The energy impulse: the EU Commission's draft delegated act on the use of hydrogen in the transport sector - is the hydrogen ramp-up in Germany running out of steam?

Green hydrogen is thought to play a key role in the success of the energy and transport transition. It takes considerable effort to establish a functioning hydrogen economy system, however. The draft of the so-called delegated act to the Renewable Energy Directive, referred to as the RED II, which has now been published, has caused an uproar in the H2 industry. 

Germany is endeavouring to create the energy regulatory framework for a rapid ramp-up of the (green) hydrogen economy, and not just through the German government's Easter package, which it already aims to have finalised before the summer recess.

However, to date there has been no viable regulation of the requirements for green hydrogen that would allow it to be considered an energy carrier from renewable energies and, for example, enable it to be counted towards the (national) targets for the share of energy from renewable sources in RED II. With its Easter package, the German government defines the requirements for green hydrogen for the first time. Sec. 26 (1) of the draft German Energy Levies Act [Energien-Umlage-Gesetz-Entwurf, EnUG-E] reads: "Green hydrogen is hydrogen produced electrochemically by consuming electricity from renewable sources." More details on the requirements for producing green hydrogen are to be regulated in an ordinance. Several provisions of the Easter package are subject to the EU Commission’s approval under state aid law, as are Secs. 69b and 64a (6) of the 2021 German Renewable Energy Sources Act [Erneuerbare-Energien-Gesetz, EEG] on the promotion of the production of green hydrogen. This is to take place only once the associated ordinance has been issued in accordance with Sec. 93 EEG 2021. Although the latter was achieved with Secs. 12h et seqq. of the German Renewable Energy Sources Ordinance [Erneuerbare-Energien-Verordnung, EEV], the EU Commission’s review is still ongoing because it is working on a uniform Europe-wide definition of green hydrogen. A - narrower - definition of green hydrogen (renewable hydrogen) is contained in the draft delegated act, which was published on 20 May 2022. According to this, green hydrogen ("renewable hydrogen") is hydrogen produced exclusively from renewable energy sources, with the exception of biomass. 

Draft delegated act disappoints Germany’s hydrogen economy

Art. 27 (3) RED II authorises the EU Commission to set uniform EU requirements for the production of liquid or gaseous renewable fuels - i.e. in particular hydrogen - for sale to the transport sector. The draft now published packs quite a punch; players in the German hydrogen economy agree that the draft constrains the hydrogen economy's ramp-up. This comes as no surprise, however; the industry was warned by multiple leaks of unofficial drafts of the delegated act. Despite the immediate and urgent warnings by companies and industry associations of the negative consequences for the hydrogen economy in Germany resulting from the leaked drafts, the official draft of the delegated act now published does not contain any significant changes to the leaked drafts that were viewed critically by the entire industry. 

The delegated act will initially apply only to the transport sector. However, we do not expect the EU Commission to impose different requirements for the various sales channels for green hydrogen. There is therefore reason to fear that the mechanisms laid down in the delegated act will serve as a blueprint for other sectors. From the point of view of the players in Germany’s hydrogen economy, the delegated act in its current version will slow down the hydrogen ramp-up in Germany instead of accelerating it. In detail:

Additionality criterion - only new RE plants may supply electricity

In essence, the draft delegated act stipulates four possibilities for obtaining green hydrogen:

  • "Direct line" - Here, the electrolyser is directly connected to a renewable energy system (RE plant); there is no grid connection or it is metrologically ensured that no electricity from the grid has been used for the production of fuels. The RE plant may have been in operation for a maximum of 36 months prior to the electrolyser. The electrolyser’s capacity may be expanded up to 24 months after its initial start-up.
  • "Green electricity country" - If electricity is taken from the grid for electrolysis, it is considered fully renewable if the electrolyser is located in a bidding zone in which the average share of electricity from renewable sources in the previous calendar year was above 90% and the production time of liquid or gaseous transport fuels of non-biological origin (hydrogen) does not exceed a maximum number of hours calculated according to a key.
  • "PPA" - Electricity taken from the grid will also be considered fully renewable if the generator of hydrogen has entered into one or more power purchase agreements (PPAs), subject to the following cumulative conditions: 
    • (1) The RE plant whose electricity is purchased via PPA may have been in operation for a maximum of 36 months prior to the electrolyser. This criterion will first apply as of 1 January 2027.
    • (2) The RE plant fundamentally may not have received any statutory aid. This criterion shall also first apply as of 1 January 2027.
    • (3) The draft delegated act also establishes the criterion of simultaneity. This means that the electricity generated in the RE plant and contracted via PPA basically has to be consumed by the electrolyser within a defined time frame (one-hour period). The following alternative options exist under the requirements of the delegated act for meeting the simultaneity criterion: (a) The RES-E and the hydrogen must have been produced during the same hour. (b) If the RES-E is taken from an electricity storage system behind the grid interconnection point, it must have been charged during the same hour in which the electricity was generated under the PPA. By the end of 2026, the simultaneity according to (a) and (b) will also be fulfilled if the generation of the RES-E, respectively the storage of the same, and the production of the hydrogen take place during the same calendar month. (c) The criterion of simultaneity is also deemed met if the hydrogen is generated within an hour in which the market clearing price for electricity resulting from the day-ahead market coupling in the bidding zone is less than or equal to 20 EUR/MWh or the CO2 allowance price described in more detail in the draft delegated act is undercut.
    • (4) There are also requirements with respect to the location of the two plants: (a) Either the RE plant and the electrolyser are located in the same bidding zone, or (b) the RE plant is located in an adjacent bidding zone and the electricity price there is at least as high as in the bidding zone of the electrolyser during the relevant period on the day-ahead market, or (c) the RE plant is located in an offshore bidding zone adjacent to the location of the electrolyser. In addition, the member states will also be able to define further location criteria. 
  • "Grid congestion" – The electricity used for electrolysis from the grid is also considered fully renewable if the hydrogen producer is able to demonstrate that the electricity used for electrolysis reduces the need for redispatch measures for RE plants in a corresponding scope.

Period for submitting comments until 17 June 2022

In particular the criteria of additionality and simultaneity, as currently drafted in the delegated act, are likely to make electrolysis projects in Germany noticeably more expensive in addition to making the continuous supply of green hydrogen to industry almost impossible without massive imports. The hydrogen industry still has until 17 June 2022 to comment on the draft delegated act before it is submitted to the EU Parliament and Council. Let us hope that the EU Commission will take the industry's warnings seriously and give them cause to adjust important determining factors of the delegated act. A successful ramp-up of the hydrogen economy in Germany can only succeed if access to RES-E is not too severely restricted and electrolysers can be operated economically, that is to say in particular with an adequate number of full load hours.

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Dr. Carmen Schneider

Dr. Carmen Schneider


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