A Joint Supply Function Equilibrium Model for the Hydrogen and Electricity Markets

Abstract

Hydrogen is emerging as a key energy carrier in the global transition toward decarbonization. The production of green hydrogen, derived via electrolysis powered by renewable energy, links hydrogen and electricity markets, creating interdependencies that influence market dynamics. Traditional models, such as the Cournot framework, have been used to analyze these markets but often fail to account for the dynamic nature of supply price adjustments inherent in Supply Function Equilibrium (SFE) models. While SFE models have been widely applied to electricity markets, their integration into joint hydrogen and electricity market modeling remains unexplored. This paper proposes a novel SFE model to represent the strategic behavior of market participants in both hydrogen and electricity markets. By leveraging an equivalent Non-Linear Mathematical Programming (MP) problem, the joint SFE conditions are reformulated under specific assumptions. These SFE conditions are solved through a linearization process that is applied to the Iberian Electricity Market (MIBEL) in a real-world case study, providing valuable insights into market dynamics and the role of green hydrogen in achieving decarbonization targets. The results highlight the potential of the proposed framework to inform policy and market design, addressing a critical gap in the existing literature on integrated hydrogen and electricity market modeling.