A sequential real options analysis for renewable power-to-hydrogen plants for Germany and California

Paul Fabianek, Barbara Glensk and Reinhard Madlener

Renewable and Sustainable Energy Reviews, 2024, vol. 192, issue C

Abstract: The novelty of large-scale green hydrogen technology with its numerous applications, and the competition with well-entrenched conventional technologies, still makes it difficult to operate renewable power-to-hydrogen (P2H) plants profitably. In this study, sequential investments in the P2H plants are investigated using a Real Options approach. The analysis addresses the question of what the optimal timing is for sequential investments in P2H modules that enable hydrogen feed-in into the gas grid in Germany and California, both pioneers in the sustainable energy transition. Choosing this approach, the uncertain and largely irreversible character of the P2H investments is tackled. Since the focus is on substituting natural gas by adding green hydrogen to the gas grid, the underlying asset considered as stochastic is the price of natural gas. It is modeled by applying a geometric Brownian motion process. The analysis conducted reveals that for both California and Germany polymer electrolyte membrane (PEM) electrolyzer systems are uneconomical in the foreseeable future, at least based on the assumptions made in the case studies. The required natural gas price level that would enable economic viability of gas grid feed-in exceeds the level of today's natural gas prices many times over. Without policy support (e.g., subsidies or quotas for green hydrogen, sufficiently high carbon tax), or an increased willingness to pay for green fuel on the customers' side, it is unlikely that the required minimum hydrogen price level for profitable business will be reached any time soon.

Keywords: Real options analysis; Hydrogen; Germany; California; PEM electrolyzer (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1364032123010171
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:rensus:v:192:y:2024:i:c:s1364032123010171

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/600126/bibliographic
http://www.elsevier. ... 600126/bibliographic

DOI: 10.1016/j.rser.2023.114159

Access Statistics for this article

Renewable and Sustainable Energy Reviews is currently edited by L. Kazmerski

More articles in Renewable and Sustainable Energy Reviews from Elsevier
Bibliographic data for series maintained by Catherine Liu ().