🔋 Risk-Aware Bidding for VPPs with Power-to-Hydrogen

A clear and intuitive explanation of how hydrogen improves VPP bidding.

Figure 1. VPP can reduce congestion and redirect flows more efficiently.(Image source: Toshiba)

Virtual Power Plants (VPPs) bring together distributed resources—such as solar, wind, batteries, and now hydrogen systems—to operate like a flexible power plant in electricity markets.

But there’s a challenge:

Electricity markets are volatile, and renewable output is uncertain.
A poor bidding strategy can lead to major financial losses.

This post explains how Power-to-Hydrogen (P2H) and risk-aware optimization help VPPs make smarter bidding decisions.

⚡ Why Bidding Is Hard for VPPs

VPP operators must decide how much energy to bid into the market ahead of time.
However:

• Solar and wind output fluctuate

• Prices move unpredictably

• Overbidding can cause penalties

• Underbidding loses opportunities

Most VPPs rely on batteries (ESS) to buffer uncertainty, but batteries alone are often not enough.

This is where hydrogen enters the picture.

🔋 Why Hydrogen Helps VPPs

A Power-to-Hydrogen system includes:

• Electrolyzer → converts electricity into hydrogen

• Hydrogen tank → stores hydrogen for long periods

• Fuel cell → converts hydrogen back to electricity

Compared to batteries, hydrogen offers:

• Much larger storage capacity

• Ability to charge and discharge simultaneously

• Better economic potential as hydrogen prices drop

• Flexibility for multi-energy markets (electricity + hydrogen)

Hydrogen essentially acts as a deep buffer that smooths uncertainty.

📉 The Risk Issue: Market Volatility

Even with hydrogen, the VPP faces financial risk:

• Low renewable output → must buy expensive electricity

• High renewable output → prices may drop unexpectedly

• Extreme scenarios (tail events) → major losses

To protect against these risks, we use CVaR (Conditional Value-at-Risk) — a common tool in finance for controlling downside risk.

🧠 The Proposed Approach: A Risk-Aware Bi-Level Model

In this regard, we introduces a bi-level optimization structure:

Figure 2. High-level representation of the bi-level bidding framework.

🔼 Upper Level — VPP’s Decision

The VPP chooses:

• How much energy to bid

• How to operate battery + hydrogen system

• How risk-averse to be (via CVaR parameter)

Goal:

Maximize profit while limiting downside financial risk.

🔽 Lower Level — Market Clearing

The electricity market:

• Clears demand and supply

• Determines Locational Marginal Prices (LMPs)

• Applies power flow and congestion constraints

This ensures the VPP’s bids are physically feasible.

The bi-level structure captures how market physics reacts to the VPP's decisions.

🧩 Key Insights from the Study

1️⃣ Hydrogen Increases Profitability

Hydrogen-enabled VPPs outperform battery-only systems because:

• They can shift energy across long time scales

• They can exploit price volatility better

• Fuel cells + electrolyzers provide unique flexibility

2️⃣ Bigger Hydrogen Tanks Reduce Risk

Larger tanks help the VPP remain profitable even under uncertain renewables and prices.

3️⃣ CVaR Controls Financial Exposure

By adjusting a single risk-aversion parameter (β), the VPP can:

• Reduce losses in bad scenarios

• Stabilize revenue

• Prevent aggressive bidding when renewable output is low

Higher β → more conservative bids → lower risk.

4️⃣ Hydrogen Performs Better Under Risk Than Batteries

Hydrogen-based VPPs are:

• More resilient to low-renewable scenarios

• Better at capturing high-price opportunities

• Less sensitive to market volatility

This makes hydrogen a future-proof energy storage option.

📘 Why This Matters

Risk-aware bidding with hydrogen enables:

✔ Higher profits

✔ Lower exposure to extreme losses

✔ More stable VPP operation under uncertainty

✔ Better use of renewable energy

✔ A path toward multi-energy market participation

As hydrogen infrastructure grows, VPPs will play a crucial role in linking electricity, hydrogen, and storage markets.

🔭 Future Extensions

The research suggests several directions:

• Real-time bidding

• Joint electricity–hydrogen scheduling

• Multi-day CVaR strategies

• Interaction with congestion forecasting

• Coordinated bidding among multiple VPPs

📘 Reference

Yoo, J., & Kim, J. “A Risk-aware Bi-level Bidding Strategy for Virtual Power Plant with Power-to-Hydrogen System.” 2025 IEEE PES General Meeting (PESGM). [link]