Part 2

Hy-Politics – political considerations shaping the evolution of clean hydrogen policy

Summary of the use case in Portugal

The Portuguese Government approved the National Strategy for Hydrogen (“EN-H2”) on May 2020. In the Executive Summary of the EN-H2, the Portuguese Government set out as the main objective of this strategy to “introduce an element of incentive and stability for the energy sector, promoting the gradual introduction of hydrogen as a sustainable pillar and integrated in a more comprehensive strategy of transition to a decarbonised economy, as a strategic opportunity for the country”.

The main “use cases” set out in the 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 from other countries. In fact, as explained in the EN-H2, the production of green hydrogen – to replace fossil fuel (combustíveis fósseis) – would allow not only to achieve the environmental goals in renewable energy production, but also the replacement of an imported energy source by a nationally produced (environmentally friendly) energy source.

The following table summarises the use cases set out in the EN-H2:

 H2 Value Chain  Use Case
Power-to-gas  injection of green hydrogen into the natural gas network
Power-to-mobility  supply of hydrogen as power source for transports
Power-to-industry  replace natural gas use by hydrogen in certain industries
Power-to-power  hydrogen as storage of renewables power production
Power-to-synfuel  production of synthetic fuels with green hydrogen

The main targets for the incorporation of hydrogen in the different sectors of the economy (in volume) can be summarized in the following table:

H2 in...  2025  2030  2040  2050
NG Network  1%-5%  10%-15%  40%-50%  75%-80%
Industry  0.5%-1%  2%-5%  10%-15%  20%-25%
Road transport  0.1%-0.5%  1%-5%  5%-10%  20%-25%
Power consumed  0.1%-0.5%  1%-5%  5%-10%  20%-25%
Power Production  250-500 MW  1.75-2GW  3GW  5GW
Gas stations  10-25  50-100  500-700  1000-1500
Work vehicles  50-100  800-1250  5500-7500  14500-18000
Private vehicles  400-500  750-1000  4000-5000  25000-30000

According to the EN-H2, the new energy model aiming at carbon neutrality will transform the national economy through sustainable development, progress, technological advances, employment, wealth creation, territorial cohesion and preservation of natural resources.

Besides the substitution of imported fossil fuels by domestically produced green energy source, the following factors influenced the EN-H2:

  • Portuguese strategic location: with an extensive coastal area and easiness of access by sea, Portugal entails good locations for the production of green hydrogen using the process of electrolysis45;
  • Adaptation of existing infrastructures: the existing natural gas distribution network may be adapted for the injection of green hydrogen in the national energy grid (it is a modern grid that in the past – for the Lisbon area – already distributed H2); and
  • Low cost of electricity production from renewable sources: Portugal is one of the European countries with the lowest costs of production using solar energy, which may subsequently be used in the production of hydrogen through the process of electrolysis.

The previously mentioned factors, amongst others, were considered relevant in the adoption of the EN-H2, which will allow for the energetic independence of Portugal and the creation of “green-oriented” employment opportunities in the country.

Examples of demonstration/feasibility projects in Portugal

The EN-H2 is highly focused on the “Sines Project”. The Sines Project is a pioneer industrial-sized project for the production of green hydrogen, being developed through a strategic partnership with The Netherlands. It is planned to be located in the deep-water port terminal of Sines – which allows access to transport infrastructure (by sea, road or through the natural gas national grid) – and, by using solar and/or wind renewable energy, will entail a total capacity of 1GW in electrolysers (by 2030). The green hydrogen, produced in Sines, will be transported by three possible ways:

  • By direct injection in the natural gas grid;
  • By road distribution through a tank truck; or
  • By sea through the Sines port terminal.

The estimated investment for the Sines Project is over €2.85B and European funding is expected to be obtained, as it may be included in the European Commission initiative of “Important Projects of Common European Interest”.

