[Paper Review] The Value of Ancillary Services for Electrolyzers

Andrea Gloppen Johnsen, Lesia Mitridati+2 more|arXiv (Cornell University)|Oct 6, 2023

Electric Power System Optimization4 citations

TL;DR

This paper proposes a mixed-integer linear optimization model to evaluate the financial value of ancillary services—frequency containment reserve (FCR) and manual frequency restoration reserve (mFRR)—for electrolyzers in Denmark. By modeling activation-aware bidding strategies, it shows that electrolyzers in DK1 could have earned 57% more profit in 2021 and up to 5.4× more in DK2 in 2022 by participating in these markets, with mFRR activation significantly affecting hydrogen production and profitability estimates.

ABSTRACT

Although primarily designed for hydrogen production, electrolyzers can support power systems by providing various ancillary services, opening new revenue streams that enhance their economic viability. This paper investigates the participation of an electrolyzer in frequency-supporting reserve markets, analyzing how bid structures and activation intensities affect its value. We develop a mixed-integer linear program to co-optimize electricity procurement and reserve provision, and analytically derive the opportunity cost of reserve provision, which determines the optimal bid price. Using historical price and frequency data from western Denmark, we show that asymmetric, hourly reserve products often entail no opportunity cost and can increase profits by up to 47%. However, energy-intensive reserves may disrupt hydrogen production and risk unmet demand. Our findings reveal that flexible bidding can mitigate these risks while maintaining profitability. We also highlight the benefits of diversifying across reserve products and offer two recommendations: System operators should reconsider reserve bid structures to better accommodate electrolyzers, and electrolyzer owners should not overlook energy-intensive reserve services when hydrogen demand is flexible.

Motivation & Objective

• To assess the financial value of ancillary services—FCR and mFRR—for electrolyzers in Denmark, beyond their primary hydrogen production role.
• To address the gap in existing literature by modeling the physical constraints of electrolyzers and the impact of reserve activation on hydrogen output.
• To provide realistic profit bounds by comparing an oracle case (perfect activation insight) with a robust (pessimistic) activation approach.
• To evaluate whether ignoring mFRR activation leads to overestimation of ancillary service value, particularly in energy-intensive reserve markets.
• To inform investment decisions by quantifying the potential revenue boost from grid service participation under realistic operational constraints.

Proposed method

• Develops a mixed-integer linear programming (MILP) model that captures the non-linear efficiency of electrolyzers via piecewise linear approximation.
• Incorporates three operational states—online, standby, and off—along with minimum loading constraints (10%) and transition time delays.
• Introduces activation-aware constraints to model how mFRR and FCR activations affect hydrogen production, preventing overestimation of revenue.
• Uses historical day-ahead, FCR, and mFRR market prices and activation data to conduct ex-post profit analysis.
• Compares profit outcomes across three scenarios: no ancillary services (lower bound), robust activation (α=1), and oracle insight (α=0).
• Applies the model to a 10 MW electrolyzer in DK1 (2021) and DK2 (2022), using bilateral hydrogen contracts at fixed prices.

Figure 1: Distribution of day-ahead, FCR, and upward mFRR prices in $\rm{DK}1$ and $\rm{DK}2$ in $2021$ and $2022$ .

Experimental results

Research questions

• RQ1 How much additional profit could an electrolyzer in Denmark have earned by participating in FCR and mFRR markets in 2021 and 2022?
• RQ2 To what extent does accounting for mFRR activation impact the estimated value of ancillary services and hydrogen production reliability?
• RQ3 What is the difference in profit between a pessimistic (robust) activation model and an optimistic (oracle) model for ancillary service participation?
• RQ4 How do FCR and mFRR prices influence the relative contribution of each service to total ancillary service revenue?
• RQ5 What are the risks of overestimating ancillary service value if activation effects on hydrogen output are ignored?

Key findings

• An electrolyzer in DK1 could have earned 57% more profit in 2021 by providing FCR and mFRR services, with FCR being the primary driver due to higher prices.
• In DK2 for 2022, the profit increase was substantial: 2.7× with a robust activation model and 5.4× in the oracle case, indicating high potential value.
• Ignoring mFRR activation leads to significant overestimation of value, as it can cause unmet hydrogen demand—82 tonnes of hydrogen were unmet in the mFRR-only case in 2022.
• The robust activation approach (α=1) increased profit from 0.9 to 2.5 million EUR for a dual-market participation case, demonstrating financial viability.
• FCR prices were several times higher than mFRR prices, making FCR the dominant contributor to ancillary service revenue in both 2021 and 2022.
• The study highlights that high ancillary service prices in 2022 may not be sustainable, and future analysis must account for price trends and market integration across Europe.

Figure 3: Ex-post annual profit in $\rm{DK}1\ 2021$ and $\rm{DK}1\ 2022$ .