hydropower-plant

5 things affecting levelized cost of product in P2X projects

The levelized cost of product (LCOP) in P2X projects tends to be high and is widely variable, but commercial viability is critical if the energy transition is to be successful. Here, Richard Grzemba, P2X Market Development Manager at ANDRITZ, talks through the five biggest factors to consider in pursuit of a levelized cost of product in P2X projects.

The energy transition will see us moving to more sustainable ways of generating, transporting, and using energy. It’s not the first energy transition we have experienced, even in living memory, but it is the most significant and all encompassing.

Right now, we know precisely how to generate energy renewably, through sources like wind, the sun, thermal sources and even tidal movement. But storing, transporting, and using this energy is more complicated. 

Power to X, or P2X, is the intermediary step between renewable energy and its transport and use in molecular form, whether that be as ammonia, methanol, or some other hydrogen derivative. It is, and will increasingly be, a critical step in our energy supply chain. 

Right now, cost of product and market expectations are mismatched. In some applications, such as maritime fuel and aviation, that mismatch could be as high as 50%. Achieving target cost is therefore critical to allow the market to develop and for the energy transition as a whole to succeed. Here are 5 things to be considered to make this happen.

1. Knowing the end-use case

Understanding the end-use of the product, what it is used for, and what the specific pain and gain points are to apply green hydrogen or its derivatives, including price expectations, is absolutely critical for P2X projects.

The shipping industry’s well-to-wake (WTW) concept, for example, assesses the full environmental and economic impact of fuel, from production to combustion. To account for the total lifecycle cost and emissions for a fuel, WTW thus sets a price benchmark for adopting greener technologies and fuel. In terms of setting a target cost of product, WTW can be translated to a specific price in comparison to the traditional fossil fuel plus ETS trading adders.

From the correlating LCOP targets like this one, you can work backwards to narrow down the right project conditions to achieve it – so here transparency about the expectations by the investors is helpful.

In the same way, knowing the end-use case means, you can factor in the cost of meeting the relevant regulations and avoid any penalties for not achieving environmental standards. 

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2. Understanding the impact of energy price

Naturally, energy price and its variability significantly impact ongoing operational costs of P2X projects. Energy accounts for around 75% in greenH2 and approximately 40% in greenNH3, MeOH, SNG projects.

Energy prices vary greatly, from upward of greater than 100 €/MWh to below 40 €/MWh, dependent on project location. But even when energy is cheap, projects can still have difficulties if the energy availability is inconsistent  (also known as intermittency) and they will struggle to meet market expectations if their utilisation rates are low. 

3. Matching electricity availability and utilization rates

Production has to be consistent to be efficient, and vice versa. The consistency of energy availability is therefore as important as the price per MWh. 

Critically, if a project operates with lower electricity costs, reducing OpEx, but in turn suffers from underutilised production capabilities, the benefits of low-cost electricity are effectively nullified by the proportionally increased CapEx share in the project.

Production capacity and consistency is critical to levelized cost, which makes your project location a really important thing to consider. 

4. Choosing the right location for your P2X projects

It might seem basic, but the location of such a project has to be predicated on reliable electricity access and existing infrastructure to optimise the cost structure of P2X projects. Transport of molecules can be costly.

Locations with established infrastructure, such as existing power substations or a ready supply of biogenic CO2 for methanol production or existing ammonia terminals will naturally provide significant CapEx savings to P2X projects.

Of course, access to existing renewable energy supplies is a must have.

Klaus Bärnthaler

"In e-methanol projects, biogenic CO₂ is a crucial ingredient for production. If the plant location is not chosen carefully, CO₂ capture and transportation can become major cost drivers. Capturing CO₂ from point sources, such as pulp mills near the P2X plant, is an efficient and cost-effective solution that enhances the project's feasibility and success."


Dr. Klaus Bärnthaler, Director Proposal & Business Development, Carbon Capture, ANDRITZ

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5. Balancing financing for cost optimization

Where renewable energy sources have to be developed in parallel to the green molecule project, CapEx is dramatically increased, aside of the prolongation of the project development, making financing one of the largest contributors to the overall cost of product.

Financing costs themselves can account for 20% of product cost, but this can balloon to two-thirds of the total cost where renewable energy capacity has to be built from scratch.

New infrastructure can be slow to build due to planning restrictions, making debt more costly over time, or more cost effective depending on market conditions. Choosing the right time to build, and the right financial approach is critical to a levelized cost of product.

Nobody can do it alone

The business case for renewable fuels remains a challenge and requires an open collaboration between stakeholders at every level of the supply chain to achieve production cost reductions. The right project location and an optimal plan configuration have to meet each other.

For more P2X insights from ANDRITZ, click here

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