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Submit proposal and unsigned coversheet in electronic form. Also submit two hard copies of the proposal and the signed coversheet. 1. DTE Hydrogen Energy Park Project Title of Project 2. Tom Lyon Name of Project Advisor Signature / Date Signature / Date Greg Keoleian Name of Project Advisor 3. Client Information: DTE Energy Name of Client Organization Ryan Waddington Name of Primary Contact 2000 2 nd Ave SE, 783 WCB, Detroit, MI 48226 City, State Zip Code (313)235-7015 waddingtonr@dteenergy.com Phone Number Email Address Street Address 4. Final Team Members: DTEhydro@umich.edu Group Email Name Marshall Chase Name of Member 1 Kris Jadd Name of Member 2 Doug Glancy Name of Member 3 Ed Chao (Practicum participant) Name of Member 4 Signature / Date Signature / Date Signature / Date Signature / Date 5. Project Summary: There is currently a great deal of research being conducted on the potential use of hydrogen as an energy storage medium with potential environmental benefits. However, there is relatively little real world data available to evaluate the market potential and true financial and environmental costs of using hydrogen to store and generate electricity or fuel vehicles. DTE, a diversified energy holding company, has set up a “distributed hydrogen generation” demonstration project in order to generate such real world data, and is currently exploring ways to use this data. This project will work with DTE to create a software-based model that can be used to evaluate the likelihood of a market for distributed hydrogen generation arising under a variety of market and regulatory scenarios. The model will apply data from the demonstration facility as well as relevant variables affecting the market, and provide the likely financial and environmental impacts of distributed hydrogen generation. This model will be designed to generate some conclusions about the feasibility of distributed hydrogen generation, and will be designed for ongoing use and improvement by DTE personnel. 6. NRE 701 Instructor Approval: Donna Erickson Signature / Date DTE Hydrogen Energy Project Proposal Marshall Chase, Doug Glancy, Kris Jadd Abstract There is currently a great deal of research being conducted on the potential use of hydrogen as an energy storage medium with potential environmental benefits. However, there is relatively little real world data available to evaluate the market potential and true financial and environmental costs of using hydrogen to store and generate electricity or fuel vehicles. DTE, a diversified energy holding company, has set up a “distributed hydrogen generation” demonstration project in order to generate such real world data, and is currently exploring ways to use this data. This project will work with DTE to create a software-based model that can be used to evaluate the likelihood of a market for distributed hydrogen generation arising under a variety of market and regulatory scenarios. The model will apply data from the demonstration facility as well as relevant variables affecting the market, and provide the likely financial and environmental impacts of distributed hydrogen generation. This model will be designed to generate some conclusions about the feasibility of distributed hydrogen generation, and will be designed for ongoing use and improvement by DTE personnel. DTE Hydrogen Energy Project Proposal Marshall Chase, Doug Glancy, Kris Jadd Table of Contents Introduction & Problem Statement ............................................................................................ 1 Background ................................................................................................................................... 1 Description of Proposed Research............................................................................................... 2 Core research question ............................................................................................................... 2 Scope of Work ............................................................................................................................. 3 Resources needed ........................................................................................................................ 4 Schedule of Major Tasks .............................................................................................................. 4 Anticipated Results and Deliverables: ........................................................................................ 5 Relevant Institutional Resources ................................................................................................. 5 Proposed Budget ........................................................................................................................... 5 Personnel........................................................................................................................................ 6 DTE Hydrogen Energy Project Proposal Marshall Chase, Doug Glancy, Kris Jadd Introduction & Problem Statement The use of hydrogen as a means of transporting and storing energy is increasingly touted as a means to reduce dependency on foreign oil and gas and reduce the environmental impacts, including global climate change, associated with current methods of energy generation and distribution. Specifically, hydrogen can be used to transport and store electricity generated by solar, wind, and other energy sources that generate less greenhouse gas emissions and other pollution than existing methods, but often operate in places or at times when electricity is not needed. A hydrogen energy infrastructure would use such sources to produce hydrogen that could then be used to produce energy in a chemical process. Before such benefits can be realized, however, an appropriate infrastructure must be developed to produce and transport hydrogen. There are many questions about the design and feasibility of a hydrogen infrastructure, ranging from the