Investment of hydrogen refueling station based on compound real options

As the development of hydrogen refueling stations (HRS) is key to the hydrogen industry, it is necessary to study the investment feasibility for potential investors in order to stimulate its investment. We view the HRS investment as a two-stage decision-making process, distinguishing characteristics of off-site HRS from those of on-site HRS. Investors can first decide whether or when to invest in an off-site HRS, and then can accordingly decide whether or when to upgrade from an existing off-site HRS to an on-site HRS, by retrofitting off-site HRS with on-site hydrogen production device. We select natural gas reforming as the technology of on-site hydrogen production device, not only because natural gas reforming is cheaper and maturer, but also because this type of retrofit has been applied in a real case. Since the investment in HRS entails multiple uncertainties, we use a compound real options approach for conducting an appraisal of HRS investment. Accordingly, we use the Chinese case to present a new perspective to the sequential analysis of HRS investment decision-making. Four various scenarios are set for a case study, including one benchmark scenario reflecting the current Chinese hydrogen policies, and three comparative scenarios reflecting potentially improved policies, such as increasing operational subsidy, implementing preferential taxation and stimulating demand. The results show the current scenario is not beneficial to invest in HRS building on the proposed analytical framework and the data collected from the case of China. Furthermore, the increase in demand plays the leading role in improving the probability of HRS investment, followed by the implementation of preferential taxation and increasing operational subsidies. Additionally, the on-site HRS shows its superiority over off-site HRS, because all scenarios suggest upgrading to on-site HRS should be executed immediately once the initial off-site HRS is constructed. Therefore, in the context of Chinese hydrogen market and the selected on-site technology of natural gas reforming, it is necessary to create a more favorable business environment for the layout of on-site HRS.