Netherlands on track for installing electrolysis production capacity in the Netherlands of 500 MW by 2025 and 3-4 GW with a potential increase to 8 GW by 2030.
In its Government strategy on Hydrogen (Kabinetvisie waterstof), published in March 2020, the Dutch government envisages that hydrogen will be an indispensable part of the sustainability strategy for industrial clusters, ports and the transport sector generally. Within all industrial clusters in the Netherlands, market parties are preparing for hydrogen to play a growing role, including through feasibility studies, the development of business cases and proposed investments. In November 2022, the Minister of Economic Affairs and Climate confirmed that the Netherlands is on track to meet its ambition of having an installed electrolysis production capacity in the Netherlands of 500 MW by 2025 and 3-4 GW by 2030, and possibly realizing such production capacity sooner than originally planned. Moreover, certain political parties (Liberals and Democrats) have launched plans to increase these numbers to 8 GW by 2030. Dutch parliament agreed to target 8 GW in 2032 as discussed in a parliamentary debate at the end of 2022.
In January 2021 a National Hydrogen Programme (Nationaal Waterstof Programma) was launched. It describes in further detail the activities to be undertaken by the National Hydrogen Programme to facilitate and realise the potential of hydrogen as part of the energy transition in the Netherlands.
The National Hydrogen Programme was succeeded by the hydrogen road map which was published in November 2022. The hydrogen road map provides an overview of the current state of affairs on hydrogen and the sectors influenced by it. Additionally, it outlines the planned developments and hydrogen potential for long term (i.e., after 2030) as well as short term goals and actions to be taken for the periods 2022-2025 and 2025-2030.
Highlights during 2022
In 2022 a number of milestones were achieved. Inter alia further details on the anticipated market regulation for hydrogen were published, HyNetwork Service (“HNS”) was (provisionally) appointed as hydrogen network operator and specific incentive schemes targeted at the upscaling of hydrogen production were introduced.
On top of this, in early July 2022, Shell Nederland and Shell Overseas Investments took the Final Investment Decision (FID) to build the Holland Hydrogen I renewable hydrogen plant. This electrolyser of 200 MW will be constructed on the Tweede Maasvlakte in the Port of Rotterdam. The renewable hydrogen produced will supply the Shell Energy and Chemicals Park Rotterdam, by way of the HyTransPort pipeline, where it will replace some of the grey hydrogen usage in the Shell refinery.
Furthermore, a series of pilot audits regarding certification of renewable fuels of non-biological origin (RFNBOs) against the draft RED II requirements was concluded in December 2022. The pilot was organized by the Ministry of Economic Affairs and Climate, the Netherlands Enterprise Agency (Rijksdienst voor Ondernemend Nederland) and the National Hydrogen Programme. The pilot led to the conclusion that compliance with the RED II RFNBO criteria can be demonstrated by using RFNBO certification schemes.
In addition, as of 1 January 2023, CertiQ and Vertogas (subsidiaries of TenneT and Gasunie, respectively) have merged into one organization, called VertiCer. VertiCer has thereby become the sole agency in the Netherlands and a one-stop shop providing guarantees of origin for all sustainable energy carriers, including green hydrogen.
Finally, in its REPowerEU plan, the European Commission has outlined a “hydrogen accelerator” concept to scale up the deployment of renewable hydrogen. This plan demonstrates that the ambition is to produce 10 million tonnes and import 10 million tonnes of renewable hydrogen in the EU by 2030.
REPowerEU: reinventing Europe's energy architecture, Lothar Van Driessche (linklaters.com)
The market regulation of hydrogen will have the following characteristics:
- Production of hydrogen through electrolysis will be a market activity. That said, large-scale electrolysis production could use steering and guidance (locatiebeslissingen) from the Dutch government. Therefore, the Minister for Climate and Energy intends to influence the location of large-scale onshore electrolysis production sites by means of: (i) spatial regulations; (ii) network planning; and (iii) establishing detailed policy frameworks (i.e. Energy Strategy Plans (Energiestrategieën) and the National Plan Energy System (Nationaal Plan Energiesysteem)).
- Private hydrogen networks established to date and new geographically limited private hydrogen networks remain private but newly developed large-scale private hydrogen networks may become part of the national hydrogen transport network (see below).
- In the event of market failures, Dutch network companies (netwerkbedrijven) could play a role in developing underground storage facilities and import terminals for hydrogen. At a later development stage this should be a market activity and the Minister for Climate and Energy foresees a system of negotiated third party access regarding hydrogen import terminals and, subject to other EU Member States’ preference, either negotiated or regulated third party access with respect to hydrogen storage facilities.
