After much delay the European Commission has finalized a legal definition of renewable hydrogen. The legal definition was due by the end of 2021, the EC however only published a draft for consultation in May last year. The final definition is more lenient than the initial drafts and removes additionality requirements for electrolyzers connected to grids that are largely decarbonized through nuclear power. Operators would still require power purchase agreements (PPAs) for renewable electricity in these grids.
Hydrogen accounts for less than 2% of Europe’s present energy consumption and is primarily used to produce chemical products, such as plastics and fertilizers. 96% of this hydrogen production is through natural gas, resulting in significant amounts of CO2 emissions.
The EU explains that their strategy on hydrogen was adopted in 2020 and put forward a vision for the creation of a European hydrogen ecosystem from research and innovation to scale up production and infrastructure to an international dimension. Hydrogen is also an important part of the EU strategy for energy system integration.
The strategy explored how producing and using renewable hydrogen can help decarbonize the EU economy in a cost-effective way, in line with the European Green Deal, and contribute to the post-COVID-19 economic recovery.
The commission adopted a delegated act on 10 February. Since the draft there was significant pushback from the European Parliament, member states and other stakeholders. 2022 saw energy markets, plans and ideals tipped on their heads and as a result Parliament and hydrogen industry participants had called for less stringent rules than initially proposed to facilitate the nascent sector’s ramp-up. Despite what was going on since Russia invaded Ukraine and the hardships environmental groups, urged strict rules to ensure that electrification efforts are not compromised and that the rules do not inadvertently support hydrogen production from fossil fuels.
Final concessions to those calling for more lenient rules
The much-debated additionality clause will apply from the start of 2028 instead of 1 January 2027, which had been envisaged in the draft. It specifies that hydrogen only counts as renewable if the installations providing it with renewable energy started operations not more than three years earlier. The measure is intended to ensure that new electrolyzers coming online do not “cannibalize” existing renewable power generation.
For electrolysers that are directly connected to a renewable energy source and not linked to the power grid, the additionality clause is the only condition that must be met. However, the rules are more complicated for grid-connected electrolysers.
Temporal and geographical correlations
Hydrogen producers using grid-connected electrolysers would have to either produce their own renewable power or conclude PPAs for the renewable electricity and adhere to rules on temporal and geographical correlations.
The commission has considerably relaxed the temporal correlation
- This defines how closely the time of hydrogen output must match renewable energy production and id much more relaxed than the previous draft.
- A monthly correlation will need to be demonstrated until the end of 2029, switching to an hourly correlation from the start of 2030. (In the draft from May, the commission had envisaged that monthly correlation would only apply until the end of 2026, with hourly correlation to be implemented from 2027.)
Rules on geographical correlations are largely unchanged from the draft, requiring electrolysers to be in the same bidding zone as the renewable installation that feeds them.
- An electrolyzer can also be in an interconnected bidding zone, but only if the electricity price in that zone is equal to or lower than in the one in which the renewable electricity is produced.
- Bidding zones in the EU correspond to member states’ borders in most cases.
Additionality requirements will not apply to electrolysers in grids that have a carbon intensity of 18g of CO2 equivalent/MJ or less. This means that the rules would not apply even if the grid is largely decarbonized through nuclear power, rather than renewable energy.
The rule is intended to reflect that in a largely decarbonized system additional demand from electrolysers would not raise emissions, enabling existing renewable sites to contribute to hydrogen production.
France, which has ample nuclear power generation, had long lobbied for exemptions to be applied, but an annex to the delegated act suggests that the emissions intensity of the country’s grid was 19.6g of CO2e/MJ in 2020 — above the 18g of CO2e/MJ threshold. In any case, hydrogen producers connecting electrolysers to these grids would still have to conclude PPAs for renewable power and demonstrate temporal and geographical correlations.Stefan Krümpelmann at Argus
Only for electrolysers in grids that are almost entirely decarbonized through renewable power will temporal and geographical correlation requirements not apply.
Only for electrolysers in grids that are almost entirely decarbonized through renewable power will temporal and geographical correlation requirements not apply. For now, this applies to three out of four bidding zones in Sweden, but may be the case for more countries later in the decade, according to an EU document. The rules set out by the delegated act will apply to domestic production and imports alike. Parliament and EU member states normally have two months to accept or reject a proposal from the commission. But they cannot make amendments to the technical legislation.Stefan Krümpelmann at Argus
Source: Argus, Energy Commission of EC
From the TradersCommunity News Desk