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The role of power-to-gas in the future energy system: Market and portfolio effects

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  • Lynch, Muireann
  • Devine, Mel T.
  • Bertsch, Valentin

Abstract

Electricity systems based on renewables have an increasing demand for flexibility. This paper considers the potential of power-to-gas to provide flexibility and enhance system integration of renewables. Existing research on power-to-gas typically analyses the system effects of a predetermined power-to-gas unit without endogenising the investment decision. Moreover, insights related to market and portfolio effects of power-to-gas are rare. To this end this work presents a stochastic electricity market model. Market players considered include generating firms with different generation portfolios and different consumer groups. Firms earn revenues from an energy market, a capacity market and a feed-in premium for renewable generation. They maximise their profits by optimising the operation of existing assets and investing in new generation assets and power-to-gas. Firms with renewable generation benefit from investing in power-to-gas. While the technology itself is loss-making, power-to-gas particularly increases demand and hence prices in low-load hours. Therefore, renewable generation becomes more profitable, which justifies the investment. Metrics such as LCOE, which consider each technology in isolation, fail to capture this effect. The increase in the electricity price results in higher costs to consumers and so the overall transfer from consumers to wind generators increases in the presence of power-to-gas.

Suggested Citation

  • Lynch, Muireann & Devine, Mel T. & Bertsch, Valentin, 2019. "The role of power-to-gas in the future energy system: Market and portfolio effects," Energy, Elsevier, vol. 185(C), pages 1197-1209.
  • Handle: RePEc:eee:energy:v:185:y:2019:i:c:p:1197-1209
    DOI: 10.1016/j.energy.2019.07.089
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    5. Farrell, Niall, 2023. "Policy design for green hydrogen," Renewable and Sustainable Energy Reviews, Elsevier, vol. 178(C).
    6. Mel T. Devine & Valentin Bertsch, 2023. "The role of demand response in mitigating market power: a quantitative analysis using a stochastic market equilibrium model," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 45(2), pages 555-597, June.
    7. Schlund, David & Schönfisch, Max, 2021. "Analysing the impact of a renewable hydrogen quota on the European electricity and natural gas markets," Applied Energy, Elsevier, vol. 304(C).
    8. Schlund, David & Schönfisch, Max, 2021. "Analysing the Impact of a Renewable Hydrogen Quota on the European Electricity and Natural Gas Markets," EWI Working Papers 2021-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    9. Yilmaz, Hasan Ümitcan & Kimbrough, Steven O. & van Dinther, Clemens & Keles, Dogan, 2022. "Power-to-gas: Decarbonization of the European electricity system with synthetic methane," Applied Energy, Elsevier, vol. 323(C).
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    14. Bertsch, Valentin & Devine, Mel, 2019. "The Role of Demand Response in Mitigating Market Power — A Quantitative Analysis Using a Stochastic Market Equilibrium Model," Papers WP635, Economic and Social Research Institute (ESRI).
    15. Daniel Węcel & Michał Jurczyk & Wojciech Uchman & Anna Skorek-Osikowska, 2020. "Investigation on System for Renewable Electricity Storage in Small Scale Integrating Photovoltaics, Batteries, and Hydrogen Generator," Energies, MDPI, vol. 13(22), pages 1-19, November.
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    18. Schlund, David & Theile, Philipp, 2022. "Simultaneity of green energy and hydrogen production: Analysing the dispatch of a grid-connected electrolyser," Energy Policy, Elsevier, vol. 166(C).
    19. Devine, Mel T. & Siddiqui, Sauleh, 2023. "Strategic investment decisions in an oligopoly with a competitive fringe: An equilibrium problem with equilibrium constraints approach," European Journal of Operational Research, Elsevier, vol. 306(3), pages 1473-1494.
    20. Uchman, Wojciech & Skorek-Osikowska, Anna & Jurczyk, Michał & Węcel, Daniel, 2020. "The analysis of dynamic operation of power-to-SNG system with hydrogen generator powered with renewable energy, hydrogen storage and methanation unit," Energy, Elsevier, vol. 213(C).
    21. Zhang, Dongdong & Zhu, Hongyu & Zhang, Hongcai & Goh, Hui Hwang & Liu, Hui & Wu, Thomas, 2022. "An optimized design of residential integrated energy system considering the power-to-gas technology with multi-functional characteristics," Energy, Elsevier, vol. 238(PA).
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