Green hydrogen produced by power-to-gas will play a major role in the defossilization of the energy system as it offers both carbon-neutral chemical energy and the chance to provide flexibility. This paper provides an extensive analysis of hydrogen production in decentralized energy systems, as well as possible operation modes (H2 generation or system flexibility). Modelling was realized for municipalities—the lowest administrative unit in Germany, thus providing high spatial resolution—in the

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... inear optimization framework OEMOF. The results allowed for a detailed regional analysis of the specific operating modes and were analyzed using full-load hours, share of used negative residual load, installed capacity and levelized cost of hydrogen to derive the operation mode of power-to-gas to produce hydrogen. The results show that power-to-gas is mainly characterized by constant hydrogen production and rarely provides flexibility to the system. Main drivers of this dominant operation mode include future demand for hydrogen and the fact that high full-load hours reduce hydrogen-production costs. However, changes in the regulatory, market and technical framework could promote more flexibility and support possible use cases for the central technology to succeed in the energy transition.