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Getting Hy?

Hydrogen is having a moment.

There has been a flurry of recent announcements on the potential for clean hydrogen to propel the global energy transition. In Europe alone, Spain, Germany, France, Portugal, the Netherlands and the European Commission have each published hydrogen strategies in the last several months. There is a clear sense in which clean hydrogen is viewed by many countries as the “missing link” required in order to achieve a fully functioning net zero economy consistent with their Paris Agreement objectives.

In this series, we will be taking a closer look at the vision that is generating all the excitement; the politics; the use cases favoured by different countries; what the business models might need to be, and what is currently contemplated; and the new legal changes needed to bring this new (rather inflammable) commodity into our everyday lives.
Part 1

Hy-Ambitions: a vision for a new energy vector

The climate emergency is occupying mainstream policy focus in many countries. While the profound growth of the renewable energy sector over the past two decades has enabled rapid decarbonisation of electrical systems, there is rising recognition of the need to identify methods of decarbonising energy for those sectors which are difficult to electrify, such as industrial processes, high usage or long-haul transport, and fuel for buildings as well as to remove emissions from chemical processes.

With a lack of viable alternatives to achieve the levels of deep decarbonisation consistent with net zero targets, clean hydrogen may offer the solution and has unprecedented political and industry momentum. In this chapter, we explore the motivations that may help to maintain that momentum and some of the most promising use cases.

Read chapter 1

Part 2

Hy Politics: political considerations shaping the evolution of clean hydrogen policy

As set out in the first part chapter of this series, it is possible to get very excited about a brave new world with a renewable and hydrogen economy. But whether any particular country will get there, and how it goes about getting there, is likely to be driven by the political context of clean hydrogen at a more granular and domestic level.

In this chapter we consider some of the key political issues shaping this debate and how individual countries are shaping up on the use cases for hydrogen.

Read chapter 2

Australia  •  Belgium  •  The EU  •  France  •  Germany  •  Italy  •  Japan  •  The Netherlands  •  Portugal  •  Spain  •  The UK

Australia

While hydrogen has, in Australia, historically served mainly as an input into various industrial processes, both federal and state governments have committed to expand the use of hydrogen to, among other things, transportation and heat. In 2018, the Commonwealth Scientific and Industrial Research Organisation published the National Hydrogen Roadmap, which identified hydrogen as having applicability and value in the areas of transport, remote area power systems, industrial feedstocks, for export, electricity generation, producing heat and synthetic fuels. Australia is one of the few countries for which the potential for hydrogen to become a major export is a significant motivator in developing its hydrogen capabilities. To this end, Australia has signed a co-operation agreement with Japan and a letter of intent with South Korea to underpin future hydrogen export.

The key drivers for these use cases are a reduction in greenhouse gases and the ability to secure a reliable domestic supply of fuel for heat and transport.

The Australian Government has indicated that it is technology neutral when it comes to hydrogen production. Australia’s Chief Scientist has argued that it would be irresponsible not to investigate alternate fuel sources for hydrogen, as multiple sources would provide valuable diversification and opportunities for scale. However, there is significant support for blue hydrogen amongst key industry players, as it allows existing producers in Australia’s well-developed oil and gas industry to leverage off their existing natural gas reserves.

Click here for further information on the current thinking on use cases in Australia.

Belgium

The potential for large-scale hydrogen production, transport and consumption by and for industry is the most promising use case in Belgium.

Belgium today is already an important user of hydrogen, mainly in its petrochemical and chemical industries. Grey hydrogen flows through existing pipelines, which is separated during the processing of natural gas. The first pilot projects focusing on the use of hydrogen in transportation have already commenced and there have been discussions about extending the pipeline network with hydrogen refuelling stations for hydrogen-powered vehicles.

In the medium term, despite the high potential “penetration” rate of green hydrogen for industry,1  Belgium does not have enough surplus renewable power to produce green hydrogen on a large scale. As a result, Belgium may have to import additional renewable energy to produce green hydrogen from countries able to produce it more efficiently and cheaply.2  Blue hydrogen could therefore be a useful transitional technology.

Click here for further information on the current thinking on use cases in Belgium.

 

1 Rapport Vlaams potentieel groene waterstof, 4 October 2018, see https://www.energiesparen.be/sites/default/files/atoms/files/Rapport-Vlaams-potentieel-groene-waterstof.pdf, p. 6.
2 This could, for instance, come from countries with large offshore renewable power generation capacity, which may in turn provide opportunities for Belgian companies active in that sector. See also the correlation between the EU Hydrogen Strategy and (upcoming) EU Offshore Strategy.

EU

On 8 July 2020, the European Commission published its hydrogen strategy for a climate-neutral Europe3.

Seeking to achieve the wide-scale deployment of clean hydrogen in Europe across different sectors, this is a key priority for the European Commission and one of the main deliverables of the European Green Deal to achieve climate neutrality by 2050.

On the same day, the Commission launched its European Clean Hydrogen Alliance as well as its Energy System Integration Strategy4 (the latter highlighting the need for greater integration between energy systems, which currently largely operate in silos). The Energy System Integration Strategy is particularly relevant in the context of hydrogen, as the effective interaction between, for example, electricity and gas networks, will be integral to achieving a decarbonised energy system.

