Powering a hydrogen plant with electricity from renewable energy production installations
The regulation provides that hydrogen produced from electricity supplied by renewable energy production installations (e.g. a wind or solar park) on the basis of a power purchase agreement (PPA) will be considered ‘green’ if three cumulative conditions are met. These conditions are additionality, temporal correlation and geographic correlation.
Under the additionality requirement the renewable energy production installation must not have come into operation earlier than 36 months before the hydrogen plant. This ensures that the green hydrogen is produced from new, ‘additional’ and not from pre-existing renewable energy capacity. The reasoning is that hydrogen produced with renewable energy from pre-existing installations (that would otherwise have provided renewable energy to other renewable energy customers) would cause additional electricity to be produced from fossil fuels (such as coal or gas-fired plants) to meet those other customers’ demand. Such ‘green’ hydrogen would then arguably cause even more carbon emissions than producing hydrogen from natural gas directly using the traditional process.
A second caveat with respect to the additionality requirement is that the renewable energy production installation must in principle not have received operational or investment subsidies. This is subject to several exceptions, e.g. for subsidies that are repaid in full. The reasoning is that there is already a target to have a minimum share of 14% renewable energy within the final consumption of energy in the transport sector by 2030, which should already create the necessary market conditions for green hydrogen to be produced profitably and that double incentives/subsidies should be avoided. As the additionality requirement could however unwantedly interfere with currently planned or realised hydrogen plants, there is a transition period for hydrogen plants coming into operation before 1 January 2028: these may produce green hydrogen until 1 January 2038 from pre-existing renewable energy production installations that have received operational or investment subsidies.
Under the temporal correlation requirement hydrogen can be considered ‘green’ if it is produced:
- during the same one-hour period as the renewable electricity produced under the renewables power purchase agreement;
- from renewable electricity from a new storage asset that (i) is located behind the same network connection point as the electrolyser or the installation generating renewable electricity and (ii) has been charged during the same one-hour period in which the electricity under the renewables power purchase agreement has been produced; or
- during a one-hour period in which the clearing price of electricity resulting from single day-ahead market coupling in the bidding zone is lower than or equal to EUR 20 per MWh or lower than 0.36 times the price of an allowance to emit one tonne of carbon dioxide equivalent. This aims to capture the situation in which an electrolyser uses electricity at times when electricity prices are so low that fossil-based electricity generation is not economically viable and, therefore, additional demand for electricity triggers more renewable electricity production and does not trigger an increase in fossil electricity generation.
Although the hourly matching of production and offtake aims to avoid fossil-based electricity being used by the hydrogen plant when the renewable energy production-installation is not actually producing, it has received criticism from the sector due to its implications for the commercial viability of hydrogen projects. Hydrogen plants would be idling during times that the dedicated production installations do not produce any electricity (when there is no wind or sunshine) and as a result cause an increase of the total average cost of green hydrogen. Having heard this criticism following the public consultation, the European Commission introduced a transition regime applying until 1 January 2030 under which temporal matching would be on a monthly instead of hourly basis.
Under the geographic correlation requirement the renewable energy production installation and hydrogen plant should in principle be in the same bidding zone or in the offshore bidding zone that is interconnected to a bidding zone (if any). For the Netherlands and Belgium the bidding zones follow the national borders. However, the Agency for the Cooperation of Energy Regulators (ACER) has instructed the Dutch transmission system operators to investigate whether the Dutch bidding zone should be split up. In that context, the question arises whether a hydrogen plant and renewable energy production installation that would no longer be located in the same bidding zone due to the possible split of the Dutch bidding zone would still be able to produce green hydrogen, considering that they would then in principle no longer satisfy the geographic correlation requirement.
The geographic correlation requirement can however also be fulfilled if the hydrogen plant and the renewable energy production installation are in interconnected zones, provided that the electricity price in the zone in which the production installation is located is equal or higher in the day-ahead market than in the bidding zone where the hydrogen plant is located. The rationale for this is that congestion may be reduced by increasing electricity production in the zone which would otherwise import electricity due to the lower prices in the adjacent zones. National governments may however add geographic requirements with respect to hydrogen plants and renewable energy production installations with a view to grid and capacity planning.
A direct line from the installation to the hydrogen plant
The regulation provides for a few alternative methods to have hydrogen qualify as green that are administratively less burdensome. One of these is directly connecting a renewable energy production installation to a hydrogen plant by means of a ‘direct line’ instead of using the grid. All hydrogen produced by such a plant qualifies as green if the renewable energy production installation has been in operation for less than 36 months at the time the hydrogen plant starts producing hydrogen (which, again, seeks to ensure that hydrogen plants are not directly connected to pre-existing production installations). A point of attention is that insofar as the renewable energy production installation also has a connection to the grid, a smart metering system should be in place to prove that no electricity has been taken from the grid for the supply of electricity to the hydrogen plant.
Using electricity from a ‘green’ grid
Electricity taken from a bidding zone’s grid that on average had a proportion of renewable electricity in the previous calendar year of over 90% can be used to produce green hydrogen if the respective hydrogen plant does not proportionally produce more hours in a year than there is green electricity on the grid. In other words, a hydrogen plant taking electricity from a grid that is 95% green may only run 95% of the hours in a year if its output is to be considered ‘green’.
The nuclear grid route
Although nuclear energy is not classified as renewable in the EU, the carbon emissions from nuclear energy are very low. Therefore in bidding zones where nuclear energy forms a large share of the energy mix (such as in parts of Sweden or France) the 90% renewable threshold may not be met, while the average emission intensity of such electricity grid would in fact be very low.
However, provided the average emission intensity of the electricity grid is less than 18 gCO2eq/MJ, electricity (indirectly) bought from a renewable energy production installation can be used to produce green hydrogen without complying with the additionality requirement, provided the temporal and geographical correlation requirements are met. The reasoning there is that additional demand for renewable energy would normally not cause more carbon emissions, as it would likely not result in the production of additional fossil electricity.
Using renewable energy that would otherwise have been curtailed
The third way to produce green hydrogen with electricity taken from the grid is by reducing the need for curtailment of renewable energy production. The regulation stipulates that when power-generating installations using renewable energy sources were redispatched downwards but the electricity consumed for the production of hydrogen reduced the need for redispatching by a corresponding amount, the hydrogen produced would also classify as green. This option would be interesting particularly for tollers and traders, as it creates the possibility for traders to supply electrolysers with low-priced electricity that would otherwise have been curtailed.
The DAs have been sent to the European Parliament and the Council of the European Union, which may object (but not amend) them in the coming weeks. If adopted, the rules will be directly binding (“direct effect”) and applicable in respect of all hydrogen produced in the European Economic Area, as well as imported hydrogen. One very interesting question is how the transition period with respect to the additionality criterion will be applied in the Netherlands as it does not exist in the national RFNBO rules as of yet. Arguably the Dutch requirement that no operational subsidies may have been granted to the source of renewable power should be removed as this may prove to be an impediment to hydrogen developments in the Netherlands compared to other member states.
Our Energy & Infrastructure team is well placed to advise on all legal aspects related to project development in the renewables sector in Belgium and the Netherlands. If you have any questions in respect of the regulation of hydrogen, please reach out to our Energy & Infrastructure team that is listed below.