In order to guide the consultation along the topics that it was interested in, the Ministry provided a specific questionnaire with seven topics: (i) production, (ii) transmission grid management, (iii) grid planning, (iv) (underground) storage, (v) import terminals, (vi) hydrogen quality and (vii) offshore market regulation. The stakeholders from the energy sector that have responded include future hydrogen producers, grid operators, decentralised authorities and industry interest groups. Preliminary conclusions can already be drawn from these varying points of view concerning the expectations for the regulation of the hydrogen market. Below we give a brief summary per topic and cautious expectations for the anticipated Hydrogen Act.
Production of hydrogen
With regards to the production of hydrogen, the Ministry asked whether network operators can be given a role in this (and if so, which?) and whether the government can designate sites for electrolysis installations. With regards to the production of hydrogen, future producers of hydrogen consider it undesirable if network operators will also produce hydrogen. Network operators themselves agree that they should not produce hydrogen, but that under certain circumstances it may be desirable for them to play a role in the development of electrolysis capacity. After all, electrolysis capacity has a systemic function in the entire energy network because of, for example, the bridging role between the electricity network and the hydrogen network (which in turn can resolve network congestion) and the 'storage' of electricity. Whether the government and/or grid operators should be given a role in designating electrolysis sites is generally considered desirable in order to resolve grid congestion issues.
With regards to transmission grid management, the two key questions were under which conditions users should have access to the hydrogen infrastructure (regulated access or negotiated third party access) and whether local private hydrogen networks may be built and operated. Regarding the conditions of access to the hydrogen network, most respondents agree that purely regulated conditions of access should be established in the long term. Whether these regulated conditions should be laid down from the outset is not clear. Gasunie (the current gas grid operator and likely future hydrogen grid operator) believes that the efficiency benefits of negotiated access in the development phase are desirable due to the reduced regulatory burden for network operators. With regards to private hydrogen networks, the consensus is that it is not desirable for closed distribution systems to be developed on a large scale in profitable industrial clusters, but that private networks should not be banned as a matter of principle.
With respect to future network planning, the Ministry asked whether it would be desirable for the network operators to draw up joint scenarios for the development of the hydrogen network. All parties seemed to agree on this, as it would give both (regional) network operators and market players certainty about their own investments. In addition, the Ministry specifically asked whether it would be desirable for network operators to provide an insight into the need for large-scale storage and electrolysis. Although information from the network operators and the government on suitable locations is certainly appreciated, the market parties point out that this should not take the form of binding instructions.
Storage of hydrogen
With regard to the necessary large-scale storage of hydrogen (a new market with which we have little experience), the Ministry asked what the expectations were of this market and the degree of competition to be expected, whether it would be desirable for network operators to be active in this market, what access conditions to storage capacity should apply and whether the government should control locations for storage. The respondents indicated that in the short term (up to 2030) there will be hardly any competition in this market because of the small short-term demand. However, it is estimated that a storage capacity of up to 47 Terawatt hours will be required in the long term, which will require the large-scale use of empty gas fields and salt caverns. The market parties believe that storage is a commercial activity that can be commercially developed by the market itself and that network operators should therefore not become active in this market. The network operators, not unexpectedly, disagree. Regarding access to hydrogen storage capacity, the future producers note that access to storage should not be uncertain because that would slow down investments. It therefore seems likely that there will be a system of either regulated or transparent and non-discriminatory negotiated access. For storage in pressure tanks (especially near port areas), this may be different. Pressure tanks will in fact provide commercially developed (small-scale) storage, without using the limited underground storage sites (e.g. empty gas fields or salt caverns). It is therefore reasonable that they may be operated on a fully commercial basis.
On the subject of hydrogen imports, the Ministry again asked what the expectations were regarding the degree of competition, whether network operators should be allowed to operate import terminals and whether purely negotiated third-party access would be desirable. There is a consensus among the respondents that hydrogen imports are necessary to meet demand not only in the Netherlands but also in neighbouring countries, Germany in particular. It is also expected that this will be a well-functioning, competitive market in which little government control will be necessary. The market parties therefore do not see a role for network operators in the management of import terminals and emphasise the desirability of purely negotiated third-party access.