The Commission’s hydrogen strategy is certainly ambitious, aiming for the production of up to ten million tonnes of green hydrogen and 40GW of electrolyser capacity within Europe by 2030 (with one million tonnes of green hydrogen and 6GW of electrolyser capacity by 2024). Importantly, it recognises the need to build up a clear pipeline of viable projects and the urgency of action that is needed if the ambition is be realised.

It is clear from the Commission’s hydrogen strategy that there is a preference for renewable hydrogen (or “green hydrogen”) over low carbon hydrogen (or “blue hydrogen”). It is noteworthy that an earlier leaked draft of the Commission’s strategy made little reference to blue hydrogen production; however, the final published version does acknowledge the importance of hydrogen from fossil fuels (with carbon capture technology) in the short to medium term as a transition to large scale renewable hydrogen.

Overall, though, the clear expectation that renewables will be the predominant energy source for hydrogen production in the longer term is reflected in the forecast of €180- 470bn of investment by 2050 for this production technology. By the Commission’s estimates, aggregate blue hydrogen investments will pale into relative insignificance over this timeframe, with €3-18bn of forecast investment.

The Commission considers that the two main lead markets for hydrogen end-user demand will lie in industrial applications (e.g. replacing carbon-intensive hydrogen in refineries, the production of ammonia and methanol and replacing fossil fuels in steel making) and transport (in particular for heavy duty vehicles where electrification is more difficult).

Click here for further information on the current European Commission thinking on use cases.

 

3 https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf
4 https://ec.europa.eu/energy/sites/ener/files/energy_system_integration_strategy_.pdf

France

The three use cases for hydrogen described earlier in this chapter (i.e. transportation, heat and industry) are already in the process of implementation in France. It is worth noting that, on 10 September 2020, the French Government unveiled a €7bn national strategy for carbon-free hydrogen, setting out three core objectives:

  • to install enough electrolysers to make a significant contribution to the decarbonisation of the economy;
  • to develop clean mobility, particularly for heavy vehicles; and
  • to foster the development of an H2 industrial sector in France, creating jobs and guaranteeing France’s technological expertise.

In the short term, the French energy regulator (the Commission de Régulation de l’Énergie) considers that blue hydrogen could replace the use of grey hydrogen used in industry and that, in the medium term, it could be one of the vectors of decarbonisation in the heavy transport sector.

France’s ambition is to develop blue hydrogen and its industrial, energy and mobility uses, with the prospect of reaching around 20 to 40% of total hydrogen and industrial hydrogen consumption by 2030. The French State, through various channels, has already or is in the process of launching several calls for projects to achieve the objectives set out above.

In particular, France plans to establish a support framework applicable to hydrogen produced by electrolysis of water using low carbon electricity.

Click here for further information on the current thinking on use cases in France.

Germany

On 10 June 2020, the German Federal Government adopted the long-awaited National Hydrogen Strategy (Nationale Wasserstoffstrategie)5.  This broadly aims to (a) achieve the German climate targets, (b) create new value chains for the German economy by developing a domestic market for hydrogen technology, and (c) develop international energy policy cooperation to secure market opportunities for German companies and secure sufficient hydrogen imports.

The National Hydrogen Strategy identifies industry, transportation and heat as potential areas for increased use of hydrogen, but foresees that the use cases do not become viable at the same time. In the short to medium term, priority will be given to areas in which the use of hydrogen is close to economic viability and in which no major downstream dependencies are created or in which no alternative decarbonisation options exist. Furthermore, although the National Hydrogen Strategy states that only green hydrogen is sustainable over time, it assumes that blue hydrogen will be a transitional technology over the next 10 years.

The National Hydrogen Strategy has generally been received positively by industry. However, some industry participants have called for clearer policy proposals and greater certainty around regulatory changes required to integrate hydrogen into the energy system6.

Click here for further information on the current thinking on use cases in Germany.

 

5 Cf. https://www.bmwi.de/Redaktion/EN/Publikationen/Energie/the-national-hydrogen-strategy.pdf?__blob=publicationFile&v=6.
6 See, e.g., the Association of Energy and Water Industries and the Federation of German Industries.

Italy

In December 2019, the Italian Government officially released the Integrated National Plan for Energy and Climate, which sets binding targets for energy efficiency, renewable sources and reduction of CO2 emissions to be achieved by 2030 and promotes the use of green hydrogen. The main target use case for hydrogen is decarbonisation of commercial transportation. A role for hydrogen in energy storage is also contemplated: in particular, power to gas, as well as usage in existing energy network infrastructure.

The Italian Government has undertaken various initiatives to implement its hydrogen strategy, including a three-year system research programme for the electrical industry, international programme Mission Innovation and Hydrogen roundtable. The Hydrogen roundtable outlines a set of objectives for the development, transport, storage and reuse of hydrogen in Italy. The group has received 31 projects from operators and public authorities aimed at implementing the use of hydrogen in such sectors, of which nine are for transport use and twelve for storage and production. The final goal of the Hydrogen roundtable is to create, alongside the relevant stakeholders, a national alliance for the use of hydrogen in industry.

There is no stated view within Government and no common view amongst leading Italian industrials as to whether green or blue hydrogen should be the focus of the hydrogen strategy. Certain major Italian operators active in the oil and gas sector wish to pursue their sustainability goals without generating losses from recent large investments in upstream and downstream gas infrastructure. Conversely, one of the major Italian power producers firmly supports the idea of a new way of producing hydrogen with low impact on the environment.

