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Contracting Strategies for Electrolyzers to Secure Grid Connection: The Dutch Case

Thomas Swarts, Jalal Kazempour, Wouter van den Akker, Johan Morren, Arjan van Voorden, Han Slootweg

TL;DR

The paper addresses grid congestion in the Netherlands and the regulatory introduction of non-firm CTAs and CRCs to enable electrolyzer deployment without immediate grid reinforcements. It develops two bilevel optimization formulations with alternating leader-follower roles to model the strategic interaction between an electrolyzer owner and a network operator under the new contracts. Key findings show that CRC revenue can boost electrolyzer profitability at low CRC+ prices but becomes detrimental at higher prices, while the network operator benefits from reacting to CTA decisions in mid-range price regimes; ignoring the opponent's optimization leads to biased profit estimates. The results highlight the practical importance of coordinated decision-making for bankable electrolyzer projects and can inform policy design and grid operation strategies under the Dutch CTA/CRC regime.

Abstract

In response to increasing grid congestion in the Netherlands, non-firm connection and transport agreements (CTAs) and capacity restriction contracts (CRCs) have been introduced, allowing consumer curtailment in exchange for grid tariff discounts or per-MW compensations. This study examines the interaction between an electrolyzer project, facing sizing and contracting decisions, and a network operator, responsible for contract activations and determining grid connection capacity, under the new Dutch regulations. The interaction is modeled using two bilevel optimization problems with alternating leader-follower roles. Results highlight a trade-off between CRC income and non-firm CTA tariff discounts, showing that voluntary congestion management by the network operator increases electrolyzer profitability at CRC prices below 10 euro per MW but reduces it at higher prices. Furthermore, the network operator benefits more from reacting to the electrolyzer owner's CTA decisions than from leading the interaction at CRC prices above 10 euro per MW. Ignoring the other party's optimization problem overestimates profits for both the network operator and the electrolyzer owner, emphasizing the importance of coordinated decision-making.

Contracting Strategies for Electrolyzers to Secure Grid Connection: The Dutch Case

TL;DR

The paper addresses grid congestion in the Netherlands and the regulatory introduction of non-firm CTAs and CRCs to enable electrolyzer deployment without immediate grid reinforcements. It develops two bilevel optimization formulations with alternating leader-follower roles to model the strategic interaction between an electrolyzer owner and a network operator under the new contracts. Key findings show that CRC revenue can boost electrolyzer profitability at low CRC+ prices but becomes detrimental at higher prices, while the network operator benefits from reacting to CTA decisions in mid-range price regimes; ignoring the opponent's optimization leads to biased profit estimates. The results highlight the practical importance of coordinated decision-making for bankable electrolyzer projects and can inform policy design and grid operation strategies under the Dutch CTA/CRC regime.

Abstract

In response to increasing grid congestion in the Netherlands, non-firm connection and transport agreements (CTAs) and capacity restriction contracts (CRCs) have been introduced, allowing consumer curtailment in exchange for grid tariff discounts or per-MW compensations. This study examines the interaction between an electrolyzer project, facing sizing and contracting decisions, and a network operator, responsible for contract activations and determining grid connection capacity, under the new Dutch regulations. The interaction is modeled using two bilevel optimization problems with alternating leader-follower roles. Results highlight a trade-off between CRC income and non-firm CTA tariff discounts, showing that voluntary congestion management by the network operator increases electrolyzer profitability at CRC prices below 10 euro per MW but reduces it at higher prices. Furthermore, the network operator benefits more from reacting to the electrolyzer owner's CTA decisions than from leading the interaction at CRC prices above 10 euro per MW. Ignoring the other party's optimization problem overestimates profits for both the network operator and the electrolyzer owner, emphasizing the importance of coordinated decision-making.

Paper Structure

This paper contains 13 sections, 20 equations, 4 figures, 2 tables.

Table of Contents

  1. Introduction
  2. Novel Contracts in the Dutch Power System
  3. Non-firm Power Connection and Transport Agreements
  4. Capacity Restriction Contracts
  5. Model Formulation
  6. Interaction Between the Electrolyzer Owner and the Network Operator
  7. Game I: Electrolyzer Owner as the Leader
  8. Game II: Network Operator as the Leader
  9. Cases
  10. Numerical results
  11. Optimal Contracting Strategies
  12. Sensitivity Analysis
  13. conclusion

Figures (4)

  • Figure 1: Interaction between the electrolyzer owner and the network operator, along with their respective decisions. In the figure, $s^{.}_{t}$ denotes the CRC curtailments $s_{t}$ and $s^{\rm{+}}_{t}$.
  • Figure 2: Optimal grid connection and CTA capacities are shown against CRC+ prices. The profits of the electrolyzer owner (Ely) and network operator (NO) are also displayed in the same figure, using a logarithmic scale.
  • Figure 3: Profit of the electrolyzer owner in both EL-NO and NO-EL games with the increasing CRC+ price.
  • Figure 4: Game II (NO-EL): Contracting decisions at low hydrogen price (left) and 20% congestion management budget availability (right).