(62d) Economic Analysis of Integrated Solar Power, Hydrogen Production, and Electricity Markets

The deployment of variable renewable energy (VRE), mostly solar and wind power, sources are playing a pivotal role in expanding and reshaping power systems around the world. For example, in 2019, solar photovoltaic (PV) and wind power are expected to account for about 18% and 46% of the total new electric generation capacity, i.e., 23.7 GW, in the United States, respectively¹. Additionally, driven partially by factors such public and private funded research and development, economy of scales, and learning-by-doing, VRE investment costs have been falling over the past recent decades ^2,3. Indeed, utility-scale solar PV costs in the United States declined about 10%-15% per year between 2010 and 2016 ^4,5. However, the deployment of VREs can be a double-edged sword for the renewable energy industry due to value deflation effect—the value of VREs decreases as its deployment increases^6,7. For instance, large-scale deployment of solar power can lead to a transition from long-term fixed-price power purchase agreements to compensation based on wholesale prices⁷. Thus, the integration of renewable power plants with storage and electrons-to-molecules, e.g., hydrogen electrolysis, systems have been explored in recent studies^8–11.

Here we develop a holistic model-based system analysis to determine the cost-effectiveness of hybrid solar PV and hydrogen electrolysis systems in different electricity markets in California. The system analysis, which is based on an optimization framework, examines different system configurations, locations, incentives, electricity markets, i.e., wholesale and retail markets, financing conditions, and financial incentives. Moreover, sensitivities to energy policies and financial conditions were evaluated to identify cost reduction opportunities. Our results, which are analyzed in terms of hydrogen breakeven cost, indicate that under current market conditions the threshold for the economic viability of electrolytic hydrogen in California ranges from US$ 5.69 kg^-1 to US$ 6.11 kg^-1, depending on the location. These hydrogen prices are cost-competitive with the current supply cost in California.

References

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