Click here for further information on the current thinking on use cases in Italy.

Japan

The Hydrogen Basic Strategy adopted by the Japanese Government in December 2017 considers the main the use cases for hydrogen as being (a) power generation, (b) mobility, (c) industrial processes, and (d) fuel cells.

Japan is scarce in natural resources and is heavily dependent on fossil fuels imported from overseas. Energy security and promotion of a low carbon society are therefore key goals of the Hydrogen Basic Strategy. Hydrogen is perceived as a promising future technology by the industry, but the higher costs for production and transportation than other energy sources is a major obstacle to the widespread use of hydrogen.

“Mid and Long Term Policy for Ports and Harbours “Port 2030”” published by the Ministry of Land, Infrastructure, Transport and Tourism ("MLIT") in June 2018 envisages that ports should function as a base for hydrogen-related activities which include import, production, consumption and storage. In conjunction with this initiative, hydrogen was highlighted in the first meeting of the public private council for offshore wind projects as one of the promising options for maximising the ports’ efficiency and potentials.

Click here for further information on the current thinking on use cases in Japan.

Netherlands

On 28 June 2019, the National Climate Agreement (Klimaatakkoord) was concluded. The main purpose of this agreement is to reduce greenhouse gas emissions in the Netherlands by 49% compared to 1990 levels. Hydrogen is expected to play an important role in the decarbonisation of the Dutch economy.

The Dutch Government has indicated that in the mid to long term, hydrogen can and must be able to carry out a number of critical functions within the energy and raw materials management system. In its Government Strategy on Hydrogen (Kabinetsvisie waterstof), the Dutch Government envisages that hydrogen will be an indispensable part of the sustainability strategy for industrial clusters and ports and the transport sector generally. Principal areas of focus include a carbon-free feedstock for the process industry and mobility, especially with regard to passenger transport for greater distances and heavy transport. Market participants are therefore preparing for a growing role for hydrogen, including through feasibility studies, the development of business cases and proposed investments.

The Dutch Government views blue hydrogen as a transitional replacement for grey hydrogen in industry and in the expansion of hydrogen infrastructure capacity. The North Sea industrial hub offers the potential for the Netherlands to develop a blue hydrogen market which would stimulate economic growth and the labour market. Green hydrogen can be further developed to be produced at scale during this transitional period.

Click here for further information on the current thinking on use cases in the Netherlands.

Portugal

The main “use cases” set out in the Portuguese Government’s National Strategy for Hydrogen (“EN-H2”) are the decarbonisation of the transport industry and electricity sector. The Portuguese Government has declared that the main goal for the creation of a “hydrogen economy” is increasing the independence of the Portuguese energy sector by replacing imported fossil fuels with domestically produced green hydrogen.

The EN-H2 is particularly focused on the production of green hydrogen over blue hydrogen given the low production costs of solar energy and the geographical location of the country (large coastal areas).

Click here for further information on the current thinking on use cases in Portugal.

Spain

The “Hydrogen Roadmap: a commitment to renewable hydrogen”, approved by the Spanish Government in October 2020, considers that clean hydrogen shows great potential for use in industry (oil refining, fertilisers and chemicals, among others) in the short term.

Moreover, the Roadmap states that other hydrogen end uses should be encouraged in those areas where electrification is not the most efficient solution or technically feasible in the medium term, such as public transport, urban services or intermodal transport nodes such as ports, airports or logistics platforms.

Click here for further information on the current thinking on use cases in Spain.

 

UK

In June 2019, the UK Government committed to a target of achieving net zero greenhouse gas emissions by 2050.7  The overarching strategy for achieving this target is set out in the Clean Growth Strategy.8  The UK Government is set to announce a hydrogen strategy in 2021, having made recent announcements about its ambitions and published a report by Frontier Economics in August of 2020 which outlined a number of potential business models to support low carbon hydrogen production.9

The UK Government is due to consult further on the potential business models ahead of announcing its formal hydrogen strategy. Whilst the UK Government has indicated there could be a role for hydrogen within decarbonisation of heat, industry and transport, an overriding concern is that uses of hydrogen must be economically viable and competitive when compared to alternative solutions.

Although the UK Government has not set out a preference for blue hydrogen or green hydrogen, it has stated that any development of hydrogen must be alongside the development of CCUS.

Whilst, on the face of it, the key motivation for the UK Government is achieving its net zero target by 2050, economic growth and new industrial opportunity is also a clear driver.

Click here for further information on the current thinking on use cases in the UK.

 

7 Section 1 of the Climate Change Act 2008
8 The Clean Growth Strategy: Leading the way to a low carbon future, October 2017 as amended April 2018
9 https://www.gov.uk/government/publications/hydrogen-supply-competition
Australia
Belgium
The EU
France
Germany
Italy
Japan
The Netherlands
Portugal
Spain
UK
Part 3

Hy-ly-Demanding? How to create supply and demand at the same time

Public and private stakeholders are increasingly convinced by the arguments as to “why” low carbon hydrogen has the potential to resolve some of their most fundamental challenges.

So now policymakers, often supported by the private sector, are turning their attention to the thorny “how” question. How to overcome the barriers to deployment we identified earlier in this series?

The right policy design will vary from country to country with the detail of what that country is trying to achieve and the domestic political context.