Scaling up and incentivising parts of the hydrogen value chain
It is expected that in the next year subsidies to realize up to 1 GW of renewable hydrogen production via electrolysis are made available. The main instruments to incentivize production of renewable hydrogen are subsidies (including budgets for innovative pilots and demonstration projects pursuant to the specific funding programme (Groeifondsprogramma GroenvermogenNL) and DEI (for innovative techniques) and SDE++ subsidy scheme) and stimulating the use of renewable hydrogen as part of refinery processes (the so-called refining route).
In addition, funds are being made available for selected Important Projects of Common European Interest (IPCEI). Through the European IPCEI state aid framework, projects can be subsidised to boost the development of European hydrogen chains. The Netherlands takes part in all 4 waves within IPCEI Hydrogen announced so far with a total budget of over EUR 1.6 billion. The 4 waves are: (I) technological development (budget EUR 35 million), (II) large scale electrolysis (budget EUR 783.5 million), (III) infrastructure and storage (budget EUR 600 million) and (IV) mobility (budget EUR 199 million).
Over the summer of 2022 the first wave of projects selected by the Netherlands was approved by the European authorities. Under the second wave, concerning large electrolysis projects, seven projects developed by inter alia Ørsted, Shell, ENGIE, Air Liquide and HyCC received subsidies for approximately EUR 800 million. Once realised, such projects will add up to a nominal installed capacity of 1.150 MW of electrolysis projects to produce (renewable) hydrogen.
The Dutch government will release further details of an upscaling instrument for smaller electrolysis projects up to 50MW. A public consultation on the subsidy scheme scaling up renewable hydrogen production via electrolysis (Subsidieregeling opschaling hernieuwbare waterstofproductie via elektrolyse) was held in 2022. A subsidy budget of EUR 250 million is being made available. It is expected that the tender will open in March 2023 and subsidies will be granted to projects for a total volume of 50 -100 MW.
In 2023 the Dutch government will decide upon the budget made available out of the Climate Fund (in which EUR 15 billion is allocated to upscaling of renewable hydrogen (carriers)). Following such decisions more details will be known on the instruments that will assist in realizing the first 4 GW of electrolysis capacity. In 2024 the Minister of Economic Affairs and Climate will assess whether an increase up to 8 GW of electrolysis production capacity by 2030 is preferred.
Other specific (indirect) incentivising measures to accelerate the use of hydrogen techniques are a CO2 levy on emissions from industrial installations and custom-made agreements with the 20 largest industrial emitters in the Netherlands, as set out in further detail above. Furthermore, the Dutch government is considering an obligation for industrial parties to use renewable hydrogen (on the basis of binding RFNBO off-take targets set by Europe) as from 1 January 2026 which binding target will gradually increase towards 2030 and demand subsidies (vraagsubsidiëring) by means of either SDE++, contracts for difference or one- or double-sided tenders. The preferred mechanics will be further explored. Obviously, details will depend on the outcome of the discussions taking place in Europe on the amendments to RED II.
Hydrogen transport network
The Dutch government envisages re-using the existing gas infrastructure for its hydrogen transport network and the rollout plan for the hydrogen transport network will include details where (and where not) hydrogen transport infrastructure will be developed. In June 2022 the Minister for Climate and Energy informed the public that a flexible, adaptive and phased rollout of the hydrogen transport network is necessary given the current uncertainties on the development of a hydrogen market as well as the interdependency of production, demand and infrastructure of hydrogen.
Gasunie’s subsidiary HyNetwork Services (“HNS”) will in due course become the designated regulated hydrogen network operator for onshore transport. For now, HNS will take the lead in the development and management of the Netherlands’ hydrogen transport network. First, HNS is working on standard hydrogen connection and transportation agreements and it has received indications from the market on the expected use of the transport network. Secondly, other than the demand and supply side, there are other system elements that will impact the development of a hydrogen transport network. In this context, a hydrogen transport network is a prerequisite for transporting hydrogen (produced at and/or near the sea) to inland customers and (underground) storage locations. Both system elements are subject to ongoing further studies on behalf of the Dutch government. Finally, the Netherlands intends to function as a pivot in the developing hydrogen chain. The latter requires close collaboration and co-ordination with Belgium and Germany.
