Hydro Case Study Mstm 6032

HYDRO: FROM UTSIRA TO FUTURE ENERGY SOLUTIONS CASE STUDY

MSTM 6032: Managing Technological Innovation

By: Jonathan Butler

Date: 30 January 2011

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Executive Summary: The Norwegian energy company Hydro and the German wind turbine

manufacturer Enercon, with financial support from the Norwegian government, have built the

world’s first wind/hydrogen plant in the municipality of Utsira, Norway. Utsira is the first large-

scale demonstration of a Stand-Alone renewable energy system where the energy balance is

provided by stored hydrogen.

Utsira have been in operation since winter 2004/2005 and is chosen due to its large local wind

resource, making Utsira a natural choice for wind power production. On a yearly average, the

wind turbine installed, will produce significantly more energy than the islanders need. However,

due to the intermittent nature of wind power production a storage method is needed for the

excess energy during peak times. To remedy this, Utsira, stored excess wind power in the form

of hydrogen. When it is windy, an electrolyser uses the surplus power to produce hydrogen for

storage, and when it is calm, a hydrogen engine and fuel cell convert the hydrogen back to

electricity. A flywheel, battery and permanent magnet synchronous motor (PMSM) are back-up

systems needed to balance and stabilize the grid.

The project, though successful, did experience some problems with its hydrogen fuel cell stack

up, which worked fine in isolation but when introduced to the grid experienced problems.

Approximately 70-80 per cent of the energy is lost when converting wind-generated electricity

to hydrogen and then back to electricity. Recommendations will be made to improve the fuel

cell stack up to reduce energy loss.

The question of “Where to Market?” the new technology application also came into perspective

during the case study. Two areas which came to mind are, marketing the product to remote of 17

communities within the European Union (EU) and to offer a solution to utility providers for the

load balancing of electricity grids. These areas are explored throughout the case study and

recommendations made target two EU communities based on what they are currently paying

for Diesel.

Problem Identification: There are currently a number of challenges facing the Utsira team

with the main focuses ranging from finding a suitable customer who meets all Hydro’s

requirements to dealing with the harsh conditions of Utsira and improving upon inefficient

operations in the fuel cell and hydrogen engine.

To find a suitable customer Nakken and Hagen have been have given more than 10

presentations to research institutes, electricity providers and island communities around the

world. Interest is weaning due to not having a finished product. Hagen remarked “One of the

big problems we’re having right now is to keep interest of those we speak with”. Nakken and

Hagen needed to develop a solid business plan which identifies and targets the potential

customers with which Hydro can do business.

The cost for delivering a solution to an island community had not yet been fully determined. In

Utsira, the cost is far higher than the current diesel and gas oil solutions. This cost had to be

considered and a way forward presented to make the system attractive to perspective

customers.

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Although the project is onshore, hydro is dealing with offshore like conditions. This contributed

to long lead times and the inability to build a proper storage area. This is a major problem as it

affected both the reliability and sustainability of the project.

The major operational problems faced by Hydro are the efficiency of the fuel cell and internal

combustion engine which is less than expected. The fuel stack worked fine in isolation but when

introduced to the overall system is not working well due to few households (low load) served

by a large turbine. It is currently costing electricity to store electricity, which is becoming a

major problem.

The last and foremost problem facing Hydro is finding a suitable customer who is currently

dependant on oil imports, is economically focused and has purchasing power. Hydro cannot pay

for another project so they need to ensure the potential customer can pay.

Fjermestad Hagen and Naken saw two potential markets for a similar concept to Utsira: Remote

communities and grid power balancing. The overall problem faced Fjermestad Hagen and

Nakken is how to make Hydro’s energy solutions attractive from technological, ecological and

financial perspective. While the project would likely run until 2007, Fjermestad and Nakken

wondered what the next step would be and whether an economically viable business case

could be made to commercialize the concept.

Data Collection: Hydro’s The Oil and Energy Division are comprised of four areas: Exploration,

Projects, Operations and Markets. Inside the fourth group Markets are four subdivisions: Oil

and Gas Market Trading, Oil and Gas products, Power Production and New Energy. Hydro’s new

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energy division is comprised of wind power, hydrogen, research and development, and a

ventures fund for renewable hydroelectric power. Power Production is responsible for the

operation of Hydro’s 19 hydroelectric plants in Norway. Normal annual production is nine

million megawatt hours, which is sufficient for 450,000 homes (Hydro Norway, 2004). In March

2001, Hydro set up a venture (Hydro Ventures) fund of €45 million in order to invest in new

technologies related to Hydro’s Oil and Energy Activities.