The immediate thought may be to replicate incentives and mechanisms that have, on the whole, been very successful in driving earlier phases of the energy transition, most notably the shift from thermal to renewable electricity.

However, although there is valuable experience to draw on, it is hard to escape the conclusion that previous regulatory incentives are unlikely to be easily transferable to a hydrogen context if the objective is successful deployment at scale.

In this chapter, we explore the reasons for this.

“There is no immediate prospect of markets becoming sufficiently liquid for short term or spot contracts to provide any form of mitigation that would support investment or financing.”

Read chapter 3

Part 4

Hy-achieving – creating a suitable incentive regime

In earlier chapters of this series we have seen that to identify a framework or business model for clean hydrogen, policymakers need to have a clear sense of where they are trying to get to. They need to have a hydrogen strategy.

We have also seen that they will need an incentive regime and that a successful business model may need to include a direct subsidy for hydrogen production (rather than a downstream incentive) given:

  • the need to right-size support for specific technologies, and, in the early stages, even specific projects, that meet policy objectives; and
  • the need to address legitimate concerns of investors and funders, being not just price but also the mitigation of cross-chain availability and stranding risks and the credit of downstream participants.

In this chapter we consider a structure that could be deployed in mature energy markets to achieve this and the challenges policymakers will need to contend with.

Read chapter 4

Australia  •  Belgium  •  The EU  •  France  •  Germany  •  Italy  •  Japan  •  The Netherlands  •  Portugal  •  Spain  •  The UK

Australia

The federal government has recently concluded the consultation phase of its proposal to establish a hydrogen certification scheme. This scheme would implement a standardised process of tracing and certifying where and how hydrogen is made and associated environmental impacts.

Currently, the main method of incentivising the use case is government-funded financial support provided directly to project developers. Accordingly, it is the taxpayer who pays for the chosen method of incentivising the use case. Whether this is the incentive model that continues to prevail as hydrogen gains traction and becomes more established in Australia remains to be seen.

Click here for further information on the current thinking on incentives in Australia.

Belgium

The different Belgian governments have yet to make the necessary policy decisions on the mechanisms to incentivise clean hydrogen. A key question in the Belgian context is the treatment of hydrogen transportation networks. There is emerging enthusiasm among industry players for a regulated asset base model, pursuant to which the regulated network operators are tasked with adapting their existing network and/or developing a new (dedicated) network, which will guarantee market participants open access to the (existing and future) infrastructure for the benefit of their own core businesses. If this route is taken, ultimately (both natural gas and hydrogen) consumers will bear the costs through transport and distribution tariffs.

For the energy sector, it seems likely that there will be considerable support for measures to promote the development of combined heat and power (cogeneration) applications. These can be incentivised through demand-side mechanisms, such as the already existing CHP certificates scheme in Flanders, as well as supply-side mechanisms, such as the planned capacity remuneration mechanism in Belgium, which takes the form of a reliability-options scheme (comparable to contracts for difference) and is intended to be technology neutral.

Click here for further information on the current thinking on incentives in Belgium.

EU

The European Commission’s hydrogen strategy recognises that a supportive policy framework is needed to stimulate in parallel the production, supply, demand and associated infrastructure for hydrogen; in other words, a “full value chain approach”.

The hydrogen strategy gives little detail on the support schemes which may be made available, but suggests that such schemes could include:

  • minimum shares or quotas of renewable hydrogen in specific end-use sectors (e.g. certain industries, such as the chemical sector or transportation). This would allow demand to be stimulated in a targeted way.
  • amendments or expansion of the EU Emissions Trading Scheme (“ETS”) to incentivise hydrogen production and use as well as a common low-carbon threshold or standard for the promotion of hydrogen production installations based on their full life-cycle greenhouse gas performance which could be defined relative to the existing ETS benchmark.
  • other direct support schemes, such as a carbon contracts for difference (“CCfD”), which would pay an investor the difference between the CO2 strike price and the actual CO2 price in the ETS. The current ETS price is approximately €25 per tonne of CO2 and the strategy notes that a carbon price of €55-90 per tonne would be needed to make blue hydrogen competitive with grey hydrogen today. Such CCfDs or other direct support could be made available through a competitive tendering process. The details of such a regime are not provided in the Commission’s strategy. It is also unclear how a CCfD regime would work alongside the ETS regime and whether industries that currently benefit from free ETS allowances would also be eligible for a CCfD. The overall cost of providing support for a CCfD is also not indicated in the strategy. However, it is envisaged that a CCfD regime could provide price support for the early deployment of blue hydrogen, until the costs of green hydrogen fall, or carbon prices become sufficiently high so as to make other carbon-emitting fuels uneconomic. What is less clear is whether CCfD could or would enable non-price support (for example, in order to help mitigate cross-chain risks).

In its hydrogen strategy, the Commission also underlines it will support investments in hydrogen, through the European Clean Hydrogen Alliance, the Next Generation EU recovery plan but also via the European Regional Development Fund, the Cohesion Fund and the Just Transition Mechanism.

Click here for further information on the current thinking on incentives in the EU.

France

Hydrogen is a R&D priority in France’s 2018 multi-annual energy programme (programmation pluriannuelle de l’énergie or “PPE”), the country’s energy roadmap for the coming decade. Measures for promoting hydrogen in the PPE include direct government funding for pilot projects and the mobilisation of public and private finance and standardised co-financing models for projects.

