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Optimizing E-Fuel Production

A Model for Cost-Efficient Renewables Asset Sizing

E-fuels as renewable alternatives in hard-to-abate sectors

According to the IPCC, even in scenarios where the 1.5°C target is achieved, molecules will continue to play a significant role in the global energy system. E-fuels present a sustainable alternative to fossil fuels in sectors where electrification is difficult, such as aviation, shipping, and heavy industry. These synthetic fuels are produced using electricity from renewable sources like wind, solar, or hydropower, making them a carbon-neutral alternative to conventional fossil fuels. E-fuels offer a promising pathway for decarbonizing hard-to-abate sectors while utilizing existing transport and storage infrastructure, thereby minimizing the need for major modifications to current energy systems.

E-fuels graph

In Europe, regulatory frameworks and ambitious climate targets are shaping the future of e-fuel production and adoption. The European Union has introduced key legislative initiatives to drive the development and offtake of Renewable Fuels of Non-Biological Origin (RFNBOs), a category that includes e-fuels. Under the Renewable Energy Directive (Art. 2.36), liquid fuels, such as e-ammonia, e-methanol or e-kerosene, are considered RFNBOs when produced from renewable hydrogen, which is produced by feeding renewables-based electricity into an electrolyzer.

Despite their promise, the production of e-fuels faces significant challenges, including infrastructure needs, and regulatory uncertainty. However, the primary challenge remains the cost gap of renewable hydrogen compared to fossil-fuel-based hydrogen. On the one hand, geographic location of the production facility is critical. Placing assets where renewable resources are abundant and their Levelized Cost of Energy (LCOE) is low is essential for minimizing production costs. On the other hand, the sizing of the production assets, particularly the electrolyzer and associated renewable generation capacity, plays a crucial role in cost optimization. Navigating the complex interplay between location, renewable resource variability, technology options, and asset sizing requires sophisticated analysis and appropriate modelling tools.

Optimizing upstream e-fuel production value chain

In this context, Sia has developed a solution to minimize e-fuel production costs by determining an optimal mix of renewable energy sources (balancing onshore/offshore wind and solar PV), properly sizing the electrolyzer, and optimizing grid interactions (buying and selling electricity on the wholesale market), while adhering to regulatory constraints.

Sia’s optimization model is designed to determine the optimal investment and dispatch of upstream assets in e-fuel production to achieve the lowest levelized e-fuel cost. By leveraging industry-standard linear optimization techniques, the model minimizes total system costs while meeting a stable production target.

Covering the entire e-fuel production value chain (see Figure 1), the model ensures cost-effective decision-making by balancing asset sizing and dispatch operations.

E-fuel production value chain covered by Sia's optimization model

Figure 1: E-fuel production value chain covered by Sia's optimization model

The model outputs include among others a breakdown of the levelized cost of e-fuel and an in-depth view of the hourly energy balances (both electricity and hydrogen), highlighting how assets are dispatched.

  • For the electricity balance, the model can choose to invest in Renewable Energy Sources (RES) such as solar PV, onshore and/or offshore wind. This electricity is used to feed the electrolyzer, which produces hydrogen in turn. ​Excess RES generation can be sold to the electricity grid to create additional value. Grid electricity can be sourced from the grid to power the electrolyzer, provided that temporal correlation constraints are respected for it to qualify as a Renewable Fuel of Non-Biological Origin (RFNBO).
  • In the hydrogen balance, ​the model can choose to invest in electrolyzer and hydrogen tank storage capacity. ​The storage capacity serves to balance the hydrogen production from the electrolyzer and the downstream conversion hydrogen demand, which needs a stable hydrogen supply with a sufficiently high load factor.

Case study: the cost of E-methanol in North-Western Europe

The model was used to determine and understand the drivers behind the cost of production of e-methanol for four locations in Europe, namely France, Belgium, the Netherlands and Denmark. The analysis reveals that:

  • Electricity generation assets account for the largest share of costs, followed by the electrolyzer. Meanwhile, hydrogen storage, compressors, methanol synthesis, and CO feedstock contribute to a smaller portion of the total cost.
  • Onshore wind and solar PV are the preferred RES mix. Only in Denmark, offshore wind is part of the optimal RES mix due to the higher load factor compared to the other countries.
  • Levelized cost of methanol (LCOM) varies between 1.03-1.21 €/kg between the four countries when considering a monthly temporal correlation.
  • Hourly temporal correlation results in an average LCOM price increase of 23 % on average

Download the full study here!

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Sia’s Offering

At Sia, we combine our renewable energy expertise with data capabilities to help your organization successfully navigate the complexities of e-fuels adoption. To do so, Sia provides: 

  • Educational Support through targeted workshops and training, ensuring your team is knowledgeable about e-fuel policies and production pathways.
  • Strategic Advisory & Business Planning: our experts work with you to craft e-fuel strategies that align with your operational goals, ensuring long-term feasibility and industry competitiveness.
  • Operational Implementation Support: from sourcing e-fuels to optimizing supply chains and developing rollout plans, we help you incorporate e-fuels into your operations.
  • Commercial Support & Reporting: services focused on emission calculations, market analysis, and financial implications of e-fuels, helping you make informed decisions.

Contact us for more information!

Sia integrates this data in its client database to send you marketing communications (invitations to events, newsletters and new commercial offers).
This data will be kept for 3 years before being deleted and you can withdraw your consent to the processing of your data at any time.
To learn more about the management of your personal data and to exercise your rights, please consult our Data Protection Policy.

CAPTCHA

Your data are used by Sia to process your contact request. Please note that you have rights regarding your personal data. For more information, we invite you to read our data protection policy