The Utsira project is lead by a group within the New Energy division and combined wind and

hydrogen power to demonstrate the delivery of autonomous renewable power. Utsira is an

island with 240 inhabitants and 100 homes and is chosen for as a demonstration site for several

reasons. Energy consumption for the 10 households is measured to approximately 200

MWh/year. The approximate system could contain approximately 2 full days of continuous

power for 10 households. A second wind turbine is added and is not part of the stand alone

system but rather produced “green power” for export to Norway’s mainland.

The main components of the system and its capacity are shown in Table 1. The domestic

customers connected to the plant have a peak demand of approximately 50 - 60 kW.

Key Components Key data Manufacturer CostWind turbines 600 kW Enercon 750Flywheel 5 kWh, 200kWmax Enercon 100

Master Synchronous Machine 100 kVa Enercon 100Electrolyser 10 Nm3/h, 48 kW Hydro Electrolyser 500

Hydrogen storage unit 2400 Nm3 Hydro 500

Hydrogen Engine 55 kW Continental 200Fuel cell 10 kW IRD 100

Table 1: Utsira wind-hydrogen system – component characteristics

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The current costs in Utsira are far higher than current diesel and gas oil solutions. Hydro

estimates that if they install this system they would get close to €1.05 per kWh. Within 5-10

years this cost could be reduced to €0.35 per kWh. A hydrogen system also offered the

possibility of selling excess hydrogen to customers on the open market for upwards of €0.10

per cubic meter. The current alternative storage system is a new technology high-capacity

sodium-sulphur battery with an annual operating cost of to €0.35 per kWh per year (Nourai,

2004).

The maximum period of time without wind, over the past 10 years, estimated by Hydro’s

Engineers, has been two consecutive days. This is further compounded by the comparative

similarity of the electricity load of Utsira households to that of other European homes and that

the island is not too remote from the mainland. A backup system is already set into place and

the islands inhabitants already support the demonstration project. The project idea is that the

wind turbine would generate electricity for 2 purposes, to provide power to 10 homes, or 10

percent of the island. At Utsira the average wind speed is measured as more than 10 m/s.

Negative conditions are currently affecting Utsira even though the project is onshore. Due to

the nature of the location, many offshore like conditions came into play. There is a lot of salt in

the air and the temperature is between 0 and 10 degrees Celsius all year round. There are also

tremendous waves to be considered when designing the system and storm conditions to be

considered when designing the system.

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As shown in Exhibits 9a and 9b from the case study show that the system is somewhat

operating as intended. The Hydrogen storage unit which, theoretically stored 7.2 Mwh, is

currently only storing 2.9 Mwh.

A number of interested parties have contacted hydro. A wind farm operator in Scotland, a

mining community in Australia, energy institute in turkey and energy providers in Greece, the

Azores and Chile.

Potential Customer

Country Cost per kWh

Current Solution

Population Number of Households

Appropriate Power Needs in MWh

Faero Islands

Independent Nation 0.15 Diesel 46,962 18,785 375,696

GreenlandDivision of Denmark 0.25 Diesel 56,375 22,550 451,000

Azores Portugal 0.45 Diesel 238,767 95,507 1,910,136Greek Islands Greece 0.15

diesel/Grid 508,000 203,200 4,064,000

Scottish Islands Scotland 0.15

Diesel/Wind/Grid 120,000 48,000 960,000

Table 2 – Top 5 Islands in EU

There are currently 1.6 billion people (Brown, 2004) who require currently living without

electricity and an estimated 300,000 households within Europe have no access to any electricity

grid (Glockner & Aaberg, 2006). Fossil fuels will never meet the needs of developing nations

due to the cost of connecting remote communities to a national grid. Rural communities in

poorer countries are often many miles from any kind of power grid. Based on current trends, in

2030 there will be more people depending on wood and dung for cooking and heating than

there are currently.

Wind/Hydrogen and Diesel capital costs: of 17

System Cost (€ per kW) Operational Cost based on capital cost (%)

Fuel Cost (€ per kWh)

Diesel 300 2.5 0.15 to 0.50Wind/Hydrogen 20,000 1.5 N/A

Table 3 – Wind/Hydrogen and Diesel Capital Costs.

* A special note must be made that green certificates can be claimed for Wind/Hydrogen

systems and can be sold for €0.015 per kWh per year (Hydro Norway, 2004).

