Economic performance evaluation of flexible centralised and decentralised blue hydrogen production systems design under uncertainty

Davis Bigestans, Michel-Alexandre Cardin and Nikolaos Kazantzis

Applied Energy, 2023, vol. 352, issue C, No S0306261923013089

Abstract: Blue hydrogen is viewed as an important energy vector in a decarbonised global economy, but its large-scale and capital-intensive production displays economic performance vulnerabities in the face of increased market and regulatory uncertainty. This study analyses flexible (modular) blue hydrogen production plant designs and evaluates their effectiveness to enhance economic performance under uncertainty. The novelty of this work lies in the development of a comprehensive techno-economic evaluation framework that considers flexible centralised and decentralised blue hydrogen plant design alternatives in the presence of irreducible uncertainty, whilst explicitly considering the time value of money, economies of scale and learning effects. A case study of centralised and decentralised blue hydrogen production for the transport sector in the San Francisco area is developed to highlight the underlying value of flexibility. The proposed methodological framework considers various blue hydrogen plant designs (fixed, phased, and flexible) and compares them using relevant economic indicators (net present value (NPV), capex, value-at-risk/gain, etc.) through a detailed Monte Carlo simulation framework. Results indicate that flexible centralised hydrogen production yields greater economic value than alternative designs, despite the associated cost-premium of modularity. It is also shown that the value of flexibility increases under greater uncertainty, higher learning rates and weaker economies of scale. Moreover, sensitivity analysis reveals that flexible design remains the preferred investment option over a wide range of market and regulatory conditions except for high initial hydrogen demand. Finally, this study demonstrates that major regulatory and market uncertainties surrounding blue hydrogen production can be effectively managed through the application of flexible engineering system design that protects the investment from major downside risks whilst allowing access to favourable upside opportunities.

Keywords: Flexible engineering system design; Blue hydrogen; Centralised and decentralised production; Real options analysis; Uncertainty; Monte Carlo simulations (search for similar items in EconPapers)
JEL-codes: C15 L71 O22 Q41 Q47 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.apenergy.2023.121944

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