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Market-based Asset Valuation of Hydrogen Geological Storage

Abstract

Because of hydrogen's low energy density, hydrogen storage is a critical component of the hydrogen economy, particularly when large-scale and flexible hydrogen utilization is required. There is a sense of urgency to develop hydrogen geological storage projects to support large-scale yet flexible hydrogen utilization. This study aims to answer questions not yet resolved in the research literature discussing the valuation of hydrogen geological storage options for commercial development. This study establishes a net present value (NPV) evaluation framework for geological hydrogen storage that integrates the updated techno-economic analysis and market-based operations. The capital asset pricing model (CAPM) and the related finance theories are applied to determine the risk-adjusted discount rate in building the NPV evaluation framework. The NPV framework has been applied to two geological hydrogen storage projects, a single-turn storage serving downstream transportation seasonal demand versus a multiturn storage as part of an integrated renewables-based hydrogen energy system providing peak electric load. From the NPV framework, both projects have positive NPVs, $46, 560, 632 and $12, 457, 546, respectively, and International Rate of Return (IRR) values, which are higher than the costs of capital. The NPV framework is also applied to the sensitivity analysis and shows that the hydrogen price spread between withdrawal and injection prices, site development, and well costs are the top three factors that impact both NPV and IRR the most for both projects. The established NPV framework can be used for project risk management by discovering the key cost drivers for the storage assets.

Related subjects: Policy & Socio-Economics
Countries: United States
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/content/journal4902
2023-07-08
2024-05-20
/content/journal4902
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