Hedging hydrogen: Planning and contracting under uncertainty for a green hydrogen producer

Owen Palmer (), Hugo Radet, Simon Camal (), Jalal Kazempour and Robin Girard ()
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Owen Palmer: PERSEE - Centre Procédés, Énergies Renouvelables, Systèmes Énergétiques - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres
Simon Camal: PERSEE - Centre Procédés, Énergies Renouvelables, Systèmes Énergétiques - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres
Robin Girard: PERSEE - Centre Procédés, Énergies Renouvelables, Systèmes Énergétiques - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres

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Abstract: Green hydrogen production by water electrolysis using renewable electricity is considered essential for decarbonisation of certain sectors of the global economy, however development of the industry is lagging behind expectations due to the perceived financial risk for individual projects. This risk stems from a number of uncertainties, including future hydrogen demand, variable renewable energy sources, and volatile energy market prices. The interaction of these uncertainties is complex, yet the analysis of hydrogen projects is often carried out using simplified modelling that often omits uncertainty and/or energy hedging practices which are typical for intensive power consumers. In this study, we define a set of planning methods (planning policies) in order to compare the effectiveness of different modelling approaches. We propose a 2-stage market-focused stochastic program to represent a hydrogen producer supplying an industrial customer through a hydrogen offtake contract (a Hydrogen Purchase Agreement, or HPA). The model can be used to obtain equipment sizing decisions, as well as energy hedging decisions using Power Purchase Agreements (PPA's) and power futures. We find that for some HPA contract types, failure to use stochastic modelling can lead to planning decisions that result in 30% higher production costs during scenario stress-testing for the same project. This could lead to some projects being discarded by developers, incorrectly deemed to be unviable due to cost projections being too high. The results also show the importance of HPA contract volumetric obligations in limiting demand uncertainty.

Date: 2025-12
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Published in Energy Economics, 2025, 152 (108981), ⟨10.1016/j.eneco.2025.108981⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05341060

DOI: 10.1016/j.eneco.2025.108981

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