Synergistic Value in Vertically Integrated Power‐to‐Gas Energy Systems

Abstract

In vertically integrated energy systems, integration frequently entails operational gains that must be traded off against the requisite cost of capacity investments. In the context of the model analyzed in this study, the operational gains are subject to inherent volatility in both the price and the output of the intermediate product transferred within the vertically integrated structure. Our model framework provides necessary and sufficient conditions for the value (NPV) of an integrated system to exceed the sum of two optimized subsystems on their own. We then calibrate the model in Germany and Texas for systems that combine wind energy with Power‐to‐Gas (PtG) facilities that produce hydrogen. Depending on the prices for hydrogen in different market segments, we find that a synergistic investment value emerges in some settings. In the context of Texas, for instance, neither electricity generation from wind power nor hydrogen production from PtG is profitable on its own in the current market environment. Yet, provided both subsystems are sized optimally in relative terms, the attendant operational gains from vertical integration more than compensate for the stand‐alone losses of the two subsystems.

Energy Conversion and Storage: The Value of Reversible Power-to-Gas Systems

“…Several promising avenues for future research emerge from our analysis. Earlier work has shown that the economics of electrolyzers can be improved by vertically integrating them with upstream renewable energy sources in order to achieve operational synergies 44 . It remains to be seen to what extent the addition of a renewable power source, beyond purchases from the grid, would improve the capacity utilization of a reversible PtG system and, therefore, lower the corresponding break-even values.…”

Business Models and Profitability of Energy Storage

“…Moreover, regulators could revisit markups on wholesale electricity prices, such as taxes and fees, that may impede storage investments through the curtailment of available revenue streams in a jurisdiction. For instance, before the modification of the Renewable Energy Act in 2017, storage facilities in Germany were considered as final consumers and, consequently, paid all regulatory price markups for the electricity used for charging ( EEG, 2017 ; Glenk and Reichelstein, 2020 ).…”

Cost Dynamics of Clean Energy Technologies

“…In estimating the learning curve for PEM electrolyzers, we rely on global average system prices that were hand-collected from journal articles, technical reports, and interviews with manufacturers (Glenk and Reichelstein 2020 ). Detailed information regarding the underlying manufacturing costs has remained scarce.…”

“…For the electrolyzer to operate efficiently, the conversion value of hydrogen, defined as the amount of hydrogen obtained per kWh less any ancillary expenses for iodized water, must at any given hour exceed the price of electricity at that time. The contribution margin of hydrogen thus varies over time and hinges on the price of electricity as well as the time-invariant conversion rate that determines the number of kilograms of hydrogen obtained from one kWh of electricity (Glenk and Reichelstein 2020 ).…”