What is the delegated act?
On 20 May the European Commission opened a consultation for a delegated act (DA) supplementing the Renewable Energy Directive (RED II), published in December 2018. The DA specifically refers to Article 27 (3) of RED II, which outlines the rules regarding minimum shares of renewable energy in the transport sector. One form of delivering renewable energy the transport sector is via renewable fuels of non-biological origin. In short: the DA sets out the conditions a hydrogen producer would need to meet in order for their hydrogen to be considered renewable (green hydrogen).
Background
In order to reduce Europe’s reliance on Russian natural gas, the European Commission has outlined several measures under its REPowerEU package that aim to reduce gas demand and provide alternative sources of supply. One means of reducing gas demand is via the introduction of renewable hydrogen, a molecule that can be used instead of natural gas for hard-to-abate sectors such as transport and industry.
Within the REPowerEU package, the commission outlined a need to increase renewable hydrogen supply from 5.6 million tonnes (mt) by 2030, setting a new target of 20mt. The share of supply would be split across domestic production and imports from outside the EU. The introduction of 20mt of renewable hydrogen could displace 25-50bcm of natural gas. As such, renewable hydrogen production capacity and supply must be expanded. However, to achieve this the market needs clear guidelines on what is considered renewable hydrogen, resulting in the DA. Alongside this, the commission’s hydrogen accelerator aims to establish 17.5GW/year of annual electrolyser production capacity by 2025.
Who does the delegated act apply to?
Alongside this, the commission’s hydrogen accelerator aims to establish 17.5GW/year of annual electrolyser production capacity by 2025. This is important, as 50% of Europe’s renewable hydrogen supply, some 10m tonnes, is expected to come via exports from non-European countries by 2030. Meaning if international producers of hydrogen wish to export to the EU, they will also need to meet the DA’s guidelines.
Producing renewable hydrogen
In order to produce renewable hydrogen, the power supplied to an electrolyser must be deemed fully renewable. According to the DA, an electrolyser’s power supply can come from either a direct connection with a renewable asset, or via the grid, provided specific criteria underpin both scenarios in order for such power to be deemed fully renewable. Importantly, the sub criteria for renewable hydrogen production are guided by three key principles:
1. Additionality: Ensuring that the hydrogen asset is not contributing to the use of fossil fuels by using existing renewable power supply which meets current demand.
2 & 3. Temporal and geographical correlation: Hydrogen is considered renewable if the renewable power is produced within certain timeframes and locations relative to the electrolyser.
Under direct connection, proving temporal and geographical correlation is much easier. Whereas renewable power supplied by the grid runs into stricter criteria to maintain renewable status.
Direct connection
Direct connection consists of an electrolyser and a renewable asset being connected via a direct power line or within the same installation.
Further to this:
- The renewable asset and the electrolyser come into operation within three years
- If additional capacity is added to the hydrogen asset, that capacity will be considered part of the original installation provided it is added within two years
- The renewable asset is not connected to the grid – or, if the renewable asset is connected to the grid, the hydrogen producer can prove that no grid electricity is used for the electrolyser
Grid-sourced electricity
There are three ways that power supplied to an electrolyser via the grid can be considered fully renewable under the delegated act:
1. Hydrogen production occurs within a grid where the average share of renewable power is 90% (based on the previous calendar year)
2. The hydrogen producer has entered into a Power Purchase Agreement (PPA) with a renewable asset operator and such power is supplied via the grid (See sub-criteria below)
3. Grid-sourced electricity is supplied during an imbalance period, whereby the amount of power generated and on the grid exceeds demand, and power supplied for hydrogen production has reduced the need for re-dispatching
Renewable PPA sub-criteria and the transitional phase to 2027
The DA applies several sub-criteria to the use of PPA-sourced power delivered via the grid.
On geographical relation, the commission has outlined that at least one of the following conditions are met:
- The renewable asset is located (or was located at the commencement of its operation) in the same bidding zone as the electrolyser
- The renewable asset is in a neighbouring bidding zone , but power generated by the asset is exported to a bidding zone where the Day-ahead power price is either equal to or higher than that of the renewable asset’s bidding zone
- The renewable asset is located in an offshore bidding zone adjacent to the bidding zone where an electrolyser is located
The DA also outlines a transitional phase for the implementation of additionality and temporal correlation criteria pertaining to PPAs that lasts until 31 December 2026.
Until 31 December 2026:
- Hydrogen must be produced during the same calendar month as the electricity produced under the renewable PPA. Or, via a storage asset (battery) located at the same place as the electrolyser that is charged during the same calendar month as the power supplied via the renewable PPA
Beyond 1 January 2027:
- The renewable asset came into operation within three years (36 months) of the electrolyser. Following this, the same power asset operator and electrolyser operator can enter into future PPAs following the expiry of an initial PPA between the two parties, with hydrogen production still being considered renewable
- The renewable asset has not received support from operating aid or investment aid
Hydrogen is produced using power from the PPA:
- During the same one-hour period that the renewable electricity is produced; or
- During the same one-hour period that a storage asset (battery) has been charged using power from the PPA, provided the storage asset is located in the same place as the electrolyser
Outside of the transitional phase, under the criteria set out by the commission regarding PPAs, hydrogen can be produced during the same one-period where the clearing price of power resulting from single Day-ahead market coupling in the bidding zone is lower than or equal to €20/MWh, or 0.36 times the carbon price for emitting one tonnes of carbon dioxide equivalent.
