Optimizing hybrid offshore wind farms for cost-competitive hydrogen production in Germany

Abstract

Nearly 96% of the world's current hydrogen production comes from fossil-fuel-based sources, contributing to global greenhouse gas emissions. Hydrogen is often discussed as a critical lever in decarbonizing future power systems. Producing hydrogen using unsold offshore wind electricity may offer a low-carbon production pathway and emerging business model. This study investigates whether participating in an ancillary service market is cost competitive for offshore wind-based hydrogen production. It also determines the optimal size of a hydrogen electrolyser relative to an offshore wind farm. Two flexibility strategies for offshore wind farms are developed in this study: an optimal bidding strategy into ancillary service markets for offshore wind farms that build hydrogen production facilities and optimal sizing of Power-to-Hydrogen (PtH) facilities at wind farms. Using empirical European power market and wind generation data, the study finds that offshore-wind based hydrogen must participate in ancillary service markets to generate net positive revenues at current levels of wind generation to become cost competitive in Germany. The estimated carbon abatement cost of “green” hydrogen ranges between 187 EUR/tonCO2e and 265 EUR/tonCO2e. Allowing hydrogen producers to receive similar subsidies as offshore wind farms that produce only electricity could facilitate further cost reduction. Utilizing excess and intermittent offshore wind highlights one possible pathway that could achieve increasing returns on greenhouse gas emission reductions due to technological learning in hydrogen production, even under conditions where low power prices make offshore wind less competitive in the European electricity market.