Cost-reflective electricity tariffs

Cost-reflective tariffs are tariffs that vary over time or by location to match electricity production costs. Time-varying tariffs send price signals to electrolysers, giving them incentives to adjust hydrogen production to minimise electricity costs. Since electrolysers can respond quickly to changing prices, cost-reflective tariffs are an effective tool for reducing costs and adding flexibility to the power grid. Meanwhile, tariffs that vary by location provide incentives to build electrolysers in locations with large renewable generation capacities and thus lower prices.

Cost-reflective tariffs are key for greater flexibility and higher demand response. In the case of hydrogen production, their effectiveness can be reduced when the electrolyser does not have enough flexibility to shift or reduce the production time. Moreover, the electrolyser’s operation may not be driven by the prices of electricity, but by the mere fact that renewable electricity is available so that the hydrogen is certified as “green hydrogen”. However, in principle, dynamic tariffs allow electrolyser operators to lower their production costs by taking advantage of periods of lower-cost electricity.