An assessment of the national benefits of deploying demand-side markets for grid-connected green hydrogen production

November 23rd, 2021

R&D Focus Areas:
Techno-economic evaluation, Energy systems integration, Electricity

Lead Organisation:
Hydricity Systems

Energy Exemplar


Start date:
April 2021

Completion date:
December 2023

Key contacts:
Dr. Robert Dickinson:;
Professor Graham (Gus) Nathan:
Associate Professor Liam Wagner:
Glenn Drayton, Energy Exemplar

Internal funding – Hydricity Systems, the University of Adelaide

Project total cost:
Not applicable

Project summary description:
With direct connection of powerfuel infrastructure to electricity grids, certifiable green hydrogen can be produced at low input cost whenever high supply of variable renewable energy (VRE) coincides with low operational demand. Australia’s National Electricity Market (NEM) does not currently accommodate this. It was designed at a time when electricity generation could be assumed to always incur fuel costs. High marginal costs for fuel drove the market design, resulting in prices being set by generator bidding, with no mechanism for load participants to directly influence prices.

With VRE production, there are no fuel costs. Unbounded increases in VRE production will eventually render the legacy design unfit for purpose. One approach to address this situation is to add robust (price-influencing) valley-filling demand participation to the market. “Valley-filling” consumption is essentially the inverse of “peak shaving” except that in addition to time-shifting consumption (c.f., “energy-storage”), it can focus on technologies that take excess VRE production out of the NEM once and for all.

Another key advantage of grid-connected powerfuel production is that the cost of production can be partially offset by participation in frequency control ancillary services (FCAS) markets. (c.f., Hornsdale Power Reserve FCAS revenue exceeding energy arbitrage accounting by a very large margin).

Change in market design will take time. However, if change in the longer term is called for, planning for this needs to start occurring now.

Addition of demand participation to the market would add complexity, but only marginally, considering that the NEM is already one of the most complex systems in our economy. Further, doing nothing will not be an option for much longer. Accordingly, it is worth investigating whether the benefits of demand-side participation in the NEM are likely to justify the marginally increased complexity.

This project hypothesises that the explicit inclusion of demand-side participation in price-setting will deliver optimal outcomes for all consumers, market participants and transmission and distribution providers.

Related publications and key links:
Hydrogen in Gas Statement of Opportunities (GSOO):

Minimum demand:

FCAS market revenue:

Higher degree studies supported:
Not applicable


Reviewed: April 2024