Hydrogen storage for wind parks: A real options evaluation for an optimal investment in more flexibility

Daniel Kroniger and Reinhard Madlener

Applied Energy, 2014, vol. 136, issue C, 946 pages

Abstract: In this paper, we investigate the economic viability of hydrogen storage for excess electricity produced in wind power plants. For the analysis, we define two scenarios (50MW system with and without re-electrification unit) and apply Monte Carlo simulation and real options analysis (ROA) to compute hourly profits under uncertainty regarding wind speed, spot market electricity prices, and call of minute reserve capacity. Hydrogen as a storage medium helps to either (1) increase capacity utilization of the wind park in case of grid disconnection; (2) to offer minute reserve; or (3) to exploit temporal price arbitrage at the electricity spot market; additionally, hydrogen can also be directly sold as a commodity. We find that power-to-power operation is highly uneconomical under current framework conditions in Germany, irrespective of potential energy efficiency gains. Interestingly, due to counterbalancing effects, offshore wind parks are found to have only a modest economic advantage compared to onshore ones. The power-to-fuel plant can be operated profitably (at hydrogen prices of more than 0.36€m−3 and a 100% utilization of the electrolyzer) if hydrogen is directly marketed instead of used to store and re-generate electrical energy. The ROA recommends investment in a storage device without re-electrification unit beyond an expected project value that is about twice the investment cost of the storage device, a figure which is reduced markedly as conversion efficiency rises, assuming technical change to come at no cost for the investor, i.e. as being exogenous.

Keywords: Wind power; Hydrogen storage; Real options analysis; Optimal investment decision-making (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (46)

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Working Paper: Hydrogen Storage for Wind Parks - A Real Options Evaluation for an Optimal Investment in More Flexibility (2013)
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DOI: 10.1016/j.apenergy.2014.04.041

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