Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 4-2024: Market Design Options for a Hydrogen Market

Nicolas Niedrig, Johannes Giehl (), Philipp Jahnke () and Joachim Müller-Kirchenbauer ()
Additional contact information
Nicolas Niedrig: Technische Universität Berlin and BBH Consulting AG, Berlin, Germany
Johannes Giehl: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Philipp Jahnke: BBH Consulting AG, Berlin, Germany
Joachim Müller-Kirchenbauer: Technische Universität Berlin

Abstract: Renewable hydrogen is a crucial element of the energy transition towards climate neutrality. A key aspect of the development of a hydrogen economy is a suitable market design. Public and science discuss aspects like generation, consumption sectors, and infrastructure in detail. However, the discussion of the design options for the hydrogen market is insufficient. The current discussion does not cover different possibilities of the final market states. Thus, this paper focuses on options for the future hydrogen market design.

The paper presents a two-step approach to identify market designs. First, a literature review and morphological analysis using the electricity and gas market as references provide the basic elements and values of the options. Second, three different infrastructure scenarios for Germany provide the basis for expert interviews to derive suitable market designs.

The analysis results in seven elements that are crucial for the future hydrogen market design. The market design should cover the elements marketplace, trading period, price formation, cost components, price orientation, prequalifications, and geographical coverage. The interviews show that over-the-counter trading and, with increasing regional coverage and more participants, stock exchange trading will be part of the market. The implementation of the stock market requires sufficient market liquidity of the seller’s market dominated by potential generation costs. Further aspects of an exchange in combination with prequalifications would be higher transparency and access to information. These aspects could positively influence the development of the hydrogen economy.

Keywords: Renewable hydrogen; Market design; Hydrogen economy; Energy policy; Power-to-gas

JEL-codes: K20; L10; L50; N54; N74; O24; O25; Q21; Q27; Q41; Q42

Language: English

26 pages, January 23, 2024

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