Optimal incentive design for hydrogen technologies in integrated energy systems: A bilevel optimization approach

Hydrogen is increasingly recognized as a key enabling technology for decarbonizing hard-to-abate sectors and for hedging against the price volatility of conventional fossil fuels, but its large-scale deployment hinges critically on well-calibrated public incentive mechanisms. A fundamental challenge is that the regulator’s incentive decision and the operator’s investment response are hierarchically coupled. This paper addresses the problem through a bilevel optimization framework in which a public authority sets technology subsidies at the upper level, anticipating the cost-minimizing investment and dispatch decisions of an energy community operator at the lower level. The model captures the full interplay between incentive design and system response within a multi-energy setting that integrates electricity, heat, and hydrogen carriers. Computational experiments are carried out on a realistic multi-energy community test case.