner alternative that can act as a bridge fuel in making a swift and just transition. With regards to supply, though H₂ comes with a variety of recipes based on the nature of production, the shift towards green H₂ production has the potential to accelerate renewable energy deployment in the near future. Towards this, decarbonizing the power sector is the priority as renewable-based electrolysis production of H₂ will be useful only if the grid is deeply decarbonized¹. IRENA estimates hydrogen to cover up to 12% of global energy use by 2050 with about two-thirds of the demand being met through green hydrogen production, while hard-to-abate sectors like Iron and Steel, refineries, chemicals, and cement are expected to drive the demand for green hydrogen with supportive and proactive policies in place^2,3. To enable the transition and find uptakers, critical unlocks like reducing the production and distribution cost must be addressed rather quickly⁴. The success of a transformation to an H₂ based economy is contingent on the establishment of suitable distribution networks that would ensure cost-effective access to different end-users. This paper seeks to develop a systematic framework to assess the key factors influencing the transition to a green hydrogen economy. Specifically, our focus is on countries like India with large geographies, characterized by spatially-distributed, geographically-disparate, and heterogeneous end-users of energy.

The green H₂ supply chain (GHSC) comprises a green hydrogen production hub, a logistics and infrastructure distribution network, and the end-users who use either liquid or gaseous H₂ as fuel or feedstock. The production hubs are typically established in the vicinity of sources of renewable electricity production. Hence, locations with well-established solar and wind farms serve as potential supply sites. With respect to logistics and distribution infrastructure, constructing dedicated H₂ pipeline grids might be capitally intensive, but utilizing the existing NG pipeline network to transport blended H₂ in sufficient quantities is found to be both economically and operationally feasible. Additionally, pipeline transportation of gaseous H₂ can be supplemented by transport by liquid H₂ carriers or compressed tube trailers (especially for shorter distances) via either road or rail. The list of end-users includes energy-intensive industries such as iron and steel, fertilizer, refineries, chemicals, and cement, as well as transport or distribution fuel consumers. Existing literature lacks quantitative approaches that can help identify the key factors (such as economics, logistics, or regulatory factors) that will influence the transition. We seek to address this gap in our work.

We consider a market-based economy governed by laws of supply and demand. We assume that all the entities in the GHSC are rational and seek to maximize their economic profit. Hence, the decision of an end-user to switch to H₂ would be a consequence of either regulatory action (environmental regulations) or an economic choice depending on the competitiveness of utilizing H₂. Further, estimating the demand for H₂ would necessitate estimating its landed price for each end-user. Transport of H₂ through pipelines is economically viable only for transport in large quantities. Similarly, road and rail-based transport have higher unit costs of delivery but are economically attractive for shorter distances. This unique interplay between demand, the economics of supply, and distribution makes planning the GHSC a challenging problem. We, therefore, propose an agent-based simulation optimization model in this work.

The proposed methodology comprises a Demand Estimation Model that is developed using an agent-based modeling framework to assess the spatially distributed demand for H₂. Here, each entity in the supply chain is modeled separately as an agent. Green H₂ supplier agents (production hubs) and end-user agents are distributed spatially and modeled as rational, self-interested decision-makers that seek to maximize their own objectives subject to government regulations. Each end-user agent may wish to switch to H₂ at a future time, subject to availability, affordability, and regulations. The switch to H₂ further creates opportunities for rail/road transport operator agents to enable transport of the necessary quantity from the supplier to the end-user. With established GIS routing maps and tools that can be utilized to model road/rail-based transport of H₂ to end-users, we have considered both the aforementioned transportation modes as the H₂ distribution infrastructure in the logistic segment of the supply chain, while transportation through pipelines will be addressed as part of future avenues of research.

The agent-based demand estimation model has been implemented using AnyLogic modeling and simulation platform. In this paper, we present the application of the developed framework to a case study focusing on the green H₂ demand potential for a period from 2020 to 2040 in Tamil Nadu, a state in India. The model comprises ~60 spatially distributed end-users and two potential production hubs. Different scenarios involving H₂ economics (based on predicted prices), carbon taxations, and environmental regulations have been considered, and the spatio-temporal H₂ demands arising from end-users decisions over the 20 years horizon are estimated. In this paper, we will report a spectrum of insights relating to the key role played by H₂ prices, national-level environmental regulations, and carbon taxations in influencing the transition to a hydrogen-based economy. Additionally, our results reveal granular details on the extent of fossil fuels that can be displaced by hydrogen and the preferred transportation modes categorized by various industrial end-use sectors.

References

1. Mac Dowell, N. et al. The hydrogen economy: A pragmatic path forward. Joule 5, 2524–2529 (2021).
2. Green Hydrogen for Industry: A Guide to Policy Making. /publications/2022/Mar/Green-Hydrogen-for-Industry https://irena.org/publications/2022/Mar/Green-Hydrogen-for-Industry.
3. International Energy Agency. Global Hydrogen Review 2021. (OECD, 2021). doi:10.1787/39351842-en.
4. Hydrogen Insights 2021 - Hydrogen Council. https://hydrogencouncil.com/en/ https://hydrogencouncil.com/en/hydrogen-insights-2021/.