Green hydrogen exports in New Zealand and Chile can improve electricity supply security if configured as local energy insurance

Extreme weather events, for example, prolonged droughts, are increasingly stressing electricity systems and threatening the achievement of energy transition goals. At the same time, countries such as Chile and New Zealand are developing strategies to export renewable energy through green hydrogen. This paper economically evaluates the use of future green hydrogen exports as strategic storage under the logic of energy insurance, based on the assumption that Chile and New Zealand will adopt a hydrogen economy. Our first contribution is to compare the marginal costs of re-electrified green hydrogen, for different scenarios, to the value of lost load in New Zealand and Chile. We then determine the marginal cost of energy produced from green hydrogen based on projected production, transportation, and re-electrification costs for the year 2030. Finally, we estimate the eventual penalties that exporters would incur in the case of breaking their contracts and the overall resulting system costs of using hydrogen for system security. We found that re-electrifying hydrogen can be competitive with conventional technologies at 3 USD/kg. At 1.5 USD/kg, hydrogen is more competitive than fossil fuel-based technologies, for both New Zealand and Chile. Thus, in 2030, it could make economic sense for New Zealand and Chile to use hydrogen as a strategic reserve. The system cost of the proposed insurance scheme in 2030 ranges from 0.53 to 1.76 USD/MWh, which is small compared to total electricity costs. These values can be used for power system expansion and operation planning.