energy source(s) used to produce the hydrogen (e.g., use of renewables, fossil fuels, or nuclear power) and the source of the hydrogen itself (e.g., electrolysis of water, reformation of natural gas, or other methods), to how best to use hydrogen to produce energy (e.g., as a fuel source for cars, or as a means producing energy during peak electricity grid use). Additionally, there are questions regarding when operating this infrastructure will become commercially viable. There have been a variety of academic, governmental, and experimental studies of hydrogen as an energy source attempting to answer these questions, but there have been few real-world operating projects designed to test practical applications. As a result, many questions remain about the shape that a hydrogen infrastructure will take, as well as its true impacts, costs, and benefits. DTE Energy, a Detroit-based holding company that includes electricity and natural gas utilities and technology and investment components, has set up a working hydrogen energy demonstration project and is gathering data from the facility. DTE is currently exploring how to analyze this data and work toward a better understanding of the likelihood for commercial use of hydrogen as an energy carrier. In particular, the company wishes to explore whether there is an opportunity for the company to develop a distributed hydrogen energy infrastructure based on the demonstration project, or in some other form. The project team proposes to develop a model that can be used to evaluate both the environmental impacts and the market potential of DTE distributed hydrogen energy stations, and to apply this model to evaluate whether such stations are viable under a variety of scenarios. Background Hydrogen fuel cells use a chemical process involving molecular hydrogen (H2), the most common element in the universe, to create electricity using a chemical process that produces only water and heat as byproducts. However, molecular hydrogen does not exist naturally on earth. As a result, energy must be used to separate hydrogen from other sources such as natural gas or, and then placed in compressed storage for later use in fuel cells. In short, hydrogen is not a energy source but rather a mechanism to efficiently store and transport energy. DTE Hydrogen Energy Project Proposal Marshall Chase, Doug Glancy, Kris Jadd Page 1 The primary methods of producing molecular hydrogen are reformation of hydrocarbons such as natural gas or oil, electrolysis of water, and thermal cracking of water. Hydrocarbon reformation is a high-temperature process that requires processes to remove contaminants like sulfur, and converts oil, natural gas, or other fossil fuels, plus oxygen and water, into hydrogen and CO2. Electrolysis uses electrical energy to break water (H2O) into its constituent hydrogen and oxygen atoms. Thermal cracking uses very high temperatures to break water into hydrogen and oxygen. There is also a range of methods to store and use hydrogen. Storage methods include traditional compressed gas and liquid forms, and experimental forms such as metal hydrides or carbon nanotubes. Hydrogen can be used in a variety of applications requiring electric power, such as a source of electricity for the grid that transports electricity to homes and businesses, or use in electric-powered automobiles containing fuel cells. In addition, hydrogen can be produced, stored and used in either centralized or decentralized locations. There is a broad sense within the global energy sector that hydrogen will play an increasingly important role in the storage and distribution of energy over the coming decades. As a result, the Bush Administration has allocated significant amounts of money aimed at conducting research the technical and commercial viability of hydrogen. Currently, the US government spends about $300M annually on hydrogen and fuel cell programs. The Department of Energy is the leader in the government’s efforts. The DOE hopes to make a “go or no go” commercialization decision by 2015. A major portion of DOE’s efforts lies in “Learning Demonstration” projects, which bring together automobile makers and energy companies to test fuel cell vehicles and hydrogen fueling stations in “real-world” situations. DTE Energy was selected by the DOE to participate in a “Learning Demonstration” project and in 2004 dedicated the Hydrogen Technology Park. The $3 million facility creates hydrogen though electrolysis using on-site solar energy as well as energy from the electric grid. The hydrogen is then used to power 10 on-site fuel cells and can be dispensed into as many as three fuel cell cars per day. Though the site is one of the largest of its kind in the world, the scale of the hydrogen park limits its market viability. DTE seeks to use the facility as a test bed for the hydrogen economy and determine if future efforts in hydrogen production and storage will be commercially viable. Through this project, the client seeks to develop a model to allow forecasting and analysis of financial and environmental factors of different hydrogen energy production scenarios, based on actual performance data from the Hydrogen Technology Park. The objective of this activity would be to assess the cost and commercial performance competitiveness of different hydrogen technologies, as well as assess the environmental impacts. Description of Proposed Research Core research question: Are “distributed hydrogen energy stations” a financially and competitively viable business opportunity for DTE Energy in the future? DTE Hydrogen Energy Project Proposal Marshall Chase, Doug Glancy, Kris Jadd Page 2 Objectives: Determine probable market and regulatory scenarios (e.g., deregulation of electric utilities, and greenhouse gas regulation) likely to affect the competitive and financial viability of DTE’s proposed distributed hydrogen energy stations. Determine primary variables (e.g., oil and natural gas prices, availability of carbon sequestration, etc.) affecting