A discussion paper to increase the understanding of the value of flexibility, in the report specifically for electrolyzers
The purpose of this report is to illustrate the value of flexibility, specifically for electrolyzers. The value of the flexibility is quantified as a reduction in the cost per produced unit of hydrogen (LCOH), also considering added costs to unlock the flexibility.
The aim of the report is to initiate a dialogue between Energinet and relevant parties on how the potential flexibility from electrolysis is optimally introduced to the energy system. The flexibility is crucial to cost-efficiently integrate the massive variable renewable production capacities necessary to meet the ambitious climate goals.
Energinet is open to discuss the findings of this specific report, and in general how to assist the integration of electrolysis and green hydrogen, including the potential flexibility that follows.
This report clearly indicates that the lowest possible LCOH is achieved by investing in additional electrolysis capacity (and hydrogen storage if necessary to unlock the flexibility) to harvest the full value of flexibility, compared to the widespread expectation of approximately 6000 full load hours or more.
The value of flexibility introduces a significant reduction for the levelized cost of hydrogen (LCOH) for electrolysis, more than 1 EUR/kg H2 in average across different scenarios. To realize the potential reduction the electrolysis plant must be able to ramp the input electricity (the faster, the larger potential) and additional electrolysis capacity is required.
When discussing flexibility in the electricity system, the primary focus is often implicit flexibility. Implicit flexibility is reacting on price signals, i.e. to consume electricity when the day-ahead prices are low. However, explicit flexibility from electrolyzers is anticipated to enable cost-efficient balancing of a 100 % renewable electricity system while maintaining the high level of security of supply. Explicit flexibility is active participation in markets where a specific flexibility product is traded, i.e. reserves procured by the TSO.
When minimizing the LCOH, the capacity factor of the electrolysis plant often decreases further and the weighted electricity price increases slightly when including revenue from explicit flexibility services compared to considering implicit flexibility only. The reason is that the revenue from explicit services more than counters the effect of slightly higher electricity prices and the increased investment costs, both in electrolysis capacity and storage.
If you have comments, considerations or good ideas for further analysis of the topic, then please reach out to Thomas Dalgas Fechtenburg, firstname.lastname@example.org
For examples of how the explicit flexibility markets (reserves) function, please see our case-examples for different technologies: Case beskrivelser