Valuation uncertainty of power-to-hydrogen projects under diverse policy tools

Difficulty in assessing the value of power-to‑hydrogen (PTH) projects under multiple policy tools reduces the zero‑carbon utility of green hydrogen in hard-to-abate industries. This paper explores the uncertain value of PTH project under diverse policy tools: production subsidies, the China Certified Emission Reduction (CCER) scheme, and a hybrid policy tool that combines both, and further examines the effect of the hydrogen contract for difference. Based on real options theory, with the Kucha green hydrogen project as a case study, this study obtained the following results: First, the hybrid policy tool exhibits a synergistic effect in promoting PTH project investment. Compared with production subsidies alone, the hybrid policy tool increases investment and environmental values by approximately 46.8% and 4.7%, respectively, and reduces the fiscal burden by 35.3% for the same investment value. Second, production subsidies play a key role in mitigating the adverse effects of electricity price uncertainty on PTH project investment, while relying solely on the CCER scheme makes it difficult to offset these adverse effects. The hybrid policy tool maintains relatively high investment incentives for PTH projects investment under different long-run means, volatilities and mean reversion speeds of electricity prices. Finally, the hydrogen contract for difference reduces the sensitivity of PTH project investment to changes in the green hydrogen price. When green hydrogen prices are relatively high, the hydrogen contract for difference could reduce the government fiscal burden while maintaining a relatively high environmental value. These findings imply that an appropriate combination of incentive policies could strengthen investment incentives for PTH projects under multiple uncertainties while reducing fiscal pressure and supporting the achievement of environmental goals.