Analysis: As shown in Exhibits 9a and 9b from the case study the functionality of the plant is

somewhat working as expected. In low wind mode the hydrogen engine starts to compensate

for the insufficient wind power production, while in the high wind mode with sufficient excess

energy available the electrolyser start to produce hydrogen. However, the operational

performance is less than to be expected. Approximately 70-80 per cent of the energy is lost

when converting wind-generated electricity to hydrogen and then back to electricity. Also, the

fuel stack worked fine in isolation but when introduced to the overall system had not worked

well due to few households (low load) served by a large turbine. One of the reasons for this is

stated in the case study. “Initially, the converted internal combustion engine is not part of the

original plan. Hydro couldn’t get a 50kW fuel cell at a sensible price, so Hydro purchased the

engine plus a small fuel cell”. Purchasing the larger fuel cell would have alleviated the intensive

integration required by Hydro to integrate the 2 components and would have reduced some of

the energy loss which is required when operating the engine. The Hydrogen storage unit, which

theoretically stored 7.2 Mwh, is currently only storing 2.9 Mwh, which equates to an

approximate 40% capacity reduction. Since the storage capacity is intended to provide 48 hours

of continuous power to 10 household is now reduced to only providing 19 hours. It is currently

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costing electricity to store electricity. Before being transferred to the grid, electricity needed to

be transferred from 400 to 220 Volts Ac to make it usable by Utsira’s households (European

Union, European Commission for the Environment, 2009).

Although wind conditions are favourable for Utsira, as Hydro’s Engineers have estimated that

over the last 10 years that the maximum period of time without wind is 48 hours. Due to the

degradation of the system degradation the 10 household on Utsira are susceptible to be

without both wind and hydrogen produced power. Even though there is a backup system

available in the form of a flywheel, battery and PMSM, hydro must make note of this when

considering future customers. There system must be improved to ensure future customer’s

needs are met. Recommendations shall be made to either increase the size of the fuel cell to 50

kW to meet the requirements or develop a solution to remove the transfer process needed by

the Utsira households. Is shall also be suggested that a consideration be made to further utilize

the excess energy before storage (i.e. the pumping and heating of water).

The system performance is also troubled due to a large turbine producing energy for a

relatively small population. Less dramatic but more frequent smaller fluctuations potentially

caused “brown-outs” or consumer equipment malfunction. Unfortunately, according to experts

these fluctuations tended to increase as the proportion of the wind and other renewable

supplied to the grid expanded. Fluctuations in wind required additional flexibility (European

Wind Energy Association, 2005).

There are several solutions one being on to encourage the consumer to smooth its demand

patterns and adapt to a less stable supply. In some areas this would be acceptable but when of 17

using a consumer base such as that shown in Utsira, who have access to a stable grid, the

effects may be negative. Since Utsira is already using hydroelectric power, it has 2 storage

options. The first being its current set up using a fuel cell and engine stack up and the second

using a battery. However, storage options came at a price and Hagen and Nakken believed that

the hydrogen system offered a better alternative than batteries. Since the hydrogen system

could store hydrogen, during periods of supply shortages, the stored hydrogen could be fed

into a fuel cell to generate electricity, which also yielded green certificates at €0.015 kW per

year (Hydro Norway, 2004)). Also, the incremental cost of increasing energy cost of the fuel cell

is quite small when compared to batteries.

Conditions faced by Utsira also need to be assessed. Although Utsira is onshore, due to the

nature of the location, many offshore like conditions came into play. This contributed to long

lead times and the inability to build a proper storage area. To maintain a project such as Utsira,

spare components are critical. Without spare components the equipment is likely to

malfunction, jeopardizing the life of the project and not meeting the need of the customers.

Adequate storage needed to be arranged, more inland due to the heavy waves, which are what

initially destroyed the original quay.

Hydro’s new energy division is comprised of wind power, hydrogen, research and development,

and a ventures fund for renewable hydroelectric power. In March 2001, Hydro set up a venture

(Hydro Ventures) fund of €45 million in order to invest in new technologies related to Hydro’s

Oil and Energy Activities. This clearly shows Hydro’s direction of thinking when developing the

Hydro project. Although Hydro is not intending to gain any capital, the Utsira project is the

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beginning point to emerge into a new marketplace. “The pioneers of new technology often

dominate the market. Senior executives must be able to spot the technologies that fall into this

category in order to efficiently bring a new technology to market through development and

commercialization, managers must protect the new technologies from the processes and

incentives that are geared to serving established customers. The only way to protect it is to

create an organization which is completely independent from mainstream business.” (Blower,

1995). New energy followed Hydro’s 100 year tradition. “For Hydro it is important to be

involved in new forms of energy early to build expertise and establish a position in new

emerging markets. Hydro’s New Energy Division is based on an innovation strategy which

considers wind power, hydrogen, research and development. Hydro is simply following its

organization mission by expanding into new areas.

