How Flexible Electricity Demand Stabilizes Wind and Solar Market Values: The Case of Hydrogen Electrolyzers

Wind and solar energy are often expected to fall victim to their own success: the higher their share in electricity generation, the more their revenue in electricity markets (their “market value”) declines. While market values may converge to zero in conventional power systems, this study argues that “green” hydrogen production can effectively and permanently halt the decline by adding flexible electricity demand in low-price hours. To support this argument, this article further develops the merit order model and uses price duration curves to include flexible hydrogen electrolysis and to derive an analytical formula for the minimum market value of renewables in the long-term market equilibrium. This hydrogen-induced minimum market value is quantified for a wide range of parameters using Monte Carlo simulations and complemented with results from a more detailed numerical electricity market model. It is shown that—due to flexible hydrogen production alone—market values across Europe will likely stabilize above €19 ± 9 MWh− 1 for solar energy and above €27 ± 8 MWh− 1 for wind energy in 2050 (annual mean estimate ± standard deviation). This is in the range of the projected levelized cost of renewables, and other types of flexible electricity demand may further increase renewable market values. Market-based renewables may hence be within reach.