18 May 2022, the European Commission released the REPowerEU plans about reduction of the Russian natural gas demand by the end of 2022 and further steps for Europe independence from Russian fossil fuels by 2030. One of the key roles in the REPowerEU plays hydrogen that should replace fossil fuels in industry and transport. For reaching this goal the REPowerEU imposes as the targets 10 million of renewable hydrogen for import by 2030 additionally to the same amount for the EU domestic production.
However, the achievement of these ambitions is possible only in case of appropriate regulation of renewable hydrogen for both domestic and import production. Currently the requirements to the renewable hydrogen production in the EU are not defined. In order to solve this problem on 20 May, 2022, the European Commission released for public feedback the delegated act for production of renewable transport fuel (“Delegated Act for hydrogen production”) and the delegated act with methodology for assessing greenhouse gas emission savings for certain fuels (“Delegated Act for GHG emission savings”).
Notwithstanding of the expectation about certain clarity and predictability of regulation for renewable hydrogen, the proposed delegated acts create additional uncertainties for the hydrogen sector.
The main question is possibility to apply the delegated acts to the renewable hydrogen. Both delegated acts include the requirements to the renewable liquid and gaseous transport fuel of non-biological origin for the transport sector. However, according to the REPowerEU plan the targets of renewable fuels of non-biological origin for transport sector is only 5%, when for the industry is 75%.
It is also expected that the delegated acts will be applied to renewable hydrogen as renewable fuels of non-biological origin regardless of their end use. But it will be possible only after revision of the Renewable Energy Directive that is planned in autumn.
The rules of the Delegated Act for hydrogen production include conditions about application to renewable hydrogen production in the non-EU countries that also creates uncertainties for hydrogen import. The REPowerEU plan includes the support of three major hydrogen import corridors via:
- the Mediterranean;
- the North Sea area and
- Ukraine, when conditions allow.
However, it is not clear how to ensure application the same rules for hydrogen production as in the EU in the third countries.
Application of the rules of the Renewable Energy Directive to the third countries is not a new practice. For instance, recognition of guarantees of origin for renewable electricity in the third countries is possible on basis of agreements with the third countries and their compatible guarantees of origin systems. In contrast to this approach, the rules of Delegated Act for hydrogen production should apply regardless production of hydrogen inside or outside the territory of the EU.
This approach has a lack of flexibility for recognition of the renewable hydrogen production from the third countries and can become an obstacle for import. However, in order to determine the main barriers in the proposed regulation of the hydrogen production it is important to understand the status of the delegated acts and possible ways for the implementation of the delegated acts in the third countries.
What is a delegated act?
Delegated act is a non-legislative act that is subject to adoption by the European Commission based on the delegated power under a legislative act, like a directive. The delegated act aims to supplement or amend of some conditions of the legislative act. In case of hydrogen the delegated acts supplement conditions of the Renewable Energy Directive regarding hydrogen production and GHG emission savings.
The European Commission adopts the delegated acts after consulting with expert groups. However, during two months after the adoption of the European Parliament and the Council are entitled on any objections to these acts. Only after expiring this term, the delegated acts can come into force.
If the rules for adoption of the delegated acts in the EU countries are clear, the application of the delegated acts in the third countries depend on the international obligations of the third countries.
Like an example can be considered Ukraine that is mentioned in the REPowerEU among major import corridors for hydrogen. This country should implement the adapted version of the Renewable Energy Directive by the end of 2022 on the basis of the decision of the Ministerial Council of the Energy Community. However the adapted version of the Renewable Energy Directive does not include the delegated acts and their implementation will be subject to additional decision of the Permanent High Level Group of the Energy Community.
At the same time, even after adoption of all decisions in the Energy Community the implementation of the delegated acts in Ukraine is possible only through amendments to the laws of Ukraine that takes from several months to years. In other words, implementation of the delegated acts in the third countries can be complicated and long-term process.