When thinking about the future possibilities of customers the options are endless. There are

currently 1.6 billion people (Brown, 2004) who require currently living without electricity and

an estimated 300,000 households within Europe have no access to any electricity grid (Glockner

& Aaberg, 2006). Based on the fact that fossil fuels will never meet the needs of developing

countries and rural communities are often many miles from any kind of power grid. The option

of hydroelectric power is very attractive. Based on current trends, in 2030 there will be more

people depending on wood and dung for cooking and heating than there are currently.

Current Potential customers based on Hydro’s criteria are shown in Table 2 – Top 5 islands in

the EU. The customer needs to be currently dependant on oil, be environmentally focused and

have purchasing power. Communities such as Portugal and the Azores are usually subsidized so

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customers would pay no more in a remote area. These off grid communities typically relied on

diesel generators and liquid pressurized gas and would make good potential customers based

the governments already covering the costs. On some of these islands the wind power can

already compete when you take into account the transport of gas oil and diesel. Current cost

for wind/hydrogen and diesel systems are show in Table 3. Initially the cost of the

Wind/Hydrogen system greatly exceeds the cost of the diesel system at €20,000 per kW in

respect to €300 per kW. At a first glance there is no comparison until you consider the fuel. In a

wind/hydrogen system there is no fuel. Table 4 below shows a comparison of the operating

costs.

Prospective Islands

Initial Cost Wind/Hydro (€)

Annual operations Diesel Cost (€ per

year)

Annual Operations Wind/Hydroelectric

Cost (€ per year)Fuel Costs (€

per year)Faero

Islands 20,000 7.5 300 56354407.5Greenland 20,000 7.5 300 112750007.5

Azores 20,000 7.5 300 859561207.5Greek Islands 20,000 7.5 300 609600007.5Scottish Islands 20,000 7.5 300 144000007.5

Table 4 – Initial and Operating Costs

As shown in Table 4 the Fuel costs greatly out way the initial cost of the Wind/Hydrogen

system. The wind/hydrogen is system is much more economical than the current diesel

solutions the islands in the EU are using. The Greek Islands and Portugal Azores are currently

paying the most for its diesel solution and would be ideal candidates for a customer. They are

both dependant on oil, for which they are paying a very high price, so they should be eager to

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reduce the cost. As rationalized by Fjermestad Hagen “On some islands, wind power can

already compete when you take into account the transport of gas oil and diesel. In an Area like

the Azores, they can’t always gain access for refuelling either. It’ important to look at the

economics of diesel generators and also ask in areas like the Greek Islands and Portugal

whether all inhabitants have the same power needs. Many of these communities rely on

tourism and want to promote clean air”. This makes Portugal and the Greek islands logical

choices.

Can Hydro produce enough hydroelectric power to support one of these communities? As the

case study already points out Hydro’s Power Production subdivision is currently supplying

power to 450,000 homes using hydroelectric power plants which are producing 9 million

megawatt hours (Hydro Norway, 2004). Based on the top 5 islands, the highest power

requirement is 4 million megawatt hours and the total power requirement of all 5 islands is

approximately 7.760 million megawatt hours. Hydro has the ability to support all 5 islands

concurrently based on its model.

Solutions: There are a number of solutions identified throughout this case for both the

direction Hydro is taking and the system operational improvements needed to be made. Two

solutions dealing with direction are identified by Fjermestad and Nakken while working with

Hydro’s New Energy Division. The first solution being to develop similar solutions for more than

1000 remote communities which existed in the European Union alone, this had a much greater

global basis. Based on the analysis of the top 5 EU island communities this seems a logical

choice to pursue. The Greek Islands and Portugal Azores are currently dependant on oil, for

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which they are paying over 1 Billion € per year. They would probably be eager to deal with

hydro based on current fuel consumption which should develop more interest in the project.

The second solution is to offer a solution to utility providers for the load balancing of electricity

grids. Storage options came at a price and the hydrogen-electrolyser system offered a better

alternative than batteries. Hydrogen could be fed into fuel cells to generate electricity, which

would also yield green certificates at €0.015 kW per year (Hydro Norway, 2004). The fuel cell is

easier and cheaper to upgrade and the Hydro projected annual operating costs were €0.035 kW

per year, which would be the same as a new technology battery. There are also several

operational solutions offered, such as implementing a larger fuel cell and removing the transfer

of electricity from 400 to 220 watts(European Union, European Commission for the Environment,

2009) therefore increasing the storage capacity of the fuel cell. These solutions would increase

the operational efficiency of the system.

