IDEAS home Printed from https://ideas.repec.org/p/dui/wpaper/2203.html
   My bibliography  Save this paper

Spatial Incentives for Power-to-hydrogen through Market Splitting

Author

Listed:
  • Marco Sebastian Breder
  • Felix Meurer
  • Michael Bucksteeg
  • Christoph Weber

    (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen)

Abstract

In the context of the energy transition and ambitious decarbonization goals, hydrogen is becoming essential both as a storage option for renewable energy surplus and a green fuel for multiple usages. The European Commission already foresees 40 GW of electrolyzer capacity by 2030, yet their locations will strongly affect the European transmission system. With a view to the ramp-up of power-to-hydrogen, zonal electricity markets with large market zones may fail to provide efficient locational investment incentives. Consequently, the electricity consumption of electrolyzers can reduce grid congestion but can also exacerbate it. Research has recently discussed potential market splits as a mid-term solution to improve congestion management, recognizing that the first-best solution of nodal prices is controversial. Using the example of Germany, this study investigates the impacts of market splitting on the operation and investment in electrolyzers. The optimization approach includes endogenous investment decisions linked to a detailed scheduling model. The results reveal that market splitting supports the efficient integration of electrolyzers into electricity markets, reducing internal congestion and grid expansion needs. Moreover, missing spatial incentives imply a considerable unused potential for the market ramp-up of electrolyzers. From a political perspective, market splitting benefits the system regarding (integration) costs and reduces subsidy requirements for reaching 2030 targets.

Suggested Citation

  • Marco Sebastian Breder & Felix Meurer & Michael Bucksteeg & Christoph Weber, 2022. "Spatial Incentives for Power-to-hydrogen through Market Splitting," EWL Working Papers 2203, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Jul 2022.
    • Handle: RePEc:dui:wpaper:2203
    as

