The European Commission is working on legislation that many potential green hydrogen producers and experts say is the single most important decider of final investment decisions in electrolysers. The so-called delegated act, which the EU’s existing renewable energy directive calls for the Commission to publish by the end of 2021, will set out the rules for what counts as green, or renewable, hydrogen and its derivative e-fuels in Europe.
Delegated acts are secondary legislation reserved for more technical proposals the European Parliament and member states can reject but not amend. The Commission develops and adopts them. Their technical nature and lower public visibility do not make them less important or less lobbied. In this case, the delegated act for “renewable liquid and gaseous transport fuels of non-biological origin” (RFNBOs) will help decide the future of the fledgling European hydrogen industry.
Numerous versions of the draft act have been leaked in recent days. They have horrified and heartened in equal measure.
“This delegated act is only seven pages, but it destroys what the European Commission has done well in the 3,000 pages of the ‘Fit for 55‘ package and will do in the upcoming circa 1,000 pages of the hydrogen and gas market decarbonisation package [expected on 14 December],” says Jorgo Chatzimarkakis, CEO of trade association Hydrogen Europe. “These seven pages destroy everything.”
More than 50 representatives from the European hydrogen industry warned of “grave shortcomings that prevent the EU from reaching its… climate neutrality targets” in a letter sent to the Commission’s top brass, including President Ursula von der Leyen, on 8 December. The draft act jeopardises Europe’s current leadership on electrolysers, they added.
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In parallel, environmental campaigners rejoiced at a draft act that is “well crafted” and “balanced”, in the words of Geert Decock, electricity and energy manager at the NGO Transport & Environment (T&E). “It strikes the right compromise between enabling the immediate scale-up of electrolyser capacity while avoiding that grid-connected electrolysers produce hydrogen with a significant carbon footprint [that would be promoted by the EU renewable energy directive as zero emissions].”
Any increase in hydrogen production is “reckless” without additional renewables, argues T&E in a new paper released last week. It warns that the EU’s plans for hydrogen in 2030 could drive up demand for electricity by 17% and put fresh pressure on already high power prices. “The EU must ensure that any hydrogen production is coupled with new renewable energy generation,” said Decock.
Renewable and additional
What proponents and detractors of the draft act agree on is that it will be decisive for the EU’s hydrogen targets, from 6GW of electrolysers by 2024 (and 40GW by 2030) to 50% green hydrogen in industry and 2.6% RFNBOs in transport by 2030. The purpose of the act is to ensure the electricity used to produce this hydrogen really is renewable and “additional”, i.e. it does not divert renewable power from electric vehicles, for example. Direct electrification is always the most efficient option.
To ensure the electricity for green hydrogen is renewable, the act would require hydrogen producers either to connect to renewable (although not biomass) power producers via a direct line or conclude renewable power purchase agreements (PPAs).
If connected to the grid – for example, to access power via a PPA – the hydrogen producer would have to show that, by the hour, renewable electricity is being produced in that hour, or that the share of renewable electricity in its bidding zone is higher than the average of the last three years, or that it is using renewable electricity that has been locally stored behind the meter (on site).
The Commission also aims to incentivise the use of electrolysers in hours where renewable electricity would otherwise have to be curtailed.
There should be no grid congestion between electricity and hydrogen producers, either because they are in the same bidding zone, or because day-ahead electricity prices are equal across two different bidding zones (again this must be shown by the hour).
To ensure the green electricity used for hydrogen production is “additional”, the recent leaks stipulate that the renewable electricity generator can be a maximum of two years older than the electrolyser, and that it cannot benefit from any operating or investment aid. The exception is repowering; repowered installations do count as additional – even though they benefitted from government funds in the past – if that repowering cost at least 30% of the cost of building a similar new installation.
In one of the leaked drafts, the Commission suggests hydrogen producers may be exempted from the additionality requirement for 20% of their electricity if they instead make a financial contribution to an EU financing mechanism for renewable energy.
Finally, it proposes a transition period, with the additionality requirements only kicking in from 2025.
Economic viability versus environmental integrity
The latest drafts do not impress many in the industry. “It is like a straitjacket,” says Chatzimarkakis. “It discriminates against hydrogen technologies. You can use coal to generate electricity and store that in batteries, but you must prove that the power stored in hydrogen comes from an additional renewable energy source that has come online in the last 24 months, that this source was not built with any subsidies, and you must prove this every hour.
“The burden of proof is on investors,” he adds. “Investors will look at the business case for electrolysis and say, ‘Why should I do it?’”