Findings and Managerial recommendations: The Utsira project has so far shown that it is

possible to supply remote areas with wind power alone using hydrogen as a storage medium.

Still there are several things to improve in order to make the system competitive, both

technically and economically, to alternative systems like wind-diesel. However, several

elements have been identified that together with the ongoing day-to-day improvement of the

plant will help close the gap. This includes;

• Consider utilisation of a larger fuel cell to bring the system to its original design requirement

of 48 hours

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• Consider utilization of the excess energy for the heating and pumping of water

• Consider eliminating the transfer from 400 to 220 Watts when delivering the electricity to the

household of Utsira

• Consider building a storage structure more inland

• Consider pursuing the Greek Islands and Portugal in Azores as potential customers

• Market the valuation of green image and security of supply and independence

• Based on Hydro’s traditional beliefs continue developing the hydroelectric system with the

goal of becoming a leader in the new emerging market.

It is recommended the Hydro refine its product due to the need for sustainable energy

worldwide. This new emerging market, based on the fact that 1.6 billion people worldwide have

no access to a grid (Brown, 2004), will be the cornerstone of the energy future.

Conclusion: Overall the project of Utsira showed that it is possible to sustain an island

community on hydroelectric power. Although there are some issues, such as reduction of the

fuel stack up efficiency with reduce the capacity of the system. Approximately 70-80 per cent of

the energy is lost when converting wind-generated electricity to hydrogen and then back to

electricity. The project still maintained its working order and supplied 10 homes from the island

of Utsira with power and has potential to develop the system for future needs. Two

recommendations are made in regard to the fuel cell, the first being to increase the size and the

second to eliminate the transfer of electricity from 400 to 220 volts (European Union, European

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Commission for the Environment, 2009). It is believed that if this is accomplished the system will

see a considerable improvement.

A comparison is also made through the case between the viability of using the current Utsira

system format; Electrolyser and Hydrogen Cell vs. a Battery. The comparison proved the Utsira

system to have more potential with the possibility of selling excess hydrogen to customers on

the open market for upwards of €0.10 per cubic meter.

The harsh conditions of Utsira are also examined and although excellent for wind ranging from

10 m/s are harsh and ill-forgiving with two-meter high waves making it hard to transport

supplies and spares for the system. An adequate structure would need to be built more inland

is the system is going to be reliably maintained.

A study is completed in regards to the top 5 EU islands and recommendations are made based

on Hydro’s 3 customer conditions; a dependency on oil imports, economically focused and has

purchasing power. Hydro cannot pay for another project so they need to ensure the customer

can pay. Two potential customers are identified, the Greek Islands and The Azores in Portugal.

Together, these islands are paying more than 1 billion in diesel costs and should welcome a

cheaper solution.

Lastly, the direction Hydro is pursuing is in line with its traditional beliefs. Hydro’s New Energy

Division is based on an innovation strategy which considers wind power, hydrogen, research

and development. Although Hydro is not intending to gain any capital, the Utsira project is the

beginning point to emerge into a new marketplace.

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REFERENCES

European Union, European Commission for the Environment. (2009, April). The European Standard for

electricity is 229V rather than 110V, as in North America. Brussels, Belgium: Author

European Wind Energy Association. (2005). Large Scale Integration of Wind Energy in the European

Power Supply: Analysis Issues and Recommendations. Brussels, Belgium: Author

Glockner, R. & Aaberg R.J. (2006). Market Potential Analysis for introduction of Hydrogen Energy

Technology in Stand-Alone Power Systems (H-Saps Final Report). Kjeller: Norway: Institute for Energy

Technology.

Nourai, A. (2004). Comparison of the Costs of Energy Storage Technologies. American Electric Power, 3,

1-30.

Blower, J. L. (1995). Disruptive Technologies: Catching the wave. Harvard Business Review, 44, 43-53.

Hydro Norway. (2004). Hydro Annual Report: Annual Report 2004. Retrieved from www.hydro.com,

accessed January 30, 2012.

Brown, P. (2004, June 21). World Bank Rebuked for Fossil Fuel Strategy. The Guardian, p. 13.

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http://www.hydro.com/

Hydro Case Study Mstm 6032

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