A Cournot joint equilibrium model for the medium-term hydrogen and electricity markets

Abstract

Hydrogen has the potential to play a significant role in the energy transition, helping, on the one hand, to decarbonize hard-to-abate sectors such as the energy industry and, on the other hand, as a further alternative for the storage of surplus production with the possibility of flexibility provision [1]. However, hydrogen is still grey, meaning that it is mainly produced by methods that release greenhouse gases. Fortunately, green hydrogen is becoming a clear alternative for hydrogen production via electrolysis powered by electricity from renewable energy sources. Given this new paradigm, present in the strategic energy plans of many countries, more and more companies, including those in the electricity business, are considering their participation in the hydrogen sector. The Hydrogen Strategy of the European Commission, announced in July 2020, aims to support the development of a competitive hydrogen market in Europe as it has been done for the electricity and gas markets. However, current hydrogen trading mechanisms, based on bilateral agreements [2], are far from being an integrated hydrogen market [3], and the trading data are not public, making future hydrogen market modelling a hard task. In particular, market model approaches based on bidding curves, such as conjectural or supply function Nash equilibria, cannot be yet used to help understand the interactions between the electricity and the hydrogen markets. As an alternative to these approaches, this paper proposes a joint Cournot equilibrium model of both markets for medium-term horizons, which does not need the estimation of bidding curves, and taking into account the operational constraints of the hydrogen and electricity productions, such as unit commitment constraints. Apart from grey hydrogen costs, the model represents endogenously the dependency of green hydrogen costs on the electricity price and vice-versa. To simplify its resolution, the model is transformed into an equivalent quadratic optimization problem that can be solved using commercial software without the use of derivatives. To validate and assess the model performance, and to analyze the interactions between both commodities, a real size MIBEL-like system is solved in the case studies. The model outputs provide valuable insights into the electricity and hydrogen markets and might help to inform regulatory decision-making, pricing strategies and forecasting.