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Green hydrogen investments: Investigating the option to wait

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  • Biggins, Flora
  • Kataria, Mohit
  • Roberts, Diarmid
  • Brown, Dr Solomon

Abstract

Green hydrogen has the potential to play an important role in decarbonising energy systems globally, yet, its deployment remains low. In order to achieve greater roll-out of green hydrogen projects its value should be determined and used to advise industry and policy-makers. Real options (RO) analysis is an increasingly popular method for assessing the value of projects, particularly under uncertain conditions, since it allows for flexible decision making. This work applies an RO method to analyse the value of waiting before investing in a polymer electrolyte membrane (PEM) electrolyser for hydrogen generation at a wind farm. It is found that for wind power purchase agreements (PPAs) greater than £0.03/kWh, RO adds great value to the investment and reduces the chance of a negative investment compared with investing immediately. We explore a specific case study for a medium sized wind farm, with 20 turbines and a PPA of £0.055/kWh. It is found that by waiting to invest until hydrogen prices reach £4.40/kg, the expected value added by a 1000 kW PEM electrolyser increases from -£664 000 to £0. The average wait time is 17 months; however, if the turbine owner waits an average of 32 months, improvements in CAPEX and energy consumption reduce the required hydrogen price to £3.10/kg. This model is simple to use for wind turbine owners and can be adapted to different specifications and levels of risk-aversion. Furthermore, it is found to be robust to varying input parameters such as wind speed, resolution and electrolyser performance.

Suggested Citation

  • Biggins, Flora & Kataria, Mohit & Roberts, Diarmid & Brown, Dr Solomon, 2022. "Green hydrogen investments: Investigating the option to wait," Energy, Elsevier, vol. 241(C).
    • Handle: RePEc:eee:energy:v:241:y:2022:i:c:s0360544221030917
    DOI: 10.1016/j.energy.2021.122842
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    References listed on IDEAS

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    1. Chen, Xiaoyuan & Pang, Zhou & Jiang, Shan & Zhang, Mingshun & Feng, Juan & Fu, Lin & Shen, Boyang, 2023. "A novel LH2/GH2/battery multi-energy vehicle supply station using 100% local wind energy: Technical, economic and environmental perspectives," Energy, Elsevier, vol. 270(C).
    2. Adrian Odenweller & Falko Ueckerdt & Gregory F. Nemet & Miha Jensterle & Gunnar Luderer, 2022. "Probabilistic feasibility space of scaling up green hydrogen supply," Nature Energy, Nature, vol. 7(9), pages 854-865, September.
    3. Tian Zhao & Zhixin Liu, 2023. "Investment Timing Analysis of Hydrogen-Refueling Stations and the Case of China: Independent or Co-Operative Investment?," Energies, MDPI, vol. 16(13), pages 1-17, June.
    4. Ganter, Alissa & Gabrielli, Paolo & Sansavini, Giovanni, 2024. "Near-term infrastructure rollout and investment strategies for net-zero hydrogen supply chains," Renewable and Sustainable Energy Reviews, Elsevier, vol. 194(C).

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