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Is Power to Gas always Beneficial ? The Implications of Ownership Structure

Author

Listed:
  • Camille Megy

    (LGI - Laboratoire Génie Industriel - CentraleSupélec - Université Paris-Saclay, IFPEN - IFP Energies nouvelles, IFP School)

  • Olivier Massol

    (IFPEN - IFP Energies nouvelles, IFP School, LGI - Laboratoire Génie Industriel - CentraleSupélec - Université Paris-Saclay, City University London)

Abstract
Power-to-gas (PtG), a technology that converts electricity into hydrogen, is expected to become a core component of future low-carbon energy systems. While its economics and performance as a sector coupling technique have been well studied in the context of perfectlycompetitive energy markets, the distortions caused by the presence of large strategic players with a multi-market presence have received little attention. In this paper, we examine them by specifying a partial equilibrium model that provides a stylized representation of the interactions among the natural gas, electricity, and hydrogen markets. Using that model, we compare several possible ownership organizations for PtG to investigate how imperfect competition affects its operations. Evidence gained from these market simulations show that the effects of PtG vary with the multi-market profile of its operator. Producers of fossil-based hydrogen tend to make little use of PtG, whereas renewable power producers use it more to increase the electricity prices. Although PtG operations are profitable and can be welfare-enhancing, the social gain is either very tiny or negative when PtG is strategically operated in conjunction with variable renewable generation. In that case, PtG also raises environmental concerns as it stimulates the use of polluting thermoelectric generation.

Suggested Citation

  • Camille Megy & Olivier Massol, 2023. "Is Power to Gas always Beneficial ? The Implications of Ownership Structure," Working Papers hal-04087442, HAL.
    • Handle: RePEc:hal:wpaper:hal-04087442
    Note: View the original document on HAL open archive server: https://ifp.hal.science/hal-04087442
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    References listed on IDEAS

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    More about this item

    Keywords

    Power-to-Gas; Sector Coupling; Hydrogen; Renewable Energy Sources; Multi-Market Oligopoly; Mixed Complementarity Problem;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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