Is Power-to-Gas always beneficial? The implications of ownership structure

Camille Megy and Olivier Massol

Energy Economics, 2023, vol. 128, issue C

Abstract: Power-to-gas (PtG), a technology that converts electricity into hydrogen, is expected to become a core component of future low-carbon energy systems. While its economics and performance as a sector coupling technique have been well studied in the context of perfectly competitive energy markets, the distortions caused by the presence of large strategic players with a multi-market presence have received little attention. In this paper, we examine them by specifying a partial equilibrium model that provides a stylized representation of the interactions among the natural gas, electricity, and hydrogen markets. We calibrate our model using the future Dutch energy system as a reference. Using this model, we compare several possible ownership organizations for PtG to investigate how imperfect competition affects its operations. Evidence gained from these market simulations show that the effects of PtG vary with the multi-market profile of its operator. Producers of fossil-based hydrogen tend to make little use of PtG, whereas renewable power producers use it more to increase the electricity prices. Although PtG operations are profitable and can be welfare-enhancing, welfare distribution among agents is highly unequal when PtG is strategically operated in conjunction with variable renewable generation. In that case, PtG also raises environmental concerns as it stimulates the use of polluting thermoelectric generation.

Keywords: Power-to-Gas; Sector coupling; Hydrogen; Renewable energy sources; Multi-market oligopoly; Mixed complementarity problem (search for similar items in EconPapers)
JEL-codes: C61 C72 D43 L13 L22 Q42 Q55 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Is Power-to-Gas Always Beneficial? The Implications of Ownership Structure (2023)
Working Paper: Is Power-to-Gas always beneficial ? The implications of ownership structure (2023)
Working Paper: Is Power-to-Gas always beneficial? The implications of ownership structure (2023)
Working Paper: Is Power-to-Gas always beneficial? The implications of ownership structure (2023)
Working Paper: Is Power to Gas always Beneficial ? The Implications of Ownership Structure (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:128:y:2023:i:c:s0140988323005923

DOI: 10.1016/j.eneco.2023.107094

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