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16.12.2021

New targets for renewables and hydrogen in the coalition treaty: Implications for electricity markets

Oliver Ruhnau, Research Associate and PhD candidate at the Centre for Sustainability, analyzes the electricity market implications of variable renewable energy sources and hydrogen electrolyzers - two of the main energy policy targets specified in the new coalition agreement. 

The recently published research article How flexible electricity demand stabilizes wind and solar market values: the case of hydrogen electrolyzers takes an alternative look at future of electricity markets discussing the interaction of hydrogen electrolyzers and renewable electricity generators. The article follows up on previous research on the effect that renewable market values decline when the market share of renewables increases. Therefore, it has been questioned whether renewable generators can earn back their investment cost in the free market. By contrast, the new paper argues that flexible electricity demand of hydrogen electrolyzers can stabilize electricity market prices and, with it, the revenue of wind and solar power. In other words, the paper suggests that renewable electricity and hydrogen electrolysis can be two important and complementary solutions for the energy transition and climate change mitigation in the future.  

Today, it seems likely that the effects presented in the paper will materialize rather sooner than later. This is because the article assesses the implications of two major energy policy targets specified in the coalition treaty by the new German government: the renewables target in the power sector, which was increased to 80% by 2030, and the hydrogen electrolyzer capacity target, which was doubled from 5 to 10 GW by 2030. Should these goals be realized, we could soon witness the described renewables-hydrogen synergy in reality. 

Furthermore, the article supports the coalition’s aim to jointly deploy of variable renewables and hydrogen electrolysis. Oliver Ruhnau concludes: “As an ideal type of flexible electricity demand, hydrogen electrolyzers are a promising solution for the large-scale integration of renewables into the electricity system, and the simultaneous deployment of variable renewables and flexible electrolyzers appears beneficial from a public economic perspective”. 

The article was published in Applied Energy, a top interdisciplinary journal in the energy field. A previous version of the article was awarded a prize for the second-best student paper at the annual conference of the International Association of Energy Economics. 


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