the competitive and financial viability of the proposed stations and develop possible values for those variables based on the above scenarios. Create software models (likely Excel based) to evaluate the financial and competitive viability of DTE’s proposed stations, using the above variables and scenarios. Create a model to evaluate the environmental impacts of DTE’s proposed stations relative to alternative energy infrastructures. The main research question above will tie into an overall analysis of the prospects for commercial use of hydrogen as an energy carrier in the power and transportation industries in the next 20 years in the U.S. However, the team will not attempt to assess the overall analysis of the feasibility of hydrogen. We believe this is outside the scope of this project. Scope of Work: 1. Conduct a review of the current merchant hydrogen market in the U.S. based on existing documentation, including: a. Production volumes, capacity, production methods, pricing, production locations & owners, utilization and economics (rough) in non-energy sectors b. Market demand (broadly) by non-energy sector c. Current snapshot of energy sector – including distributed hydrogen energy facilities 2. Develop a set of likely policy and market scenarios that will affect the adoption of hydrogen technology 3. Using information from points 1 and 2, build a model for use in evaluating the economic and environmental performance of the DTE distributed hydrogen station model over time. This model could be a linear or systems model, and hypothesis or scenario-driven and should including regulatory/policy considerations, market penetration assumptions, fuel switching crossovers, etc. It should be capable of time-based scenario analysis and include: a. Fixed and variable assumptions i. Including policy/regulatory incentives b. Assumption bases c. “Hydrogen production cost and environmental performance” calculation methodology d. Economies of scale factors on cost and performance; learning curve gains e. “Modules” (for distributed hydrogen production), including electrolysis of water based on coal, nuclear, natural gas, wind, solar and biomass-based power input The activities in this scope will be conducted in the following stages: DTE Hydrogen Energy Project Proposal Marshall Chase, Doug Glancy, Kris Jadd Page 3 1. Review existing literature, data from the DTE hydrogen energy station, conduct additional research and interviews as needed to determine the primary variables affecting the feasibility of distributed stations, and examine financial and environmental models currently used in the energy industry, such as NREL’s HOMER model (found at http://www.nrel.gov/homer/). 2. Develop financial model that allows the input of values for the variables isolated in item 1 (with little or no interaction among the variables). The model will be used to explore distributed station feasibility under a variety of scenarios. 3. Test and improve the model by applying data from the existing station and other sources. 4. Through research including literature review and interviews, develop a set of possible scenarios which may affect a distributed hydrogen energy station model over the next 20 years. 5. Using information from item 4, establish values for the static model’s primary variables under a set of scenarios. Use these values in the models to obtain results for each scenario. 6. Develop conclusions, recommendations, discussion of strengths & weaknesses of the model and scenarios, and suggestions for further research/model development. These stages will overlap substantially. An approximate timeline is included below. Resources required from client or other sources: Access to current market data. Access to data from DTE’s hydrogen energy park. Access to publications and documents related to hydrogen energy markets. Funding for transportation, data, software, phone calls, and other activities required to conduct research. Software product used to create and operate model (Excel or other software). Schedule of Major Tasks Initiation date – Apr 30, 2005: Apr 30- Aug 30, 2005: Sept 1 – Sept 15, 2005: Sept 15 – Oct 31, 2005: Oct 31-Dec 20, 2005: Dec 20, 2005 – April 2006: Project scoping, expert interviews, literature and regulatory review, and review of existing models. Initial drafting of models and scenario outlines. Ongoing review of trade publications and other literature as needed. Review progress of project with team, advisors and DTE. Revise models and scenarios, plug in data from hydrogen energy park, repeat. Finalize models and scenarios, begin to draw conclusions about most likely scenarios and their impact on the development of a hydrogen energy infrastructure. Finalize analysis and recommendations; write report. DTE Hydrogen Energy Project Proposal Marshall Chase, Doug Glancy, Kris Jadd Page 4 Anticipated Results and Deliverables: We believe this project will help us to gain a greater understanding of the feasibility of hydrogen as a major energy source in the United States. We will understand the financial and environmental implications of hydrogen to a major energy provider (DTE Energy) as well as the major challenges that DTE faces in utilizing hydrogen as a major energy source. The primary deliverables we envision include: 1. Distributed hydrogen energy station evaluation software-based model, with education of relevant DTE personnel about how to use and alter it, and recommendations for further development. 2. Written documentation for DTE explaining the rationale for the various scenarios used in the model, and discussing the conclusions and recommendations based on those scenarios. 3. Presentation of the model, scenarios used, and recommendations to DTE representatives. 4. A bound paper describing and discussing the model, scenarios, and recommendations in detail to fulfill the SNRE Master’s Project academic requirement. 