Enagas to present Spanish hydrogen grid plan as regulatory talks advance

Spain's Enagas expects to present its proposal for a national hydrogen network in the coming days, following confirmation of its inclusion as a European Project of Common Interest, senior management said April 23.

Total Spanish investment in the grid, including underground storage and the H2Med undersea link joining France, is unchanged from previous estimates at Eur5.9 billion ($6.29 billion), Enagas CEO Arturo Gonzalo said.

Between April and October, Enagas will request funding from the Connecting Europe Facility for the study phase and initial construction of the projects, he noted.

Indeed the H2Med project connecting Barcelona and Marseilles is already "materializing" after Enagas contracted engineering firm Wood during first quarter 2024 for the design phase, Gonzalo told analysts on a call.

In parallel to the development, Spain is working on the regulatory framework for its green hydrogen sector, part of which involves the re-establishment of a National Energy Commission (CNE), which is in the process of demerging from the Market and Competition Regulator (CNMC).

Under the new CNE, Enagas will target a return of investment of around 7% to 8% pre-tax, the commission said.

The most recent discussions with the government and regulator have moved away from a premium-based model to one where the state assumes the risk and offers a guaranteed income, similar to the gas model, Gonzalo said.

This could mean a mechanism with a pass-through of operating and capital expenditure and a "work in progress" retribution.

The regulation would need to be aligned with European peers, be "realistic" in terms of interest rates and include a mechanism to account for inflation, Gonzalo said.

Platts, part of S&P Global Commodity Insights, assessed the cost of producing renewable hydrogen via PEM electrolysis in Europe at Eur4.64/kg Apr. 22. (Netherlands, including capex), based on month-ahead power prices.

Beyond 2030

Looking ahead, Enagas intended to build on the current hydrogen planning by including infrastructure proposals for green ammonia and CO2 in its next strategy update, the company said.

The potential of gas-fired capacity closures, which have dominated press reports in recent days, were also unlikely until after 2030, it estimated.

This assumption is based on the government's National Energy and Climate Plan, which does not foresee any reduction of gas-fired capacity by that date, Gonzalo said.

After 2030, however, it was looking increasingly likely that green hydrogen would become the thermal back-up option for the grid and gradually oust natural gas from that role, Gonzalo said.

Enagas is the operator of Spain's network of gas pipelines and LNG terminals and was, in December 2023, designated as the country's provisional hydrogen transmission network operator (HTNO).

Strengthening renewable generation in Spain in Q1 meant gas demand for power generation fell 22% year on year in Q1 to 16.1 TWh.

However, Enagas reported an 8% uptick in industrial gas demand to 47.6 TWh, taking overall gas demand to 88.3 TWh, a decline of 3% year on year.

Weak winter demand meant that storages ended Winter at 78% full, with 100% of forward storage capacity booked as well as 90% of LNG tank capacity.

In its international operations, the company said it expects an outcome from a Peruvian arbitration during Q2, while in Europe it expects the start-up of commercial operations at a 5.5 billion cubic meter per year floating regasification unit in Greece in May. Enagas holds a 13% stake in Greek TSO Desfa.