Please refer to the table below for a summary of the main areas of interest in the Sines Project and the development goals for each area:

   Areas of Interest  Main Goals
Chain of Value               Production of renewable electrical energy Production of renewable electrical energy to feed the H2 production unit.
Chain of Value Production of hydrogen Production of green hydrogen through an H2 production unit (with a 1GW installed capacity).
Chain of Value Transport, distribution and storage infrastructure
Construction, supervision and operation of H2 transport, distribution and storage infrastructure (including conversion of natural gas assets into H2).
Chain of Value Exportation Development of H2 exportation logistics, including the necessary infrastructure for the H2 transport by sea (e.g.: liquefied or compressed H2, ammonia, liquid organic hydrogen carrier, etc).
Other areas Nacional market Dynamisation of a competitive market for H2, at a national and European level.
Other areas
Electrolyser production Installation and operation of an electrolyser industrial production unit to guarantee enough production capacity for the project and, subsequently, to export equipment for other markets.
Other areas Collaborative Lab Promotion of innovation in relevant areas of the hydrogen chain of value and creation of qualified employment opportunities.

Apart from the Sines Project, the EN-H2 also includes the Portuguese projects highlighted in the table below:

Project name Description Promotor Sector Expected date Expected investment
HYDROGEN PRODUCTION
DC-PEHG Technology Technology of hydrogen production through photovoltaic concentration Fusion Fuel Industry (equipment production), Energy Ongoing N/A
Solar power plant of hydrogen production  Project for the demonstration of DC-PEHG technology Fusion Fuel Energy 2020 N/A
Hydrogen production through Offshore Energy Development of new market opportunities in the hydrogen area EDP Energy N/A N/A
STORAGE, TRANSPORT AND DSTRIBUTION
Production, storage and distribution of green hydrogen Multiple projects of production, storage and distribution of green hydrogen in the various sectors of the value chain PRF – Gás Tecnologia e Construção Energy Ongoing N/A
Mobility and injection in the natural gas pipeline Research regarding the role of hydrogen in the national economy decarbonisation process EDP Energy N/A N/A
Pilot-project of injection of hydrogen in the natural gas pipeline Development of green hydrogen injection in the natural gas distribution network through electricity from renewable sources GALP – Gás Distribuição Energy Under Study ~ 0.5M€
TRANSPORT DECARBONISATION
Power-to-Mobility Production of green hydrogen to supply vehicles’ filling stations  N/A Mobility and Transport N/A N/A
Mobility by Hydrogen  Production of hydrogen buses in Portugal CaetanoBus Mobility and Transport Ongoing N/A
INDUSTRY DECARBONISATION
Optimisation of industrial processes  N/A UTIS – Ultimate Technology to Industrial Savings
 Industry Ongoing   N/A
PRODUCTION OF ELECTRICITY AND HEAT DECARBONISATION
Hydrogen in Ribatejo’s thermoelectric power plant New power-to-X-to-power (P2X2P) solutions integrated in thermal power plants of combined cycle (CCGT) EDP Energy Ongoing 12.6M
Green hydrogen in Tapada do Outeiro’s thermoelectric power plant Production of green hydrogen and its introduction in the combined cycle of the Tapada do Outeiros’s power plant Turbogás Energy 2024 N/A
SYNTHETIC FUELS AND OTHER USAGE
Synthetic fuel for aviation  Installation (at industrial scale) of synthetic fuel production based in green hydrogen Solabelt and Akuo Energy Industry and Transport Ongoing 90M€
CROSS ACTIONS
Energy efficiency testing lab and eco-design   Support to companies regarding research of opportunities arising out of the hydrogen economy  CATIM – Centro de Apoio Tecnológico à Indústria Metalomecânica  Industry 2021 N/A

The industry sector (responsible for the emission of 11% of greenhouse gas emissions) is described in the EN-H2 strategy as traditionally pro-active in the adoption of innovative technologies that reduce operation costs. The main industries identified in the EN-H2 strategy as the ones that may benefit from the decarbonisation of the economy are: (a) the refinery industry, (b) the chemical industry; (c) the metallurgical industry (in particular, steel production), and (d) the mining industry.

