Development of a pricing mechanism for valuing ancillary, transportation and environmental services offered by a power to gas energy system

Power to gas is a novel energy storage concept that can help in providing energy storage and offer sustainable and efficient alternative ways to utilize the surplus electricity generated by the provincial grid of Ontario, Canada. This situation of 'surplus electricity' also exists elsewhere as there in increasing intermittent renewable power on various grids. The ability of the power to gas energy hubs to utilize the existing natural gas distribution and storage network (within the province) to distribute and store the electrolytic hydrogen produced is one of its major advantages. In this study an optimization model of a power to gas energy hub having a hydrogen production module capacity of 2 MW has been developed. The goal of the optimization study is to carry out an economic feasibility of the energy hub under existing pricing mechanisms for the three primary services that it provides, namely: 1) Offsetting CO2 emissions at natural gas end users by providing hydrogen enriched natural gas; 2) Providing demand response when directed by the Independent Electricity System Operator of the province, and 3) Providing pure hydrogen to a fuel cell vehicle refueling station. It is observed that current pricing mechanisms are not valued high enough for the power to gas energy hub to be economically feasible and payback periods longer than the project lifetime (20 years) have been observed. Therefore, through a post-processing economic calculation, the additional monetary incentive required for the energy hub to achieve a NPV equal to zero for shorter project lifetimes of 8, 9 and 10 years have been calculated. The required additional monetary incentives (for the new project lifetimes) have then been split proportionally to the share of the revenues earned by the energy hub while providing each of the three services. Through this, the existing pricing mechanisms have been scaled up and a new pricing mechanism has been developed that highlights the monetary requirements of a power to gas energy hub to be economically feasible. It is seen that the required increase in the pricing of the three different services offered by the energy hub are reasonable and lie within the ranges proposed for them in coming years. (C) 2017 Elsevier Ltd. All rights reserved.