The development of a differential pricing mechanism for the electrolytic hydrogen-based gas-to-power systems in the power sector

Electrolytic hydrogen could support low-carbon energy systems planning, particularly through power-to-gas-to-power (PtG-GtP) operations in the power sector. However, achieving long-term economic viability has remained uncertain, and limited research exists on how to incentivize PtG-GtP systems for the value provided to the electricity system. This study develops a novel framework to derive a differential pricing (DP) incentive that supports the incremental deployment of PtG-GtP systems in an electricity system undergoing a low-carbon transition. The DP incentive is defined by the difference in electricity marginal prices between a cost-minimizing objective and a risk-averse goal that prioritizes reversible electrolytic hydrogen use. Applying the DP incentive in an emissions-intensive power sector lowers the PtG-GtP system's levelized cost to C$6/kg H 2 , six times less than without the incentive, while also contributing to reductions in the reserve market electricity cost. The study findings hold under a stepwise, incremental approach to deploying multiple PtG-GtP systems over the long term. • An incentive mechanism is developed to boost electrolytic H 2 use in the electricity system. • Differential prices realized from minimal cost vs. maximal revenue integration scenarios. • Adoption of the incentives yields a levelized cost of $6/kg H 2 with reversible H 2 use. • Fuel cell CAPEX and learning rate account for over 40% of levelized cost uncertainties.