Dual Sourcing of Green Hydrogen: Balancing Local Production with Stochastic Capacity and Import with Random Yield

TL;DR

This paper develops optimal dual sourcing policies for green hydrogen, balancing local stochastic production with import reliability, to reduce costs and improve stability in supply chains, with practical heuristics and case study insights.

Contribution

It introduces a Markov Decision Process model for dual sourcing of green hydrogen considering stochastic local capacity and import yield, along with heuristic policies for practical application.

Findings

Dual sourcing reduces costs by 8% on average.

Heuristic policies perform near optimally under various conditions.

Sensitivity analysis guides local production and investment planning.

Abstract

Green hydrogen is a critical component for achieving the European Union's 2050 net-zero emissions goal. However, ensuring a reliable and stable supply is challenging, particularly when local production of green hydrogen is subject to high variability due to fluctuating renewable energy output. Although importing from regions with stable renewable resources may offer greater reliability, they introduce longer lead times and potential energy losses during transportation and conversion. To address this issue, we develop optimal dual sourcing policies for green hydrogen through modeling and solving a Markov Decision Process that integrates general lead times, stochastic local supply capacity, and random yield from import. Alongside optimal dual sourcing policies, we propose heuristic policies that offer both flexibility and stability, enabling practical implementation while achieving near-optimal performance. We test our framework on a case study for the Netherlands and obtain the following insights: (i) based on the results across different countries and cost settings, our dual sourcing model demonstrates an average cost benefit of 8 percent compared to models that ignore stochastic supply capacity and random yield, (ii) the proposed heuristic policies can perform comparably to optimal policies under varying country-specific conditions and cost settings, offering insights for shaping hydrogen trade agreements between importing and exporting countries, (iii) sensitivity analyses on production and storage costs, as well as variability in supply capacity, demand, and random yield, reveal the conditions needed to achieve specific local production levels. These results thereby support feasibility of the Netherlands' climate scenarios and ambitions while guiding green hydrogen investment planning.