Economic feasibility of solar-driven hydrogen photoelectrochemical systems: Insights from a real options analysis

Hydrogen is a key energy carrier in the global transition to renewable energy. Among various options for direct solar energy conversion, photoelectrochemical (PEC) reactors offer a promising pathway for solar-driven hydrogen production. This study assesses the economic feasibility of an efficiency-enhanced prototype stage PEC reactor using a Real Options Analysis framework supported by a comprehensive sensitivity analysis. We draw on data from a life cycle assessment, life cycle costing, environmental externality valuation and future cost projections with econometric techniques to assess investment viability under uncertainty. We also include learning curves to evaluate how experience can lower auction participation costs in emerging renewable technologies. Findings show that PEC reactors remain economically constrained without targeted policy support due mainly to current high upfront costs and output variability. Auction mechanisms can improve the economic feasibility of PEC reactors when specifically designed for early-stage technologies. Furthermore, the results of the sensitivity analysis highlight that operational and maintenance costs, as well as system performance, are major sources of financial risk.