HNS must develop the hydrogen transport network at the right place and at the right time. Governmental conditions, which will be attached to HNS as a provider of a general service of economic interest (Dienst van Algemeen Economisch Belang), must ensure reasonable tariffs, non-discriminatory access and a reduction in the maturity risk (vollooprisico) for any governmental investments.
The Dutch State co-ordination scheme (Rijkscoördinatieregeling) will apply to the construction of the hydrogen transport network. This will enable a more time efficient and centrally co-ordinated spatial permitting process. Between 2025 and 2030 the Minister for Climate and Energy and the Dutch Authority for Consumers and Market (Autoriteit Consument & Markt) will work towards a system of regulated third party access with regard to the hydrogen transport network.
The Dutch Minister for Climate and Energy has noted and appreciated the hydrogen and gas market decarbonisation package (December 2021). This package is still being negotiated in the European Parliament and is currently being reviewed by the Committee Industry, Research and Energy. Furthermore, the Dutch Minister for Climate and Energy has indicated appreciation of the proposals made by the European Commission, including the delegated acts, clarifying EU rules applicable to renewable hydrogen under the Renewable Energy Directive (RED) (May 2022). Currently, it is expected that further clarity on European requirements for renewable hydrogen should emerge in the coming months. Formal adoption of the sustainability requirements could take until early 2023.
EU “Fit for 55”: Decarbonising Gas Markets, Lothar Van Driessche, Ruth Losch (linklaters.com)
The overall investment costs of a hydrogen transport network are currently estimated at EUR 1.5 billion. The Dutch government intends to employ a subsidy of EUR 750 million to deal with low transport volumes and not being able to fully compensate market costs during the rollout phase. The Netherlands foresees a three phase rollout of the hydrogen transport network:
- Phase 1 – large industrial clusters near the Dutch coast (including Belgium and Germany) and connections with storage locations in the northern part of the Netherlands (Groningen and Drenthe) (2025-2026). An alternative route could be necessary whilst an important gas pipe is not expected to be ready for re-use by 2026. Gasunie currently explores alternative routes through Noord-Brabant and the Betuwe;
- Phase 2 – further expansion of the hydrogen network (primarily north-south connections) (2027/2028); and
- Phase 3 – final rollout of the hydrogen network, in particular connecting the province of Zeeland with the Chemelot chemical cluster in Limburg (by 2030).
Specialists have advised the Dutch government to apply a minimum quality of hydrogen equal to 98 mol%. This minimum quality requirement will be evaluated three years following the commercial operations date of the hydrogen network.
With regard to the production of renewable hydrogen by means of offshore electrolysis, which is expected to kick off after 2030, the (regulation of) offshore hydrogen infrastructure must be considered. The Minister of Economic Affairs and Climate prefers that Gasunie will - in due course - be appointed as the offshore hydrogen network operator. Also, Energie Beheer Nederland will be involved in the development of the hydrogen transport infrastructure offshore as it currently participates in all (offshore) gas infrastructure in the Netherlands. Its expertise could play an important role in re-designing and re-using existing gas infrastructure assets for renewable hydrogen transport.
Next to transport, the storage of hydrogen will become an important part of the Dutch hydrogen infrastructure. In this respect, a hydrogen transport network road map Energy Storage (routekaart Energieopslag) is expected to be published by April 2023. This road map will also discuss the role of hydrogen storage. Hydrogen storage can take place by way of (i) short-cyclical storage to deal with temporary surpluses in supply and demand, (ii) seasonal storage to take into account seasonal fluctuations in supply and demand and (iii) long-cyclical storage to guarantee sufficient supply in case of calamities. The general hydrogen road map, published in November 2022, states that three to four salt caverns with a total storage capacity of 750 to 1000 GWh will be required by 2030.
The Dutch government will create viable conditions for the import of hydrogen. On this basis market participants can work on business plans to develop (vertical) hydrogen supply chains. Further research is being undertaken regarding the expected import volumes for hydrogen and LOHC products. The sustainability criteria for renewable hydrogen will take the lead with regard to the importing of hydrogen.
Currently, the Netherlands has (various forms of) co-operation agreements with Portugal, Chile, Uruguay, Namibia, Canada and the United Arab Emirates on the import and export of (renewable) hydrogen. Noteworthy in this respect is that the Minister for Climate and Energy confirmed to the Dutch parliament that it will perform a corporate social responsibility risk analysis (Maatschappelijk Verantwoord Ondernemen risico-analyse) regarding hydrogen imports.
Read more: Getting Hy? Ambition and the art of the possible in the search for a hydrogen economy