Profitability vs. emission intensity: Electrolysis strategies in Germany's evolving hydrogen market

Green hydrogen is a key energy carrier in the transition to a low-carbon economy, with significant potential to decarbonize multiple sectors. However, large-scale deployment in Europe faces challenges related to renewable electricity volatility, hydrogen certification complexities, and evolving legislative frameworks. This paper presents a techno-economic Mixed-Integer Linear Programming optimization model to evaluate the economic viability and the emission intensity of electrolyser systems within Europe’s energy landscape. The study assesses four distinct operational strategies under the Renewable Energy Directive II and its Delegated Acts: (i) static operation using grid mix-based electricity, (ii) static operation with 24/7 Carbon-Free Energy Power Purchase Agreements (CFE PPAs), (iii) flexible operation optimized for Day-Ahead Market prices, and (iv) flexible operation incorporating revenue stacking from hydrogen sales and power system ancillary services. The model is applied to a case study in Germany, revealing a positive association between profitability metrics (Net Present Value, Internal Rate of Return, Return on Investment, Levelized Cost of Hydrogen) and hydrogen’s emission intensity (Levelized CO 2 Emission Intensity of Hydrogen). Sensitivity analysis highlights how economic and environmental outcomes are influenced by system boundaries, offering valuable insights for policymakers and industry stakeholders. This study contributes to the advancement of the hydrogen economy by optimizing electrolysis strategies that balance profitability and hydrogen emission intensity while remaining consistent with European regulatory frameworks. • A MILP optimization model evaluates electrolysis strategies under EU RED II rules. • Four operating strategies balance hydrogen production profitability and sustainability. • Revenue-stacking with ancillary services enhances electrolyser economic performance. • Trade-offs exist between Net Present Value and carbon intensity in hydrogen production. • Flexibility in electrolyser operation optimizes market participation and grid balancing.