Except procedural obstacles the delegated acts can have completely different requirements in comparison to the national rules of the third countries. In order to check the possibility to apply the delegated acts to the third countries it is important to understand their requirements to hydrogen production in the EU.
How “renewable hydrogen” is defined in the Delegated Act for hydrogen production?
According to the Delegated Act for hydrogen production, the renewable hydrogen defined as hydrogen derived only from renewable energy sources except biomass. At the same time the Delegated Act for hydrogen production contains the requirements to the renewable liquid and gaseous transport fuel of non-biological origin that will be most likely applied for renewable hydrogen.
The main requirements to the hydrogen production in the delegated act are based on three main principles:
Additionality means support for deployment of new renewable capacity through renewable hydrogen production.
This principle is based on two main approaches:
- Direct connection (off-grid) of the equipment for hydrogen production with renewable generation, but:
renewable power plants should be commissioned not later than 3 years before commissioning of the equipment for hydrogen production; and
connection to the grid is possible only with a smart metering system;
- Connection to the grid (on-grid) for hydrogen production, when:
Equipment for hydrogen production is located in a bidding zone with the average proportion of renewable electricity more that 90% in the previous calendar year; or
Electricity is renewable for hydrogen production, if renewable power plants came into operation not earlier than 3 years before the equipment for hydrogen production without supportive scheme and purchased under a power purchased agreement (PPA).
The delegated act contains also so called grandfathering rules that provide opportunity to use existing renewable capacity for hydrogen production till 2027.
- Temporal correlation
Temporal correlation means possible period for hydrogen production from factual renewable electricity generation.
This principle is based on one-hour period for hydrogen production, but until 2027 the hydrogen production will be allowed on the month time period. At the same time, it is possible to use energy storage or produce hydrogen during a one-hour period where the clearing price of electricity is equal or lower 20 EUR per MWh.
- Geographical correlation
Geographical correlation determines the requirements to location of electrolysers. In particularly, the electrolyser should be in the same bidding zone as renewable capacity and exception is possible only when the electricity prices in other bidding zone are equal or lower than in the bidding zone of the electrolyser.
The proposed principles were developed for the EU countries based on current development of the electricity markets of these countries and existing regulation for renewables in the EU. However, the application of these rules to other countries with different maturity and regulation of the electricity markets can be complicated.
What are possible barriers for application of the Delegated Act for hydrogen production on the example of Ukraine and the UAE?
The main purpose of the Delegated Act for hydrogen production is incentivise of deployment of renewable capacity. However, on practice application of all requirements in the third countries can be difficult and create the additional barriers for import of renewable hydrogen in the EU.
It is expected that import of hydrogen in the EU will be through different projects and partnership agreements. Propose to consider the possible barriers for application of the delegated acts on the example of the Green Hydrogen @ Blue Danube project for import hydrogen from Ukraine and hydrogen cooperation contracts with the United Arab Emirates (UAE).
Green Hydrogen @ Blue Danube Project
The project is developed for production and transportation of renewable hydrogen for industrial consumers. The implementation of the project is based on the European program of the Important Projects of Common European Interests. It is expected 80,000 tons of renewable hydrogen production per year, produced in the South-East Europe. Ukraine has several pilot projects with electrolysers with capacity 3 GW and 5 GW solar generation for import of renewable hydrogen through Green Hydrogen @ Blue Danube project with use of the Liquid Organic Hydrogen Carrier (LOHC) technology.
In order to import renewable hydrogen on the basis of this project it is important to comply with the EU requirements to the renewable hydrogen. At the same time, the possibility to apply all rules of the Delegated Act for hydrogen production in Ukraine is subject to additional discussion.
