Exploring the impact of synergistic oxygen and waste heat utilization from electrolysis in supporting a climate-neutral energy infrastructure in Germany

Hydrogen is considered a key energy carrier for comprehensive defossilization of energy systems, yet large-scale deployment of electrolyzer-based production faces significant cost barriers. The utilization of electrolyzer by-products – oxygen and waste heat – offers a promising approach to reduce production costs. This study addresses whether joint oxygen and waste heat utilization generates synergistic economic benefits within a spatially optimized energy infrastructure – a question unaddressed in prior literature that examined these by-products exclusively in isolation – and provides novel insights into how market mechanisms, electrolyzer siting decisions, and conventional supply infrastructure are affected. These effects are assessed in a cost-optimal cross-sectoral German energy system at high spatial resolution. The analysis reveals that joint by-product utilization achieves near-perfect additive cost savings: 1.9% reduction in total annual system costs and 13% reduction in levelized cost of hydrogen, combining waste heat benefits (1.1% system costs, 9.6% hydrogen costs) and oxygen benefits (0.9% system costs, 4.2% hydrogen costs). These reductions are achieved through partial substitution of conventional supply infrastructure, while enabling novel economically viable production processes (e.g., oxy-fuel processes). However, oxygen utilization's substantial system-level benefits do not adequately translate into electrolyzer operator revenues, limiting private investment incentives. By-product utilization fundamentally alters electrolyzer siting through distinct spatial patterns – short-distance redistribution for waste heat and supraregional shifts for oxygen – while creating synergy hotspots where joint utilization enables novel economically viable production sites. The study demonstrates considerable potential of joint by-product utilization for reducing hydrogen production costs, but realizing this potential requires significant changes in energy supply infrastructure and coordinated cross-sectoral planning to align private decision-making with system-optimal outcomes.