Green vs. blue

The EN-H2 is particularly focused on the production of green hydrogen as one of the motivation factors for the investment in hydrogen production (already referred above) are (a) the low renewable solar energy production costs and (b) the geographical location of the country (close to the sea).

Recovery and Resilience Plan (RRP) and first call for tender

For more information on what is proposed under the RRP, please refer to chapter 4.

Part 4

Hy-Achieving – creating a suitable incentive regime

EN-H2

In the EN-H2, the Portuguese Government has focussed on public and private European and National financing sources as the route to incentivising clean hydrogen. The European financing sources included in the EN-H2 are: (i) Invest EU; (ii) Connecting Europe Facility; (iii) Horizon Europe; (iv) Innovation Fund; (v) InnovFin Energy Demo Projects; (vi) EEA Grants 2014-2021 (Blue Growth, Innovation and SMEs); (vii) Just Transition Mechanism – Just Transition Fund; (viii) EU Recovery Fund (COVID-19 related); and (ix) European Bank of Investment.

The Portuguese financing sources included in the EN-H2 are: (i) PO SEUR – Operational Programme for Sustainability and Efficiency in the Use of Resources (Programa Operacional Sustentabilidade e Eficiência no Uso de Recursos); (ii) Innovation Support Fund (Fundo de Apoio à Inovação); (iii) Environment Fund (Fundo Ambiental); (iv) PPEC – Plan for the Promotion of Consumption Efficiency (Plano de Promoção de Eficiência no Consumo); (v) PPEC – Plan for the Promotion of Consumption Efficiency (Plano de Promoção de Eficiência no Consumo); (vi) Portugal 2030; (vii) PPEC – Plan for the Promotion of Consumption Efficiency (Plano de Promoção de Eficiência no Consumo) and (viii) Blue Fund (Fundo Azul).

Besides these financing sources, the EN-H2 also highlights other support mechanisms that will promote the development of a hydrogen economy. Please consider the table below for further supporting mechanisms expected to be implemented in the future:

 Supporting mechanisms 
Primary Different tariff treatment The access for hydrogen projects to the distribution grid will be (totally or partially) exempt of tariff payment, as long as it is not considered an excessive burden to the system.
Primary Production support The “overcost” (i.e., the difference between the energy source which will be replaced – the natural gas – and the initial production cost of the hydrogen) will be funded by the financing sources aimed at promoting the energy transition, instead of consisting of an additional burden to consumers. 
Primary Participation in the system services market Possibility of additional remuneration for the asset operators.
Primary Replacement of feed-in tarrifs The existing renewable sources energy assets (e.g., solar or wind based) may be converted for the production of hydrogen. For this investment, the operators may opt to receive the expected feed-in tariff applicable to the solar plant or the windfarm and use that income for the conversion of assets and technology of the energy production centre.
Primary Tax treatment Implementation of a tax benefit mechanism or positive discrimination regarding the tax treatment of hydrogen production operators.
Other Origin Guarantees (Garantias de Origem)  The “Origin Guarantees” system promoted the development of a hydrogen production market by clearly identifying the energy’s production source near consumers and by increasing the economic value of renewable sources’ energy.

It is not clear how and if hydrogen investment costs are to be reflected in end-user tariffs. However, some of these support mechanisms have already received formal policy endorsement, as is the case with the amendment of the guarantees of origin legal framework to include “low carbon gases and for gases of renewable origin” – i.e. green hydrogen – since August 2020.

The EN-H2 strategy is highly focused on transferring the potential increase in production costs of hydrogen from consumers to financing sources (e.g. the Environmental Fund). However, it is not clear whether this funding will suffice in order to incentivise hydrogen at the rate required for the transition to net zero.

