Will hydrogen prolong the price coupling between gas and electricity?

Currently, market prices of methane gas influence prices of electricity. In future energy markets, the influence may be bidirectional via the energy carrier hydrogen, which can be produced both from electricity and methane. To investigate how future hydrogen deployment may affect market prices, we develop a numerical model of coupled spot markets of electricity, methane gas, and hydrogen, where wholesale hydrogen is assumed to be traded on an hourly market with elastic demand in an equilibrium model with conjectural variations. While our numerical study is stylized, input data reflects the Central Western Europe region, and we consider an exogenous energy-systems’ capacity expansion scenario in years 2040 and 2050 under a stringent climate policy. We consider price changes induced by switching off electrolyzers and hydrogen storage, and by increasing import gas prices. While electrolyzers lower hydrogen prices and increase electricity prices, they also increase electricity price volatility in our model because peak-demand periods of electricity and hydrogen may intersect. Storage of hydrogen barely reduces the short-term volatility of electricity prices. By allowing hydrogen production other than through electrolyzers, price influences become complex: for example, hydrogen storage favors mostly steam-methane reforming, and electrolyzers amplify electricity price hikes under gas import price hikes. Hence, future market designs for promoting renewables may consider guidelines on the usage of hydrogen storage and may closely monitor the marginal technologies that determine the prices on the hydrogen and electricity markets.