The French hydrogen strategy has been allocated €7.2bn for the period up to 2030, including €2bn up to 2020. The government intends to encourage the development of a clean hydrogen sector through financial support for individual projects and investment in research and development. The French State, through various channels, has already or is in the process of launching several calls for projects to achieve these objectives.

The French State is working on draft legislation covering decarbonised hydrogen. This new legislation should, in time, complete the French Energy Code with a chapter dedicated to hydrogen. It should, inter alia, (a) define hydrogen types according to their mode of production, (b) organise a mechanism of guarantees of traceability or origin to attest to the type of hydrogen produced (similar to the guarantees of origin mechanism for renewable energy) and (c) provide for a State support mechanism, similar to feed-in tariff schemes for some renewable energy projects, for the production of green hydrogen.

Click here for further information on the current thinking on incentives in France.

Germany

Germany’s National Hydrogen Strategy contemplates considerable financial support for the rollout of a hydrogen economy over the next few years. The market rollout and the foundations for a functioning domestic market for hydrogen are to be achieved by the following:

  • Measures to incentivise the production of clean hydrogen, such as exemptions from taxes for electricity required to produce green hydrogen and the support of green hydrogen through tendering models.
  • Measures to incentivise the consumption of clean hydrogen, such as imposing more stringent low carbon quotas on the transport sector and investment support programmes for industry for the conversion to green hydrogen.
  • A Carbon Contracts for Difference (“CfD”) (including state support in the amount of the cost difference between: (a) the actual cost of avoiding emissions by using decarbonisation technologies, expressed as a contractually agreed CO2 price per avoided amount of greenhouse gas emissions, and (b) prices according to the emissions trading system) for industrial users of green hydrogen.

The Government considers that, in principle, hydrogen and the electricity required for hydrogen production should be financed by the sector that consumes the hydrogen. The economic viability of hydrogen can, however, be improved by support measures10.

Click here for further information on the current thinking on incentives in Germany.

 

10 Government’s reply to question by members of parliament, parliament printed matter no. 19/20916, 8 July 2020.

Italy

The Italian Government has not adopted a dedicated hydrogen development strategy plan. However, hydrogen plays a key role in the Integrated National Plan for Energy and Climate approved in December 2019, in order to reach the targets of energy efficiency and reduction of CO2 emissions to be achieved by 2030. Hydrogen is considered essential to contribute to decarbonisation of the commercial transportation and a fundamental element for power storage and production (particularly power to gas). Italy also joined the Renewable and Clean Hydrogen Innovation Challenge within the “Mission Innovation” project, a global initiative of 24 countries and the European Commission, aimed to increase private and public investments in clean energy and international collaboration to accelerate global clean energy innovation and the development of a global hydrogen market. The members of “Mission Innovation” have committed to seek to double public investment in clean energy R&D and are engaging with the private sector.

In December 2019 a parliamentary proposal was put forward to incentivise the use of hydrogen in Italy. The proposal seeks to foster the production of green hydrogen. In order to do so, some incentives have been recognised, such as:

  • investments in demonstration projects amounting to €10bn euros;
  • the introduction of a carbon tax (€56 per each ton of CO2 emission in 2020 and €100 per ton emissions in 2030);
  • exemption from taxes and charges for the system and distribution of hydrogen production plants; and
  • incentives for the progressive replacement of combustion vehicles with electric vehicles.

The proposal is currently pending in Parliament.

Click here for further information on the current thinking on incentives in Italy.

Japan

In Japan, funding and financing support for clean hydrogen projects are available from key government organisations and it is anticipated that financing support from Japan Bank for International Cooperation ("JBIC"), Nippon Export and Investment Insurance ("NEXI") as well as JOGMEC would be available to support commercial scale hydrogen projects where the projects have significant Japanese participation, including as sponsors, contractors or off-takers.

In addition to the initiatives taken by the governmental organisations, financial support has been made available by the Japanese Government to the consumers to incentivise the purchase of fuel cell vehicles.

Click here for further information on the current thinking on incentives in Japan.

Netherlands

A substantial hydrogen programme for the Netherlands is to be initiated under the Dutch Climate Agreement. The programme will chiefly focus on unlocking the supply of green hydrogen, the development of the necessary infrastructure and the facilitation of initiatives and projects. The programme does not focus on the development of demand for hydrogen directly – that responsibility is more closely related to the various proposals being developed by the relevant sectors, in particular (a) built environment, (b) mobility, (c) industry and (d) electricity.

The Netherlands has a renewable energy subsidy regime known as the SDE+ (the “Renewable Energy Production Incentive Regime”). This regime has been replaced by the Stimulation of Sustainable Energy Transition (the “SDE++”) scheme which broadens the SDE+ regime to ensure that, in addition to renewable energy, other CO2 reduction technologies will also become eligible for subsidies. The Government has indicated that it proposes to include clean hydrogen in the SDE++ scheme. However, following discussions with the European Commission in respect of compatibility of the SDE++ scheme with applicable State aid rules, the Dutch Minister for Economic Affairs and Climate Policy has had to reconsider the proposed framework to incentivise clean hydrogen by means of the SDE++ scheme. At the time of publication, these considerations remain ongoing.