5. A presentation to the SNRE community of the project’s work to fulfill the SNRE Master’s Project academic requirement. Relevant Institutional Resources The individuals engaged in this project are members of the Erb Institute dual masters degree program (formerly the Corporate Environmental Management Program) at the University of Michigan. As such, they will be able to bring both a strong business and financial perspective and a strong environmental science and policy perspective to this project. They also have full access to the rich resources of both the School of Natural Resources and the Ross School of Business at the University. These resources include: Faculty with expertise in energy, policy, finance, and other environmental and business issues. Two of these faculty – Professors Tom Lyon and Greg Keoleian – have been engaged as lead advisors to this project and a third, Professor Gautam Kaul, a finance professor at the Ross School of Business, will act as a secondary advisor. Research, personnel and potential funding from University organizations including the Center for Sustainable Systems and the Erb Environmental Institute. Both of these organizations have extensive experience in issues related to business and the environment. Proposed Budget Travel to project site, other DTE facilities, and interview and research sites: Approx. 1350 miles @ $0.375/mi $500 Travel to one conference for presentation of results $1200 Telephone calls for interviews & discussions $150 Data and reference material $1500 Relevant modeling software purchase and training (e.g., training on NREL’s Homer model) $3000 DTE Hydrogen Energy Project Proposal Marshall Chase, Doug Glancy, Kris Jadd Page 5 Opus binding, 7 copies @ $150/copy Administrative overhead (photocopying, etc) Total $1050 $500 $7900 Initial References Chalk, Steve and Lauren Inouye, “The President‟s Hydrogen Initiative: US DOE‟s Approach: A Paper for the Biennial Asilomar Conference on Energy and Transportation on „The Hydrogen Transition,‟” July-August 2003. US Department of Energy, Executive Summary, Hydrogen, Fuel Cells & Infrastructure Technology Program, Multi-Year Research, Development and Demonstration Plan. US Department of Energy, “Toward a More Secure and Cleaner Energy Future for America: A National Vision of America‟s Transition to a Hydrogen Economy – To 2030 and Beyond,” February 2002 Personnel Marshall Chase Marshall is a second-year student focused on sustainable enterprise in the US and emerging markets. Last summer, Marshall worked with Environmental Defense to research paper markets and update the organization's environmentally preferable paper strategy. Prior to Michigan, he worked as an environmental consultant for major real estate clients in Washington, DC, where he designed and managed waste programs that dramatically improved recycling rates and reduced operating costs. Marshall also spent two years in Togo as a Peace Corps Volunteer, where he worked with entrepreneurs to develop business plans and improve environmental practices, and led a community health initiative to improve water quality and sanitation for a town of 10,000 people. Marshall has a degree in Government and a minor in Environmental Policy from Dartmouth College. Kris Jadd Kris is a second-year student interested in corporate finance and strategic planning in the energy industry. Kris interned at CERES in Boston last summer where he examined the financial risk implications of climate change to the electric utility, and oil and gas sectors and evaluated what leading US companies in these sectors are doing to address climate change. He also wrote reports on the feasibility of renewable energies and carbon sequestration. Prior to Michigan, Kris was a manager at the San Francisco Small Business Energy Efficiency Program, where he helped 4,000 small businesses save $3.5M annually by reducing energy consumption by 6 megawatts. Kris also worked in software product development for a San Francisco start-up and for Chicago Wilderness. Kris received a BA in history and minor in environmental and evolutionary biology from Dartmouth College. DTE Hydrogen Energy Project Proposal Marshall Chase, Doug Glancy, Kris Jadd Page 6 Douglas Glancy Originally from Detroit, Michigan, Doug graduated from Trinity College (CT) in 2000 with a B.A. in Political Science. As an undergraduate, he spent several months in the Middle East, and conducted research for his honors thesis on chemical and biological terrorism. Following graduation, Doug was employed as an English teacher in Xi’an, China. Upon his return to the United States, he began his career in politics as the Director of Special Projects on the Campaign for a Ballot Initiative supporting funding for the Arts in the Detroit Area. From 2001 – 2004, he worked as a Congressional Aide in the office of Senator Levin (D-MI), where he represented the Senator on Agriculture, Energy and Environmental issues. As a dual degree student at the University of Michigan, Doug is pursuing an MBA and a M.S. in Natural Resource Policy and Behavior. His research focus is business strategies to address climate change. Ed Chao Ed is a second-year student focused on the commercialization and marketing of environmentally sustainable technologies, particularly those related to surface transportation and energy. After receiving an AB in Computer Science from Cornell University, Ed joined Merrill Lynch's Technology Investment Banking Group where he helped complete over $2 billion in financings for clients. Later, at Siebel Systems' product marketing division, he successfully launched enterprise software products used by top financial institutions worldwide. In the summer of 2004, Ed interned at WaveCrest Laboratories, a startup where he helped develop marketing strategy for high efficiency electric motor and battery technologies. At Michigan, Ed is a Wolverine Venture Fund student advisory board member and Energy Club officer. Advisors Professor Thomas P. Lyon Professor Greg A. Keoleian Secondary advisor: Professor Gautam Kaul DTE Hydrogen Energy Project Proposal Marshall Chase, Doug Glancy, Kris Jadd Page 7