“It makes little sense to allow only electricity from new, unsubsidised wind and solar plants for production,” says Sopna Sury, chief operating officer for hydrogen at RWE Generation. “It will be several years before such plants are connected to the grid. Unsubsidised existing plants could bridge this time.”
“Additionality is already a compromise,” says Marta Lovisolo, policy advisor at NGO Bellona Europe, however. “Renewable hydrogen was supposed to be made only from surplus electricity.”
Lovisolo also argues that the option of counting hydrogen production as renewable when the share of renewables in a bidding zone is higher than the average of the last three years is not credible. “In practice, that means electrolysers in, for example, Germany could run 7–8,000 hours a year – and the carbon intensity of green hydrogen would be very similar to that of grey hydrogen.” Bellona assessed electrolyser running hours and the resulting carbon footprint of the green hydrogen they produced in six EU countries in a report in June 2021. That assessment compared the share of renewables to the average of the last two, not three, years and is therefore conservative.
Friederike Altgelt, an expert in power-to-x technologies at the German Energy Agency (dena), suggests using the average share of renewables could work but with certain caveats. Dena founded the Global Alliance Powerfuels in 2018, together with corporates. It published a position paper on the delegated act in July.
Altgelt says: “This requirement favours RFNBO production in countries where the share of renewable electricity is increasing but, at the same time, puts countries with a share of renewable electricity that has been high for years – and might therefore increase at a slower rate – at a disadvantage. The Global Alliance Powerfuels therefore proposes that for this option to be admissible, the Commission should specify a minimum average share of renewable electricity for the country where the electrolyser is located.”
RWE’s Sury says the idea of closely linking renewable electricity and electrolysers must be put to the test. “If electrolysers need to stop when the wind does not blow and the sun does not shine, they stand idly by more than half the time," she points out. "This would make a secure round-the-clock supply of green hydrogen for any industry much more difficult.”
“The smaller the solution space for renewable power in terms of correlation in time and geography, the smaller the likelihood of effective green hydrogen production and offtake,” she adds. Sury suggests renewable power generation and electrolysers could be balanced on an annual basis. "This would be much cheaper without increasing emissions in Europe,” she says.
“There is a trade-off between ensuring full sustainability and economic viability when defining the degree of temporal correlation,” agrees Altgelt. “Since there is a direct link between temporal correlation and total cost [because achievable full-load hours are decisive for total costs], setting the regulatory threshold for temporal correlation will directly influence the business case for powerfuels production. On the other hand, a loose definition of temporal correlation might result in the electricity demand from the electrolysers being partly met, at least in some periods, by additional production from a fossil fuel plant.” The Global Alliance Powerfuels supports an hourly correlation.
The finish line
The latest leaked drafts have moved in the direction of industry demands. An early version of the act that emerged in spring called for the use of renewable electricity to be proven every 15 minutes, instead of every hour, for example. It also suggested that if using the bidding zone average, this should be for the previous two, not three, years (hence this was also the focus of Bellona's assessment). It said renewable electricity generators could be no more than a year older than the electrolysers that use them.
At a T&E event on 8 December, Commission official Bernd Kuepker said the goal is still to publish a final draft before the end of the year. But this is growing more challenging by the day, also because of different points of view within the Commission, he added. Once public, the draft act will be open for feedback from stakeholders for four weeks before the Parliament and Council have two months to voice any objections. If they do not, the act enters into force. (Objections are rare because they force the Commission to return to the drawing board and the absence of the act may be worse for many stakeholders than an imperfect act.)
One of the big battles for the final act is set to be the transition period out to 2030. Many in the industry are pushing for 'grandfathering' of investments until 2025, to let these projects operate under less stringent requirements for five more years. Many of the projects presented by the European Clean Hydrogen Alliance at last week's European Hydrogen Week hope to enter operation by 2025. The industry suggests a 50% exemption for projects in first-mover countries, such as the Netherlands, from additionality requirements from 2025–30.
Environmental campaigners are understandably in favour of the additionality exemption ending mid-decade, “before additional demand from electrolysers can push power demand in carbon-intensive grids much higher, bringing marginal fossil fuel plants online”, says Decock.
The real challenge, according to Ane Landaluze Solaun, EU regulatory expert at Spanish utility Iberdrola, is getting enough renewables built. "Permitting [for renewable electricity projects] is the real bottleneck,” she says. The European Commission intends to issue new guidelines to member states to speed up permitting next year, but Landaluze Solaun says this is too little too late. Iberdrola wants permitting rules revisited as part of the 'Fit for 55’ renewable energy directive proposal.