Recovery and Resilience Plan (RRP)

As mentioned in Getting Hy, the RRP proposes investing:

  • € 185 M in the production of renewable gases, technologies that have been tested and are not yet sufficiently spread in the national territory - for self-consumption and/or injection in the natural gas distribution grid - maximum allocation per project of € 15 M;
  • € 2 M in the installation of 2 pilot areas of local production and hydrogen charging in the Businesses Location Areas (Áreas de Acolhimento Empresarial) for heavy vehicles fleets (passengers, waste, logistics, etc.).

According to the RRP, the targets and schedule for the implementation of EN-H2 and, in particular, the renewable gas production projects, will be as follows:

Targets

264 MW of renewable gas production capacity [2021-2025]:

 
Q4 2023 88 MW
Q4 2024 176 MW
Q4 2025 264 MW


Schedule for launching the support tenders

 
Q3 2021 Launching 1st call for renewable gas production projects and entry into force of the amendments to the Transmission Network Regulation and the Distribution Network Regulation
Q1 2022 Assessment of applications and communication of results online for 1st call
Q3 2022 Launching 2nd call for renewable gas production projects
Q1 2023 Assessment of applications and communication of results online for 2nd call
Q3 2023 Launching 3rd call for renewable gas production projects
Q1 2024 Assessment of applications and communication of results online for 3rd call


Execution timeframe for the € 185 M

 
2021 € 6 M
2022 € 34 M
2023 € 61.5 M
2024 € 55.7 M
2025 € 27.8 M
* Standard cost considered per MW: around € 1,550 k/MW.
First call for tender

On 28 September 2021, the Portuguese government launched the first call worth 62 million euros under the program “Support for the production of renewable hydrogen and other renewable gases”. This call aims at subsidizing the production of the first 88 MW of hydrogen production capacity.

The eligible projects are (i) production of gases from renewable sources related to the development and testing of new technologies (TRL equal to or greater than 6), from production to consumption; and (ii) production of gases from renewable sources with tested technologies (TRL equal to or greater than 8) and which are not yet sufficiently disseminated in the national territory, from production to consumption.

100% of eligible expenses will be reimbursed, corresponding to the extra cost of an investment in the production of gases of renewable origin compared to a conventional installation to produce hydrogen from steam reformation of natural gas. Funding per beneficiary and per operation will have a maximum allocation of € 5 M, which could be doubled to € 10 M if the project covers investments in different activities of the value chain (production, distribution and final consumption). 

Other

In September 2021, the Portuguese Government also launched an electronic auction to allocate capacity reserve for the injection into the public grid (in Pego, Abrantes) of electricity produced exclusively from renewable energy source(s). The tender is open to all renewable energy sources, thus admitting production of hydrogen. 

In addition, the energy sector national regulator ERSE approved in 2020 a pilot project for the injection, by Galp Gás Natural Distribuição, of hydrogen into the natural gas distribution grid. The project is ongoing. 

Part 5

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

The existing Portuguese legislation and energy sector-related regulation (issued by the energy sector national regulator ERSE Entidade Reguladora dos Serviços Energéticos) has been recently amended to include possible injection of hydrogen in the natural gas distribution grid.

In fact, under the national gas system law, as amended in August 2020 (by Decree-Law 62/2020, dated 28 August, the “National Gas System Law”), the production of renewable and low carbon gases, in particular hydrogen, is foreseen as a liberalised activity. The current National Gas System Law includes low administrative requirements (with the appropriate regulation to ensure the safety of supply to the national gas system) and the choice for the producer of renewable or low carbon gases to use the product for any purpose, such as: self-consumption, injection into the public gas network, supply by tanker to any industrial or private consumer, export and application to the transport sector.

In addition, the new National Gas System Law also establishes the mechanism for the issuance of guarantees of origin for low carbon gases and for gases from renewable origin.

Further to the approval of the new National Gas System Law, ERSE approved a series of new regulations to complete the adaptation of the legal framework to the production and injection of hydrogen into the grid. 

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

 


Footnotes
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