    Download full text from publisher

    File URL: https://www.ewl.wiwi.uni-due.de/fileadmin/fileupload/BWL-ENERGIE/Arbeitspapiere/RePEc/pdf/wp2203_Spatialincentivesforpowertohydrogenthroughmarketsplitting.pdf
    File Function: First Version, 2022
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Trepper, Katrin & Bucksteeg, Michael & Weber, Christoph, 2015. "Market splitting in Germany – New evidence from a three-stage numerical model of Europe," Energy Policy, Elsevier, vol. 87(C), pages 199-215.
    2. Egerer, Jonas & Weibezahn, Jens & Hermann, Hauke, 2016. "Two price zones for the German electricity market — Market implications and distributional effects," Energy Economics, Elsevier, vol. 59(C), pages 365-381.
    3. Zhang, Cong & Greenblatt, Jeffery B. & Wei, Max & Eichman, Josh & Saxena, Samveg & Muratori, Matteo & Guerra, Omar J., 2020. "Flexible grid-based electrolysis hydrogen production for fuel cell vehicles reduces costs and greenhouse gas emissions," Applied Energy, Elsevier, vol. 278(C).
    4. Felling, Tim & Weber, Christoph, 2018. "Consistent and robust delimitation of price zones under uncertainty with an application to Central Western Europe," Energy Economics, Elsevier, vol. 75(C), pages 583-601.
    5. Caroline Deilen, Tim Felling, Robin Leisen, and Christoph Weber, 2019. "Evaluation of Risks for Electricity Generation Companies through Reconfiguration of Bidding Zones in Extended Central Western Europe," The Energy Journal, International Association for Energy Economics, vol. 0(The New E).
    6. Gorre, Jachin & Ortloff, Felix & van Leeuwen, Charlotte, 2019. "Production costs for synthetic methane in 2030 and 2050 of an optimized Power-to-Gas plant with intermediate hydrogen storage," Applied Energy, Elsevier, vol. 253(C), pages 1-1.
    7. Pöstges, Arne & Bucksteeg, Michael & Ruhnau, Oliver & Böttger, Diana & Haller, Markus & Künle, Eglantine & Ritter, David & Schmitz, Richard & Wiedmann, Michael, 2022. "Phasing out coal: An impact analysis comparing five large-scale electricity market models," Applied Energy, Elsevier, vol. 319(C).
    8. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
    9. Xiong, Bobby & Predel, Johannes & Crespo del Granado, Pedro & Egging-Bratseth, Ruud, 2021. "Spatial flexibility in redispatch: Supporting low carbon energy systems with Power-to-Gas," Applied Energy, Elsevier, vol. 283(C).
    10. Ehrenmann, Andreas & Smeers, Yves, 2005. "Inefficiencies in European congestion management proposals," Utilities Policy, Elsevier, vol. 13(2), pages 135-152, June.
    11. Burstedde, Barbara, 2012. "From Nodal to Zonal Pricing - A Bottom-Up Approach to the Second-Best," EWI Working Papers 2012-9, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    12. vom Scheidt, Frederik & Qu, Jingyi & Staudt, Philipp & Mallapragada, Dharik S. & Weinhardt, Christof, 2022. "Integrating hydrogen in single-price electricity systems: The effects of spatial economic signals," Energy Policy, Elsevier, vol. 161(C).
    13. Runge, Philipp & Sölch, Christian & Albert, Jakob & Wasserscheid, Peter & Zöttl, Gregor & Grimm, Veronika, 2019. "Economic comparison of different electric fuels for energy scenarios in 2035," Applied Energy, Elsevier, vol. 233, pages 1078-1093.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kirchem, Dana & Schill, Wolf-Peter, 2023. "Power sector effects of green hydrogen production in Germany," Energy Policy, Elsevier, vol. 182(C).
    2. Titz, Maurizio & Pütz, Sebastian & Witthaut, Dirk, 2024. "Identifying drivers and mitigators for congestion and redispatch in the German electric power system with explainable AI," Applied Energy, Elsevier, vol. 356(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Felling, Tim, 2021. "Development of a genetic algorithm and its application to a bi-level problem of system cost optimal electricity price zone configurations," Energy Economics, Elsevier, vol. 101(C).
    2. Heffron, Raphael J. & Körner, Marc-Fabian & Sumarno, Theresia & Wagner, Jonathan & Weibelzahl, Martin & Fridgen, Gilbert, 2022. "How different electricity pricing systems affect the energy trilemma: Assessing Indonesia's electricity market transition," Energy Economics, Elsevier, vol. 107(C).
    3. Egerer, Jonas & Weibezahn, Jens & Hermann, Hauke, 2016. "Two price zones for the German electricity market — Market implications and distributional effects," Energy Economics, Elsevier, vol. 59(C), pages 365-381.
    4. Kirchem, Dana & Schill, Wolf-Peter, 2023. "Power sector effects of green hydrogen production in Germany," Energy Policy, Elsevier, vol. 182(C).
    5. Bucksteeg, Michael & Voswinkel, Simon & Blumberg, Gerald, 2023. "Improving flow-based market coupling by integrating redispatch potential - Evidence from a large-scale model," EconStor Preprints 270878, ZBW - Leibniz Information Centre for Economics.
    6. Grimm, Veronika & Rückel, Bastian & Sölch, Christian & Zöttl, Gregor, 2021. "The impact of market design on transmission and generation investment in electricity markets," Energy Economics, Elsevier, vol. 93(C).
    7. Ambrosius, M. & Egerer, J. & Grimm, V. & Weijde, A.H. van der, 2020. "Uncertain bidding zone configurations: The role of expectations for transmission and generation capacity expansion," European Journal of Operational Research, Elsevier, vol. 285(1), pages 343-359.
    8. Frederik vom Scheidt & Jingyi Qu & Philipp Staudt & Dharik S. Mallapragada & Christof Weinhardt, 2021. "Integrating Hydrogen in Single-Price Electricity Systems: The Effects of Spatial Economic Signals," Papers 2105.00130, arXiv.org, revised Nov 2021.
    9. Kunz, Friedrich, 2018. "Quo Vadis? (Un)scheduled electricity flows under market splitting and network extension in central Europe," Energy Policy, Elsevier, vol. 116(C), pages 198-209.
    10. Golab, Antonia & Loschan, Christoph & Zwickl-Bernhard, Sebastian & Auer, Hans, 2025. "The value of flexibility of commercial electric vehicle fleets in the redispatch of congested transmission grids," Energy, Elsevier, vol. 316(C).
    11. Bucksteeg, Michael & Voswinkel, Simon & Blumberg, Gerald, 2024. "Improving flow-based market coupling by integrating redispatch potential―Evidence from a large-scale model," Energy Policy, Elsevier, vol. 188(C).
    12. Lang, Lukas Maximilian & Dallinger, Bettina & Lettner, Georg, 2020. "The meaning of flow-based market coupling on redispatch measures in Austria," Energy Policy, Elsevier, vol. 136(C).
    13. Felling, Tim & Weber, Christoph, 2018. "Consistent and robust delimitation of price zones under uncertainty with an application to Central Western Europe," Energy Economics, Elsevier, vol. 75(C), pages 583-601.
    14. Dirk Hladik & Christoph Fraunholz & Matthias Kühnbach & Pia Manz & Robert Kunze, 2020. "Insights on Germany’s Future Congestion Management from a Multi-Model Approach," Energies, MDPI, vol. 13(16), pages 1-27, August.
    15. Jonas Egerer & Jens Weibezahn & Hauke Hermann, 2015. "Two Price Zones for the German Electricity Market: Market Implications and Distributional Effects," Discussion Papers of DIW Berlin 1451, DIW Berlin, German Institute for Economic Research.
    16. Obermüller, Frank, 2017. "Build Wind Capacities at Windy Locations? Assessment of System Optimal Wind Locations," EWI Working Papers 2017-9, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    17. Ambrosius, Mirjam & Grimm, Veronika & Kleinert, Thomas & Liers, Frauke & Schmidt, Martin & Zöttl, Gregor, 2020. "Endogenous price zones and investment incentives in electricity markets: An application of multilevel optimization with graph partitioning," Energy Economics, Elsevier, vol. 92(C).
    18. vom Scheidt, Frederik & Qu, Jingyi & Staudt, Philipp & Mallapragada, Dharik S. & Weinhardt, Christof, 2022. "Integrating hydrogen in single-price electricity systems: The effects of spatial economic signals," Energy Policy, Elsevier, vol. 161(C).
    19. Andreas Ehrenmann & Karsten Neuhoff, 2009. "A Comparison of Electricity Market Designs in Networks," Operations Research, INFORMS, vol. 57(2), pages 274-286, April.
    20. Dietrich, Kristin & Leuthold, Florian & Weigt, Hannes, 2009. "Will the Market Get it Right? The Placing of New Power Plants in Germany," MPRA Paper 65653, University Library of Munich, Germany.

    More about this item

    Keywords

    Hydrogen; German Energy Transition; Electricity Market; Operations Research; Market Split;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dui:wpaper:2203. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Andreas Fritz (email available below). General contact details of provider: https://edirc.repec.org/data/fwessde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.