As of 2021, the Dutch Government will also be introducing a minimum carbon price for the production of electricity in order to provide a further incentive to reduce CO2 emissions resulting from electricity generation.

Click here for further information on the current thinking on incentives in the Netherlands.

Portugal

In the “EN-H2” hydrogen strategy, the Portuguese Government has focussed on public and private European and National financing sources as the route to incentivising clean hydrogen. The EN-H2 also highlights other support mechanisms that will promote the development of a hydrogen economy and which may be implemented in the future, including exemptions for hydrogen producers from grid use tariffs, subsidies for hydrogen producers for the “overcost” of producing hydrogen and guarantees of origin.

Some of these support mechanisms have already received formal policy endorsement, including the amendment of the guarantees of origin legal framework to include “low carbon gases and for gases of renewable origin” which would include clean hydrogen.

Click here for further information on the current thinking on incentives in Portugal.

Spain

The Spanish Hydrogen Roadmap sets out a strategy to boost hydrogen in Spain through a new regulatory framework for clean hydrogen including financial measures to support the use of clean hydrogen in Spanish industry (e.g. specific loans related to hydrogen production projects). However, the details of this regulatory framework have not yet been specified. The Hydrogen Roadmap also seeks to promote hydrogen-based transport and the creation of “hydrogen clusters”. Other than the MOVES II Plan (which provides incentives to buy electric/hydrogen cars) these measures have not yet been formally approved.

Further funds from the European Union are expected to be received for clean hydrogen projects and will be used as a key lever to ensure a level playing field at the EU level, and the Roadmap contemplates that tax incentives will be approved to incentivise clean hydrogen.

Click here for further information on the current thinking on incentives in Spain.

UK

Though heavily anticipated, the UK does not yet have a formal hydrogen strategy but is working to develop sustainable business models to support a range of hydrogen production methods and drive investment through:

  • Exploring the role hydrogen could play as part of a hydrogen chapter in the CCUS business models consultation
  • Conducting extensive engagement on business model design, including through the launch of hydrogen expert groups

Alongside its work on potential business models, the UK Government is investing in clean hydrogen innovation through pilot projects.

Click here for further information on the current thinking on incentives in the UK.

Australia
Belgium
The EU
France
Germany
Italy
Japan
The Netherlands
Portugal
Spain
UK
Part 5

Hy-ly Volatile? making it safe, sustainable and transportable

In previous chapters, we have considered the framework or business models which governments may implement in order to develop a clean hydrogen market and incentivise production at scale. However, it is essential that, in tandem with the development of broad policies to incentivise the use cases, governments implement the regulatory changes which are needed to enable and realise these use cases. A cohesive hydrogen strategy must include consideration of the extent to which existing regulation of the infrastructure needed to develop the hydrogen market is fit for purpose and sufficient to support the government’s policy aims.

In this chapter we will consider the extent to which suitable regulatory regimes are ready in each country to receive hydrogen for the use cases identified in earlier chapters.

Read chapter 5

Australia  •  Belgium  •  The EU  •  France  •  Germany  •  Italy  •  Japan  •  The Netherlands  •  Portugal  •  Spain  •  The UK

Australia

The current regulatory landscape does not explicitly accommodate the creation of a hydrogen market in Australia. While some existing legislative frameworks are likely to apply to the hydrogen industry, it is probable that further regulatory reform will be required to specifically target the needs of large-scale hydrogen production.

A report commissioned by the Department of Industry, Innovation and Science identified 730 pieces of legislation and regulations, and a further 119 standards, that may be relevant to the development of an Australian hydrogen industry. These pieces of legislation principally relate to aspects addressing the safety, development and upscaling, environmental impacts and infrastructure needs (including transport and pipelines) of the hydrogen industry. A separate review would need to be undertaken to consider whether changes would be required to address hydrogen production, transport to market, use as fuel, use in gas networks, safety, project approvals, environmental protection and economic effects on industry.

A further regulatory challenge facing the hydrogen industry is the inconsistent application of different policies and priorities across the states. In order to achieve relative uniformity among jurisdictions, the various state and territory governments have committed to developing a nationally consistent approach to regulatory models applicable to the hydrogen industry. To this end, the Australian Government will drive the national regulatory reform by applying a "smart, consistent, light-touch" approach. Further, several state and territory governments have established cross-government agency working groups to develop competency in, and awareness of, hydrogen across government, including identifying and addressing regulatory gaps and providing advice on compliance with existing requirements.

Click here for further information on the current thinking on regulations in Australia.

Belgium

The regulatory context in Belgium is layered given its federalist structure. The transport of gaseous products (including the construction and operation of pipelines) falls under federal competence, while the construction, production and/or operation of hydrogen facilities (ranging from building hydrogen refuelling stations to the production of green hydrogen) are a regional competence and requirements therefore differ between the three Belgian regions. As a consequence, different public authorities and government entities, regulators and regulated operators have a role to play, applying different rule sets. This, of course, creates a high risk of gaps and inconsistencies in both policymaking and its application around hydrogen.

Following the European Directive 2014/94/EU, Belgium has set up a National Policy Framework “Alternative fuels infrastructure” in which the policies and ambitions of the different government levels are brought together. That said, progress towards a uniform and clear regulatory framework throughout Belgium relating to alternative fuels, including hydrogen, remains slow and complex.

