The absence of a liquid market for renewable hydrogen causes uncertainty in the revenue stream for early water electrolysis facilities in the Netherlands, and a highly volatile day-ahead market causes uncertainty in production costs.

The EU is promoting renewable hydrogen projects to engage in bilateral contracts to mitigate these uncertainties. Hydrogen Purchase Agreements (HPA) can be used to secure an offtaker and a price, reducing demand and price uncertainty. While a Power Purchase Agreement (PPA) secures a renewable power supply and mitigates price uncertainty, the inherent volume uncertainty of renewable energy sources (RES) remains a significant challenge.

This challenge is exacerbated by the requirement of most offtakers to be supplied with a consistent baseload volume. The hydrogen producer is thus tasked with creating a consistent supply of hydrogen out of an intermittent supply of renewable power and takes on the volume risk of renewable power. It is not yet clear how this and other offtake requirements affect the production cost of hydrogen.

The main question of this thesis was: "How are the hydrogen production costs under a long-term hydrogen purchase agreement affected by the offtake volume, offtake profile, the availability of hydrogen storage, and the type and size of the RES portfolio?"

This thesis utilizes mathematical optimization to quantify the impact of these offtake requirements on the levelized cost of hydrogen (LCOH). The dispatch of the electrolyzer and the operation of the storage is the central decision in the model. Through a case study, the sensitivity of the LCOH with respect to the offtake volume, the size of the RES portfolio, and the size of the storage is determined.

The results show that the LCOH increases by 11–28% if a baseload profile is required and no hydrogen storage is available. Access to an optimal amount of hydrogen storage reduces the extra costs to 2–8%. To achieve the maximum benefit from hydrogen storage, the outflow capacity should be larger than the baseload volume so that the storage can accommodate the entire demand at times when power prices are high. Our results also show that with the current investment costs, the utilization factor plays a significant role in the final LCOH, with a utilization factor of 90% leading to the lowest overall LCOH, even though the average power price at this point is much higher than at lower utilization factors.

Future research could explore different project ownership structures for electrolyzer facilities and quantify the difference in costs. Alternatively, a complete risk analysis using Monte Carlo simulations could be performed. The addition of a more dynamic market model would also enhance the value of the analysis, as would the inclusion of more markets, such as intraday and balancing. Future studies could also assess the impact of linepack flexibility services in hydrogen pipelines on the need for storage.

The Green Deal (Fetting, 2020), initiated by the European Commission, aims to reduce greenhouse gas emissions within the EU to limit global warming to 1.5 degrees Celsius compared to pre-industrial levels (International Panel of Climate Change, 2022). The EU focuses on energy that is acceptable, applicable, available, and affordable – referring to sustainability, technological readiness, energy security, and cost-effectiveness. Energy security involves meeting energy needs using domestic sources to avoid reliance on imported energy, which could pose threats to energy security due to the political power of supplying countries (Asia Pacific Energy Research Centre, 2007). A potential proposed by researchers is the Desertec project (Van Wijk & Wouters, 2021).

In this idea the strong solar radiation in African countries is used to supply Europe with hydrogen The Desertec project, despite its promising potential, never materialized. Studies examining the reasons for its non-realization concur that the primary hindrance was not technological limitations but rather the complexities arising from multi-country politics (Schmitt, 2018; Scheer, 2012; Lilliestam & Ellenbeck, 2011). Scheer (2012) aptly described the plan as "practically impossible for obvious political, economic, and sociological reasons" (Schmitt, 2018). He emphasized that coordinating an energy system involving over forty different goverments, each with their own energy grids and territories for power transmission, inevitably led to unrealistic expectations.

In response, this research presents a system that addresses key barriers that impeded the Desertec project's success. By focusing on a specific geographical area with fewer national governments involved, integrated energy grids, and no energy transport crossing other countries' territories, the research proposes a solution to the challenges identified by Scheer (2012) and Schmitt (2018). Portugal and Spain, with an integrated energy grid and limited European energy grid connection, are considered, while Spain's existing natural gas pipelines to Algeria offer a paved path for hydrogen transport. With this more manageable consortium of four national governments and fewer complexities, the research seeks to evaluate various technological design options using a cost model to test their feasibility and impact on energy security. The aim of this research is to provide an answer to: How does a technologically feasible Maghreb-Iberian green hydrogen system (MIGHS) impact the Iberian energy cost and energy security?