The Value of Ancillary Services for Electrolyzers

TL;DR

This paper explores how electrolyzers can participate in ancillary services markets to improve profitability, analyzing bid strategies and market data to optimize their economic contribution without disrupting hydrogen production.

Contribution

It develops a mixed-integer linear program for co-optimizing electricity procurement and reserve provision, and provides analytical insights into optimal bidding strategies for electrolyzers.

Findings

Asymmetric hourly reserve products can increase profits by up to 47%.

Flexible bidding mitigates risks of energy-intensive reserves disrupting hydrogen production.

Diversification across reserve products enhances electrolyzer profitability.

Abstract

Although primarily designed for hydrogen production, electrolyzers can support power systems by providing various ancillary services, opening new revenue streams that enhance their economic viability. This paper investigates the participation of an electrolyzer in frequency-supporting reserve markets, analyzing how bid structures and activation intensities affect its value. We develop a mixed-integer linear program to co-optimize electricity procurement and reserve provision, and analytically derive the opportunity cost of reserve provision, which determines the optimal bid price. Using historical price and frequency data from western Denmark, we show that asymmetric, hourly reserve products often entail no opportunity cost and can increase profits by up to 47%. However, energy-intensive reserves may disrupt hydrogen production and risk unmet demand. Our findings reveal that flexible bidding can mitigate these risks while maintaining profitability. We also highlight the benefits of diversifying across reserve products and offer two recommendations: System operators should reconsider reserve bid structures to better accommodate electrolyzers, and electrolyzer owners should not overlook energy-intensive reserve services when hydrogen demand is flexible.