The changes required to the regulated framework to further the hydrogen use case in Belgium can be summarised as follows:

  • a more uniform set of (regional) legislation, regulations and permitting trajectories for hydrogen infrastructure projects, especially those spanning the territory of multiple regions. This could entail distinguishing between different types of hydrogen production (grey/blue/green) and between normal and fast-tracked or accelerated procedures for certain pilot projects or test installations, such as mobile hydrogen fuelling stations;
  • the development of additional legislation in relation to the use of natural gas pipelines for the transport (and possibly distribution) of hydrogen (H2 blending). This should include defining clear H2 blending limits and appropriate technical (i.e. measuring and detection), safety and quality requirements (as the case may be in the form of a separate grid code for mixed networks);
  • the development of a proper regulatory framework and role division for the development of dedicated hydrogen networks, taking into account EU law developments;
  • the development of specific rules for the type or design approval of hydrogen fuel cells vessels for the use of hydrogen in the maritime and inland navigation sectors; and
  • the development of a tailored set of rules and guidance on health and safety in relation to hydrogen.

Click here for further information on the current thinking on regulations in Belgium.

EU

The EU Hydrogen Strategy acknowledges that regulatory reform will need to be implemented to encourage the development of a hydrogen market across the whole value chain.

Currently, one of the main pieces of EU legislation relevant to clean hydrogen is the recast Renewable Energy Directive which requires Guarantees of Origin schemes (providing proof of “clean” production which can be traded separately from the physical commodity to which they relate) to be established by member states by 2021 for renewable gases, including green hydrogen.

However, as acknowledged by the Hydrogen Strategy, common low-carbon thresholds or standards for the promotion of hydrogen production installation based on their greenhouse gas performance remain to be developed. The Commission also notes that comprehensive terminology and EU-wide criteria for certification of green and blue hydrogen will be required.

The private CertifHy scheme has sought to create a Guarantees of Origin scheme that is capable of running on an EU-wide basis, with a view to – as CertifHy itself puts it - avoiding “bottom-up developments of inconsistent national GO schemes that can hamper establishing an effective European market for Green and Low-carbon Hydrogen (as is currently the case for biomethane/biogas)”.

The Hydrogen Strategy also refers to the need for regulatory and financial support for networks that would benefit clean hydrogen. This may include a revision of the Trans-European Networks for Energy Regulation, which provides a framework for the selection of electricity, gas and CO2 infrastructure projects of common interest (“PCIs”) that can benefit from financial support through public funds, a review of the internal gas market legislation for competitive decarbonised gas markets and of the Alternative Fuels Infrastructure Directive.

The Hydrogen Strategy suggests that, for early phase projects, existing rules for closed distribution systems or direct lines may be relevant – in other words, some of the regulatory requirements on unbundling (which would restrict investors in hydrogen projects participating in multiple parts of the value chain) and third party access, could be disapplied to allow initial projects to be developed. However, the strategy does acknowledge that third party access rules will need to be developed in time to ensure hydrogen infrastructure is accessible on a non-discriminatory basis (though it does not explore whether or how developers can be incentivised to develop projects that design-in redundant capacity so as to avoid future inefficiencies from unnecessary duplication of infrastructure). The Hydrogen Strategy does not address the longer-term view on the application of unbundling rules to hydrogen projects.

The Commission notes that a regulatory framework for a liquid hydrogen market will be needed. This includes the possibility of blending hydrogen into the existing gas network, though the Hydrogen Strategy notes that blending is less efficient and diminishes the value of hydrogen. This will therefore require some controls on the technical requirements and gas quality standards to ensure that different Member States do not accept different levels of blending, thereby hindering cross-border flows. A review of the internal gas market legislation for competitive decarbonised gas markets will be needed, to ensure interoperability of markets for pure hydrogen, common quality standards or cross-border operational rules. However, there is currently little clarity on what this may entail.

Click here for further information on the current thinking on regulations in the EU.

France

On 8 November 2019, France adopted a law on energy and climate which contains several provisions relating to hydrogen. This law provides that the French Government is empowered to take by ordinance, until 9 November 2020, any measure falling within the scope of this new law in order:

  • to define the terminology of the different types of hydrogen according to the energy source used for its production;
  • to allow the production, transport, storage and traceability of hydrogen; and
  • to define a support framework applicable to hydrogen produced from renewable energy or by electrolysis of water using low carbon electricity.

In addition, this new law provides for a system of guarantees of origin for hydrogen produced from renewable sources, the specifics of which are to be set out in an upcoming decree (for which no timeline has been provided yet).

Hydrogen refuelling points qualify as classified facilities for the protection of the environment, which results in a specific regulatory treatment for these facilities.

Click here for further information on the current thinking on regulations in France.

Germany

There is no consistent regulatory regime applicable to clean hydrogen in Germany currently. In 2020, the German Federal Network Agency (Bundesnetzagentur – “BNetzA”) adopted an assessment (Bestandsaufnahme) of current regulatory conditions for hydrogen infrastructure and potential future changes (“BNetzA Assessment”). BNetzA has not yet come to a final conclusion on what regulatory measures will be required to adequately cover hydrogen and to ensure non-discriminatory behaviour in any future dedicated hydrogen networks but anticipates the following key measures:

  • hydrogen should be covered by a specific hydrogen law;
  • there should be privileged network access for green and possibly blue hydrogen;
  • BNetzA is considering the regulation of hydrogen network fees in order to prevent monopoly returns for network operators;
  • BNetzA also briefly discusses a hydrogen-specific unbundling regime that would ensure the implementation of possible network access and network fee regulation; and
  • there may need to be a separate hydrogen balancing system, or even multiple balancing systems to account for different hydrogen production methods.