The quality of hydrogen
With regard to the quality standard for the national hydrogen network, the Ministry asked which party should determine this quality (network operator, government or the EU). The parties agree that a harmonised EU standard is desirable to promote the interoperability of the various EU networks. The quality of the hydrogen would have to be determined by weighing the expected costs of possible purification when feeding in against the alternative expected costs of purification at off-take. What is most cost-efficient in total depends on the quality that customers require on average and the quality that producers provide on average. In any case, costs will be made for the purification of hydrogen (whether it be at feeding in or off-take). The Ministry therefore also asked who should bear these costs. The respondents partly agreed: green, pure hydrogen should not be 'contaminated' by impure blue hydrogen. If the purification costs were socialised, blue hydrogen would then be subsidised by green hydrogen, which would be undesirable. However, if the optimal purity or quality would turn out to be low (if the majority of customers only need low purity), there is no consensus yet on who should bear these purification costs (the individual costumer, the producers of impure hydrogen, or completely socialised).
Blending of hydrogen in the gas network
On the subject of possible hydrogen blending in the gas network, the Ministry asked whether it would be desirable for hydrogen to be blended into the gas network at a rate of up to 5%. According to a number of respondents, the disadvantages of this are that hydrogen has a higher economic value than natural gas and that there are still technical uncertainties and objections regarding the application of the gas mixture (fluctuations in energy density, which would make the combustion temperature inconsistent, no experience with how hydrogen behaves next to gas in the gas network and the increased nitrogen emissions from some installations). However, proponents point to the great advantages for the development of the hydrogen market. For example, blending into the gas grid would greatly encourage hydrogen production by relieving project developers of the need to wait for future infrastructure, and large-scale blending into the gas grid would even be necessary to transport hydrogen from sea to the coast in the short and medium term.
Market regulation at sea
The final topic on which the Ministry asked for input was the offshore market regulation, and in particular the interaction between wind energy and hydrogen production. The respondents largely indicated that it would be desirable to have combined tenders combining offshore wind energy and offshore electrolysis. With regard to transport networks from sea to land, everyone agreed on the advantages of reusing the existing gas grids. However, this transition is difficult because natural gas and hydrogen will have to be produced and transported side by side for still a long time to come. This transition from gas to hydrogen would have to be centrally coordinated. Whether there should be centralised offshore electrolysis locations (operated by network operators) mirrors the discord onshore: market parties see this as undesirable interference from network operators where the market could do this itself, while network operators do see a role for themselves in this.
With this consultation, the government has ensured that it is aware of all relevant perspectives and interests. There is sufficient consensus on some topics that cautious conclusions can already be drawn. For example, network operators will probably be given a role in directing electrolysis sites but not in their development and management, access to the hydrogen network will eventually be fully regulated, and harmonised hydrogen quality is expected to be introduced at the EU level. However, on some other issues there seems to be little consensus. For example, the most optimal hydrogen quality will depend on the mix of hydrogen production and customer needs (and may therefore change over the years), the future market regulation for hydrogen storage is still very unclear, and it is not yet clear whether the future hydrogen network operator should be given a role in the development and management of the offshore grid.
The Ministry will share its own analysis of the public consultation with the House of Representatives in a letter to be sent to the House before the summer of 2022. It is also necessary for the Ministry to proceed swiftly with the hydrogen market regulation, given that there are already ambitious objectives in the short term. For example, the Dutch targets in the Climate Agreement are to have 500 megawatts of installed electrolysis capacity by 2025, which must be scaled up to 3 to 4 gigawatts by 2030. And yet no large-scale green or blue hydrogen is currently being produced in the Netherlands. However, our Energy & Infrastructure team is already advising on multiple green field hydrogen projects and we even already noted the first concrete plans for large-scale electrolysis are already in place. Our expectation is that after the first large-scale electrolysis pilots, large projects will follow each other in quick succession. Interested parties will then have to act quickly, as large-scale electrolysis projects will depend on the (as of yet limited) offshore wind.
Please contact Max Oosterhuis, Roland de Vlam, Jan-Willem van Rooij or Anne Brugmans in case you would like to know more about this topic or want to discuss what this could mean for your company.