The following main issues can occur in process of realization of hydrogen projects under the delegated acts in Ukraine:
Connection of electrolisers to the renewable capacities through direct line (off-grid) in Ukraine is possible only after approval of the NEURC (Regulator). At the same time these is no existed practice for such approach;
Increase of renewable capacities can be restricted by the transmission system operator due to the lack of balancing capacities in the energy system of Ukraine. In order to construct wind or solar power plant a developer should receive the technical conditions from the DSO or/and the TSO but obtaining of technical conditions can be restricted by technical reasons;
Ukraine has only one bidding zone, where over 50% of electricity is generated by the nuclear generation. For this reason, the proposed criteria with 90% of renewable electricity in the bidding zone will not be applicable for Ukraine;
At the same time Ukrainian hydrogen projects can have a lot of questions with conclusion of the PPAs as confirmation of renewable electricity. Ukraine does not have any practice for conclusion of the PPAs with renewable generation due to requirements for conclusion of all bilateral agreements on the Ukrainian Energy Exchange and application of the feed-in tariff. Currently the PPAs can be concluded on the bilateral market as physical PPAs, but the buyers should become market participants and be responsible for imbalances, as well as to receive access to the electricity trade at the power exchange. Conclusion of the financial PPAs is not possible due to the lack of implemented guarantees of origin scheme and a lack for regulation for derivatives market.
Ukraine’s electricity market works under the rules of the Third energy package, but at the same time the significant decrease of the electricity prices is possible due to the market abuse and manipulation by some market participants. But even in such cases the lowest electricity prices on the electricity market in 2021 was 30,40 EUR/MWh. This means that on the Ukrainian market the conditions regarding the clearing price of electricity equal or lower 20 EUR per MWh will not work.
In other words, the application of the Delegated Act for hydrogen production in Ukraine will be connected with a lot of regulatory and technical questions that can create additional barriers for realization of the hydrogen projects like Green Hydrogen @ Blue Danube project in Ukraine.
Hydrogen cooperation contracts with the United Arab Emirates (UAE)
For hydrogen import Germany discussed with the UAE the possible ways for partnership. In March 2022, Abu Dhabi National Oil Company (ADNOC) announced about the following agreements with German companies:
- individual agreements with German companies Aurubis, RWE, GETEC and STEAG for collaboration in low-carbon and renewable hydrogen derivatives;
- joint study agreement between ADNOC, Hydrogenious LOHC Technologies, JERA, Uniper for studying hydrogen transportation with use of the LOHC technology.
However, to supply the renewable hydrogen from the UAE in Germany according to the Delegated Act for hydrogen production, the hydrogen production in the UAE should comply to all rules of the delegated act.
At the same time the UAE has its own specific for deployment of the renewable generation. The electricity market of Abu Dhabi and Dubai is based on a single buyer model in comparison to the liberalised electricity market of the EU. Thus, only the Emirates Water and Electricity Company (EWEC) and Dubai Electricity and Water Authority (DEWA), as single offtakers, purchase renewable electricity under the long-term PPAs.
This means that the proposed approach for additionality under the Delegated Act for hydrogen production can be restricted in the UAE. In particularly, on the basis of a single buyer market model it is not clear how hydrogen producers in the UAE will be able to have direct PPAs with renewable capacity.
At the same time Abu Dhabi has the certification system for clean energy developed by the International Renewable Energy Certificate Standard Foundation that can confirm the purchase of renewable electricity. But the certification systems for renewable energy are not included as an option for confirmation of use of renewable energy for hydrogen production under the delegated act.
The description of possible obstacles for application of the delegated act in Ukraine and the UAE confirm differences in the regulation of renewables in different countries that can be a potential barrier for renewable hydrogen import in the EU.
Thus, in order to ensure hydrogen import from the third countries it is highly important to have not only clear regulation, but also flexible conditions. Each country has its own electricity market with certain rules for renewable generation and the proposed by the delegated acts conditions cannot be applied for some countries like Ukraine or the UAE. At the same time these countries can have other options for reaching the same results for production of renewable hydrogen in cost- and time-effective ways.
Maryna Hritsyshyna is a Senior Expert Regulatory Affairs, Hydrogenious Lohc Technologies GmbH