EC proposes phasing in 'additionality' rules on renewable hydrogen to 2028

The European Commission has published long-awaited proposals setting out rules for green hydrogen production in the EU, with a phasing in of requirements for additional renewables to 2028 and monthly matching with contracted power until 2030 ahead of hourly matching.

To count towards a member state's renewable energy targets, from 2028 the renewable power used in hydrogen production must come from new production assets brought online no more than three years before the electrolyzer, the EC said Feb. 13 in a Delegated Act.

Member states will have the option of introducing stricter rules on temporal matching of renewables and hydrogen production from July 2027.

The power must be generated in the same or a connected bidding zone, provided that the power used is not cheaper than in the bidding zone where the electrolyzer is.

The transition period allowed first movers in the renewable hydrogen sector to be exempt from the additionality requirement until 2038, for installations commissioned before 2028, industry group Hydrogen Europe said Feb. 13.

"These strict rules can be met but will inevitably make green hydrogen projects more expensive and will limit its expansion potential, reducing the positive effects of economies of scale and affecting Europe's capacity to achieve the goals set in RePowerEU," Hydrogen Europe said in a statement. "The role of governments will be crucial in supporting this sector and closing the price gap between renewable and conventional hydrogen."

Platts, part of S&P Global Commodity Insights, assessed the cost of producing renewable hydrogen via alkaline electrolysis in Europe at Eur7.98/kg ($8.51/kg) Feb. 10 (Netherlands, including capex), based on month-ahead power prices. PEM electrolysis production was assessed at Eur9.71/kg. Unabated fossil fuel-derived hydrogen production via steam methane reforming was Eur3.78/kg (including carbon and capex).

"A far-from-perfect regulation is better than no regulation at all," Hydrogen Europe CEO Jorgo Chatzimarkakis said in the statement. "At last, there is clarity for industry and investors and Europe can kick-start the renewable hydrogen market."

Chatzimarkakis said the EU's rules now gave the European hydrogen industry a way to respond to US support for the sector there, which has received a boost through production tax credits under the 2022 Inflation Reduction Act.

Unlocking FIDs

The EU is aiming to produce 10 million mt/year of renewable hydrogen domestically by 2030, with a further 10 million mt/year coming from imports.

The EC estimates around 500 TWh of renewables will be needed to produce 10 million mt of hydrogen, corresponding to around 14% of total EU power consumption in 2030, it said.

"This ambition is reflected in the Commission proposal to increase the 2030 target for renewables to 45%," it said.

A large number of projects in Europe were awaiting finalized EU rules before taking final investment decisions on renewable hydrogen plants, with publication of the proposed rules delayed several times throughout 2022.

There are 16.4 million mt/year of announced renewable hydrogen projects in the EU yet to start construction, according to analysts at S&P Global Commodity Insights, with 13.7 million mt/year of that due to be start operations by 2030.

"We see it as a positive for the hydrogen sector in general, allowing project FIDs in Europe to get moving with the rules/timelines now understood," investment bank Jefferies said in a research note.

For imported hydrogen, a certification mechanism relying on voluntary schemes "will ensure that producers, whether in the EU or in third party countries, can demonstrate in a simple and easy way their compliance with the EU framework and trade renewable hydrogen within the single market," the EC said.

A second Delegated Act provides a methodology for calculating life-cycle greenhouse gas emissions for renewable fuels of non-biological origin -- the vast majority being hydrogen-based products.

Nuclear fillip

In what has been seen as a concession to the French nuclear industry, meanwhile, grid-connected hydrogen production will also count as renewable if the carbon intensity of the grid is less than 18 gCO2eq/MJ (around 65 gCO2e/kWh, according to Jefferies), and providing the hydrogen producer sources renewable power for the installation via a power purchase agreement, and also meets the temporal and geographical correlation rules.

However, the renewable power under the PPA need not come from a new installation.

Hydrogen production would also count as renewable if it is connected directly to a new renewables installation or is produced from a grid that is over 90% renewable.

"In such zones, renewable electricity generation will already exceed demand during large spans of the year and hydrogen production can absorb excess renewable electricity which would otherwise be wasted," the EC said.

However, to ensure hydrogen production does not take place at times of scarce renewables generation, the number of hours of production would be limited to reflect the share of renewables in the system, it added.

The EC also pointed to a role for grid balancing for hydrogen, saying it was "appropriate to consider" grid power as renewable when hydrogen production supported the integration of renewables into the electricity system, reducing the need for redispatching of renewables.

Rulebook scrutiny

The two Acts will be transmitted to the European Parliament and Council, which will have two months to scrutinize them. The other EU bodies can either accept or reject the proposals, but they cannot be amended, the EC said. The scrutiny period can be extended by two months on request.

Chatzimarkakis said the EC will carry out a review by 2028 on the introduction of hourly correlation form 2030, "and so could possibly avoid treating renewable hydrogen unequally to any other electricity-consuming sector."

Environmental lobby groups were quick to condemn the proposed regulations, with NGO Global Witness labeling them "a gold standard for greenwashing."

The group said that allowing green hydrogen production from existing renewables capacity in the short term would draw renewable power from the grid, meaning it would be replaced by fossil fuel generation.