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 largescale 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
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remote 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 Wind turbines Flywheel Master Synchronous Machine Electrolyser Hydrogen storage unit Hydrogen Engine Fuel cell Key data 600 kW 5 kWh, 200kWmax 100 kVa 10 Nm /h, 48 kW 2400 Nm 55 kW 10 kW
3 3

Manufacturer Enercon Enercon Enercon Hydro Electrolyser Hydro Continental IRD

Cost 750 100 100 500 500 200 100

Table 1: Utsira wind-hydrogen system component characteristics

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.

Independe nt Nation Division of Greenland Denmark Azores Portugal Greek Greece Islands Scottish Islands Scotland

Potential Customer Faero Islands

Country

Cost per kWh 0.15 0.25 0.45 0.15 0.15

Current Solution Diesel

Population 46,962

Number of Households 18,785 22,550 95,507 203,200 48,000

Appropriate Power Needs in MWh 375,696 451,000 1,910,136 4,064,000 960,000

Diesel 56,375 Diesel 238,767 diesel/Gr 508,000 id Diesel/W ind/Grid 120,000 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:
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System Diesel Wind/Hydrogen

Cost ( per kW)

Operational Cost based on Fuel Cost ( per capital cost (%) kWh) 300 2.5 0.15 to 0.50 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
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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. Annual operations Diesel Cost ( per year) 7.5 7.5 7.5 7.5 Annual Operations Wind/Hydroelectric Cost ( per year) 300 300 300 300

Prospective Islands
Faero Islands Greenland Azores Greek Islands Scottish Islands

Initial Cost Wind/Hydro ( ) 20,000 20,000 20,000 20,000 20,000

Fuel Costs ( per year) 56354407.5 112750007.5 859561207.5 609600007.5 144000007.5

7.5 300 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 reduce the cost. As rationalized by Fjermestad Hagen On some islands, wind power can
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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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