Click here for further information on the current thinking on regulations in Germany.

Italy

Currently Italy has not adopted comprehensive and harmonised legislation regulating the production, transport and use of hydrogen. In essence, hydrogen is still considered from a regulatory perspective as an industrial gas.

Injection of hydrogen into the gas grid is not generally permitted in Italy, though there is a specific pilot project currently underway to explore this possibility.

Until recently, hydrogen production and handling for transportation purposes was regulated primarily by the Ministerial Decree of 31 August 2006, which posed extremely stringent safety measures on any plants for the storage of hydrogen. These measures were relaxed somewhat by a Ministerial Decree of 23 October 2018, which lowered the significant barriers to hydrogen transportation infrastructure deployment raised by the earlier Decree.

The installation of hydrogen fuel cells and refuelling stations is now experiencing significant growth, aided by the implementation of Legislative Decree no. 257/2016 which resulted in a significant simplification of the relevant authorisation procedures for refuelling stations and, ultimately, enabled vehicles using hydrogen fuel cells to be registered and sold into the Italian market.

Click here for further information on the current thinking on regulations in Italy.

Japan

Liquefied or high-pressured hydrogen is regulated in a similar manner as LNG under the High Pressure Gas Safety Act and other regulations. General health and safety regulations under the Industrial Safety and Health Act apply to the industrial use of hydrogen.

The Japanese Government has been working on deregulating the hydrogen supply chain with a focus on the FCV industry, and there have been a number of improvements in the relevant statutes. The recent progress includes development of regulations on the unmanned hydrogen charging stations and hydrogen-fuelled drones.

Distribution through existing gas pipelines is available in limited volumes. There are a limited number of short-distance inter-site pipelines that are dedicated to transportation of hydrogen.

Click here for further information on the current thinking on regulations in Japan.

Netherlands

Currently, no there is no specific regulatory regime applicable to hydrogen in the Netherlands. Not surprisingly, the Dutch Government has designated the development of a legal and regulatory framework for hydrogen as one of the four pillars of the policy agenda for hydrogen11.

The hydrogen policy agenda includes the following items that will be further considered in light of the development of the legal and regulatory framework:

use of part of the existing Dutch gas grid can be used for the transport and distribution of hydrogen;

  • a further examination of the regulation of the future hydrogen market, including the operation of a potential future transport network;
  • a reliable system of Guarantees of Origin and certification; and
  • further research and monitoring to better understand the scope and effective control of risks involved in hydrogen applications.

The Dutch Government considers it crucial that the relevant laws and regulations are to be implemented as soon as possible in order to be able to successfully kick start a hydrogen economy.

Click here for further information on the current thinking on regulations in the Netherlands.

 

11 Government Strategy on Hydrogen (Kabinetvisie waterstof), page 5 and 6.

Portugal

The existing Portuguese legislation and energy sector-related regulation (issued by the energy sector national regulator Entidade Reguladora dos Serviços Energéticos) has been recently amended to include possible injection of hydrogen in the natural gas distribution grid (Decree-Law 62/2020, dated 28 August).

This legislative development will represent a further development in the main goal of achieving a carbon neutral economy by 2050.

Click here for further information on the current thinking on regulations in Portugal.

Spain

Hydrogen production is regulated as an industrial activity, and is not otherwise specifically regulated in Spain. Specific permits are required before building and operating facilities for the production, storage and transportation of manufactured fuel gases (ranging from sectorial licenses, to planning, environmental and other permitting requirements).

The Spanish Government has identified the need for regulatory changes to allow the expected development of clean hydrogen in the coming years. These changes are aimed at simplifying permitting processes and include changes in planning regulations, the creation of a system of guarantees of origin and instruments to allow the blending of hydrogen into the existing natural gas network.

Click here for further information on the current thinking on regulations in Spain.

UK

The production, transport and use of hydrogen currently attracts regulatory treatment as a hazardous material in the UK. This should therefore be considered in the planning and consenting process for any clean hydrogen project.

Regulatory changes may be required to enable the blending of hydrogen into the existing natural gas network in the UK. It also seems likely that various contractual arrangements in the industry in relation to supply and billing will need to be amended, including potentially the charging methodologies that apply under the gas licences. Injecting gas with a higher hydrogen composition into the gas-grid may require end-user gas equipment to be adapted or replaced.

Click here for further information on the current thinking on regulations in the UK.

Australia
Belgium
The EU
France
Germany
Italy
Japan
The Netherlands
Portugal
Spain
UK

Getting Hy?

Ambition and the art of the possible in the search for a hydrogen economy

 

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A Net Zero System

Commitment to net zero emissions by 2050 will only be achieved with significant new investment and a rapid change in the sourcing of some of our most fundamental commodities, energy and water. The technological revolution combined with ESG pressure is propelling the global economy towards the energy transition, decarbonisation and adaptation. The response to the climate emergency will be one of the most transformative business drivers of the next few decades; we set out the infrastructure that we see as having the biggest impact, together with how we are helping clients navigate these changing markets.

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