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Green Ammonia Production in Stochastic Power Markets

Author

Listed:
  • Ezio Lauro

    (School of Computing and Mathematical Sciences, Birkbeck, University of London, London WC1E 7HX, UK
    Centrica Energy, Skelagervej 1, 9000 Aalborg, Denmark)

  • Amélie Têtu

    (Centrica Energy, Skelagervej 1, 9000 Aalborg, Denmark)

  • Hélyette Geman

    (Department of Applied Mathematics and Statistics, Johns Hopkins University, Baltimore, MD 21218, USA
    Ralph O’Connor Sustainable Energy Institute (ROSEI), Johns Hopkins University, Baltimore, MD 21211, USA
    Business School, University of Inland, Vormstuguvegen 2, 2624 Lillehammer, Norway)

Abstract

Real assets in the energy market are subject to ecological uncertainty due to the penetration of renewables. We illustrate this point by analyzing electrolyzers, a class of assets that recently became the subject of large interest, as they lead to the production of the desirable green hydrogen and green ammonia. The latter has the advantage of being easily stored and has huge potential in decarbonizing both the fertilizer and shipping industries. We consider the optimization of green ammonia production with different types of electricity procurement in the context of stochastic power and ammonia markets, a necessary assumption to translate the features of renewable, hence intermittent, electricity. We emphasize the importance of using stochastic prices to model the volatile nature of the price dynamics effectively, illustrating the project risks that hedging activities can mitigate. This study shows the pivotal role of flexibility when dealing with fluctuating renewable production and volatile electricity prices to maximize profits and better manage risks.

Suggested Citation

  • Ezio Lauro & Amélie Têtu & Hélyette Geman, 2024. "Green Ammonia Production in Stochastic Power Markets," Commodities, MDPI, vol. 3(1), pages 1-17, March.
    • Handle: RePEc:gam:jcommo:v:3:y:2024:i:1:p:7-114:d:1352091
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    References listed on IDEAS

    as
    1. Schwartz, Eduardo S, 1997. "The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, vol. 52(3), pages 923-973, July.
    2. Campion, Nicolas & Nami, Hossein & Swisher, Philip R. & Vang Hendriksen, Peter & Münster, Marie, 2023. "Techno-economic assessment of green ammonia production with different wind and solar potentials," Renewable and Sustainable Energy Reviews, Elsevier, vol. 173(C).
    3. repec:dau:papers:123456789/607 is not listed on IDEAS
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