Following an episode of enthusiasm surrounding the opportunities of green hydrogen to achieve European emission reduction goals and reduce dependence on energy imports, the implementation gap between announced and realised projects mirrors the slowed ramp-up of European green hydrogen production in recent years. The reasons are high and uncertain production and supply cost compared to hydrogen from alternative sources and a limited and uncertain green hydrogen off-take. Both impair the profitability of green hydrogen production and thus hamper a European ramp-up, necessitating high project subsidies to mitigate business risk for green hydrogen projects. As the European regulatory framework requires the primary usage of renewable power via power purchase agreements (PPAs) for green hydrogen production in most European countries and bidding zones, an additional business risk emerges as soon as power sourcing is due.

PPA power sourcing does not only bring the challenge of matching the fluctuating feed-in of renewable energy sources to a relatively flat off-take of big industrial hydrogen consumers. In addition, the exclusive reliance on mainly long-term PPA contracts brings power supply risks due to the inter-year uncertainties regarding weather-reliant PPA power availability. This applies above all as long as short-term PPA contracts are not available and short-term power purchase via the electricity market for compensation is no option, as it is in the case of green hydrogen production. Here, the PPA or the electrolyser operator must bear the risk.

In this work, we show to what extent green hydrogen production cost is affected by inter-year uncertainties of PPA power availability. Furthermore, we quantify possible hydrogen production cost increases when ignoring those uncertainties in the sizing and operation planning of green hydrogen production systems. To solve this issue, we present an optimisation approach to find a robust PPA, electrolyser and hydrogen storage design, considering the inter-year uncertainties. In addition, the effect of different regulatory adjustments on the financial risk of PPA power sourcing for green hydrogen production are evaluated.

The methodological base for our analyses is a linear optimisation model, minimising the installation and operation cost of a hydrogen production system to meet a predefined hydrogen demand in different power purchase scenarios and system configurations. In addition, we use an extended version of our optimisation model that allows a robust design optimisation considering the uncertainties regarding inter-year PPA power availability.

Our results show that considering the inter-year uncertainties of PPA power purchase allows mitigating the business risk of green hydrogen production by avoiding fines for failed hydrogen delivery or hydrogen compensation purchases due to underproduction, which however comes at the cost of PPA and storage oversizing. Adapting the regulatory framework for power purchase for green hydrogen production could decrease green hydrogen production cost by lowering the necessity for costly PPA and storage oversizing. However, an increased emission intensity can result, whereby the magnitude of increase depends on the form of regulatory adaption and the geographical location of the hydrogen production system.