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Synergistic Value in Vertically Integrated Power‐to‐Gas Energy Systems
Author(s) -
Glenk Gunther,
Reichelstein Stefan
Publication year - 2020
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/poms.13116
Subject(s) - vertical integration , power to gas , volatility (finance) , electricity , context (archaeology) , environmental economics , wind power , computer science , electric power system , electricity market , electricity price , electricity generation , system integration , value (mathematics) , industrial organization , economics , business , power (physics) , econometrics , electrical engineering , engineering , electrolysis , chemistry , electrolyte , biology , operating system , paleontology , quantum mechanics , machine learning , physics , electrode
In vertically integrated energy systems, integration frequently entails operational gains that must be traded off against the requisite cost of capacity investments. In the context of the model analyzed in this study, the operational gains are subject to inherent volatility in both the price and the output of the intermediate product transferred within the vertically integrated structure. Our model framework provides necessary and sufficient conditions for the value (NPV) of an integrated system to exceed the sum of two optimized subsystems on their own. We then calibrate the model in Germany and Texas for systems that combine wind energy with Power‐to‐Gas (PtG) facilities that produce hydrogen. Depending on the prices for hydrogen in different market segments, we find that a synergistic investment value emerges in some settings. In the context of Texas, for instance, neither electricity generation from wind power nor hydrogen production from PtG is profitable on its own in the current market environment. Yet, provided both subsystems are sized optimally in relative terms, the attendant operational gains from vertical integration more than compensate for the stand‐alone losses of the two subsystems.