Long-term investment and energy procurement risk management under uncertainty for an electrolytic green hydrogen producer

Green hydrogen production by electrolysis is considered essential for global climate ambitions, however development of the industry is lagging behind expectations due to the perceived financial risk for individual projects. For new bilateral Hydrogen Purchase Agreements (HPA's), green hydrogen project proponents will seek to manage operating cost risks using investment in flexible assets, and energy hedging - two sets of decisions that are usually considered separately, but are co-optimised in this study to form a comprehensive asset sizing and procurement strategy. A 2-stage market-focused stochastic program is developed to model a hydrogen producer supplying an industrial customer, including hydrogen storage, and energy hedging using Power Purchase Agreements (PPA's) and power futures. The effects of uncertainty in renewable production, market prices, and hydrogen demand are studied. Several planning methods are tested on the model, benchmarking stochastic methods against simpler methods that are common in literature and in industry. Finally, the model is applied to several regulatory contexts discernible in the European green hydrogen classification rules (Renewable Fuel of Non-Biological Origin, RFNBO). The results show that in less complex cases, simple rule-based hedging methods can be effective, while in cases with demand uncertainty stochastic models are advantageous. The results also suggest that new green hydrogen subsidies are likely to stimulate demand for technologically and geographically diverse PPA portfolios.