Market integration of power-to-gas during the energy transition—Assessing the role of carbon pricing

Michael Bucksteeg, Jennifer Mikurda and Christoph Weber

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: The expansion of wind and solar energy has primarily led to the decarbonisation of the electricity sector. Against this background, power-to-gas (PtG) is seen as a solution supporting the decarbonisation of other sectors, such as heating or transport. As the generation mix will transitionally be based on conventional generation technologies, the upcoming integration of PtG into electricity markets comes with several challenges. Notably, the design of environmental levies and carbon pricing should create efficient incentives for the utilisation of PtG, reflecting the value of the CO2 emissions avoided by hydrogen or methane. This contribution studies the role of the regulatory framework in the integration of PtG, with special attention to carbon pricing. We extend an optimisation model by the PtG technology and competing flexibilities, such as storage or demand-side management. We develop several scenarios with regard to levies, levels of CO2 price, techno-economic parameters of flexibilities and shares of variable renewable energy sources for the year 2025. We find that carbon pricing that considers the value of the CO2 emissions avoided by hydrogen or methane supports the market integration of PtG, whereas too low CO2 prices might lead to adverse effects. Subsequently, implications for energy policy are discussed.

Keywords: electricity market model; carbon pricing; power-to-gas; energy policy (search for similar items in EconPapers)
JEL-codes: Q4 Q5 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:242982

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