Incentivizing increased storage capabilities to mitigate uncertainties in renewable energy production

In many regions hydro power forms the backbone of the electrical energy system, but with increasing demand generated by growing economy and increased uncertainty in inflow accelerated by climate change, the power plants need to increase their ability to supply reliable power. The most cost-effective is to expand new renewables in photo-voltaic and on-shore wind, however their production is highly variable, so the demand to have a large controllable source of renewable energy is increasing. Hydropower already has the ability to offer long term storage with large water reservoirs and hydrogen storage offers a carbon free approach to long term energy storage. By combining the two, the energy storage potential of hydro power can be expanded while building on existing infrastructure, including access roads and grid connection. Ensuring energy resilience is a priority for many state actors, however they can be very costly if operated with only single purpose applications, like frequency reserve, voltage stability etc. If the energy markets can be designed with price mechanisms that encourage expanding storage solutions, then the actors will naturally contribute to increasing the resilience of the energy system. In this paper we investigate the impact of different markets on the profitability of adding hydrogen storage to an existing hydro power plant. The work reveals significant trade-offs between profitability, renewable energy integration, and grid interaction across different pricing structures and system configurations. Fixed Pricing (FP) limits incentives for energy storage investment, while dynamic pricing enables flexibility and strategic scheduling, leading to substantial revenue increases. Specifically, energy storage raised average revenues by 26.1% under spot price (SP) and 13.6% under time-of-use (TOU) tariffs, compared to a fixed tariff system without storage. Standalone storage outperforms combined BESS+H 2 , with hydrogen storage being preferred under TOU and BESS performing better under SP. The sensitivity analysis emphasized the importance of adequate spot price differentials for hydrogen storage to become an attractive storage medium. A spot price amplitude exceeding 60% of the average electricity price was required for the operation of hydrogen to be profitable. The results of this study can help inform policy makers in designing pricing mechanisms that promote renewable integration and efficient use of short- and long-term energy storage systems. • Detailed hybrid power plant modelling method with hydrogen storage is presented. • Profitability and operation of plant is assessed for different pricing regimes. • Sufficient spot price differentials needed for hydrogen storage to become profitable. • Fixed pricing regime provides predictability but gives no incentive for storage. • Standalone storage yields higher revenues compared to combined BESS and H 2 system.