Investment decisions in imperfect power markets with hydrogen storage and large share of intermittent electricity

This paper analyzes the impact of hydrogen as energy storage on production and investment decisions in an electricity market when individual participants behave strategically. We develop a game-theoretic model on investment and generation game à la Cournot under the open-loop information structure. This framework is implemented as a mixed complementarity problem and applied to the German case assuming the phase-out of the German nuclear power plants, rising renewable energy supply and increasing energy demand for electric vehicles. The numerical results of our analysis indicate that utilization of energy storage has a positive effect on energy systems with large amount of intermittent electricity and inelastic demand. We find that additional hydrogen storage capacities improve system reliability, increase overall welfare and decrease GHG emissions. Adding demand for hydrogen as a fuel for FCEVs allows for a synergetic use of the technology and changes the investment incentives for energy storage. Although the power-to-gas technology has a price-smoothing effect the overall generation capacity is higher with energy storage providing additional supply security in markets with a large amount of intermittent energy production.