Ref. Ares(2023)5688707 - 21/08/2023
TALKING POINTS
TOPIC: Address the uncertainty: motivate CEOs to invest in
H2 infrastructure in line with COM’s vision
Main Message: COM has taken
major policy and financial
steps to incentivise investments needed for the (renewable)
H2 value chain. eg:
x Proposal to scale up production and consumption of renewable
H2 in hard-to-decarbonise sectors under RED-II revision
o Proposed
ambitious targets for renewable hydrogen
consumption by industry by 2030 (50% of total
hydrogen consumption) and transport (2.6% of total
fuel consumption).
o EP and Council adopted their positions;
trilogues start
soon.
x H2
and gas markets decarbonisation package:
o Updates EU gas market rules towards renewable gases eg
H2.
o Creates
clear rules on how to own, operate and finance
H2 infrastructure. Encourages gas and electricity grid
operators to invest in the H2 network.
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o New
H2 network planning rules. Ensures hydrogen
system is constructed based on
realistic, forward-
looking demand projections.
x COM
assessment of first two waves of Hydrogen IPCEIs.
o In July, COM approved IPCEI Hy2Tech with
EUR 5.4
bn for
15 MS, covering
41 projects. Expected to
unlock EUR 8.8 bn in private investments.
o COM just approved IPCEI Hy2USE with
EUR 5.2 bn for
13 MS, covering
35 projects. Expected to
unlock EUR
7 bln in private investments.
x
RRF =
EUR 9.3 bn for H2 projects.
x
Clean Hydrogen Partnership (EUR 2 billion for 7 years)
and
CEF.
x
EU Hydrogen Bank to include further measures
to move
the H2 economy from niche to scale.
TOPIC: H2 and related infrastructure under REPowerEU
Main Message: Need to speed up H2 infrastructure to
produce, import and transport 20 mln tonnes of H2 by 2030.
TOPIC: Identifying hydrogen infrastructure priorities
x Estimated investment needs for key H2
infrastructure to
support domestic and international production:
EUR28-38
billion for EU-internal pipelines and EUR 6-11 billion EUR
for storage.
x
Not all demand can be met by domestic production. COM
will also step up international engagement on H2.
Green
Hydrogen Partnerships to help imports of green H2 while
supporting decarbonisation in partner countries.
x H2 imports to the EU are
most cost-effective via pipelines
from EU neighbourhood. COM will help develop
3 major
hydrogen import corridors: via the
Mediterranean, the
North Sea area and from
Ukraine (as soon as conditions
allow).
x
Import of H2 as ammonia and in liquid form is another
promising way of connecting renewable hotspots around the
world to future users of renewable H2 and its derivatives.
x Important to take into account infrastructure needs to cater for
the import of H2 carriers and derivatives - also in future
planning of the most cost-effective H2 network.
Main Message: TEN-E offers an effective European way of
identifying H2 infrastructure priorities.
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x Kick-started H2 infrastructure development - included in revised
TEN-E Regulation in June.
x COM + ENTSOG + other key partners will start to identify
priority H2 needs and projects on 6th PCI list and projects of
mutual interest (under rev TEN-E Regulation).
x These PCIs (EU-internal) and projects of mutual interest (with a
neighbouring non-EU country) will help identify
where trans-
European energy priorities lie. Would benefit from priority
treatment at national level and may receive CEF support.
x COM will map preliminary H2 infrastructure needs
by March
2023 (based on the TEN-E Regulation), with MS + national
regulatory authorities + ACER + ENTSOG + project promoters
+ others.
x 3 regional groups will start their work in
October.
x
European Hydrogen Backbone, analyses supply, demand
and resulting infrastructure priorities in 5 European corridors
.
x Given short time until 2030 + limited financial and
manufacturing resources,
I’d be interested in hearing from
EHB members what the top priority infrastructure are?
TOPIC: Commission vision for the clean hydrogen alliance
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Note: DG GROW leads the Alliance, ENER was in touch at short notice
Main Message: Value working closely with Alliance to feed
into COM’s policy work.
x
Clean Hydrogen Alliance = good example of partnering up
industry+ innovation ĺ instrumental in cooperation eg for:
o Identifying
bankable pipelines of projects possibly
suitable for investors;
(DG GROW estimates current
pipeline of projects at ca. 68 GW of electrolysers to
produce H2 if implemented by 2030)
o
Addressing legislative challenges, eg permitting.
o Joining forces on
innovation and
scaling up EU
manufacturing of
electrolysis to
increase ten-fold the
manufacturing electrolyser capacity in Europe
by 2030.
(following the Industry Summit, May 2022)
x Appreciate working closely with the
Alliance to feed into
COM policy work eg on emerging technical issues as
standards for H2 infrastructure, and identifying challenges.
x Look forward to discuss Alliance’s Standardisation Roadmap.
Key elements of the H2 economy = completing necessary
standards for safely + securely operating emerging H2 networks
and infrastructure. (Report/Roadmap publication expected in
December 2022 at the Hydrogen Forum).
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DEFENSIVES
New European Network of Network Operators for Hydrogen (ENNOH) in H2 and
gas markets decarbonisation package
Why did COM propose ENNOH? Why not give ENTSOG responsibility for
cooperation with H2 network operators?
x
Future market and infrastructure for hydrogen will not be a copy of the current
natural gas system.
x Eg, major industry and transport hubs will be the main consumers for hydrogen,
whilst natural gas is delivered to hundreds of millions of households, businesses and
electricity and heat producers.
x The future rules for hydrogen need dedicated reflections and cannot simply copy
current market rules and infrastructure for natural gas.
x We create ENNOH as the governance of the hydrogen network also requires a
dedicated approach.
x Creating a new, separate body for EU-wide coordination of H2 network operators
reflects our message on the role of hydrogen and on the priority of using it in its pure
form transported in dedicated hydrogen networks to use in hard-to-decarbonise
sectors.
x The exclusive focus on hydrogen allows ENNOH to better tailor development of
hydrogen networks to the real needs of the hydrogen markets (demand calculation
in H2 TYNDP, end-use in hard-to-decarbonise sectors). Gas TSOs can be biased
towards less efficient use of hydrogen (e.g. blending) and to over-investment to
prolong the lifetime of natural gas assets. Gas TSOs are strongly interested in
blending hydrogen into the existing gas network. They have a different concept of
market and infrastructure development for hydrogen.
x ENNOH is better placed to focus on the development of hydrogen valleys and can
support the longer-term vision towards the hydrogen backbone concept.
x At the same time, the sector integration approach is ensured by aligning tasks under
the TEN-E Regulation and by introducing cooperation obligations for the EU-level
entities: ENTSO-E, ENTSOG and ENNOH. We are pleased that ENTSOG has good
cooperation with ENTSO-E on network planning = excellent basis for future
cooperationwith ENNOH.
Proposed unbundling rules for the dedicated hydrogen market under the
hydrogen and gas markets decarbonisation package
Vertical unbundling (= separation production and transport) – Why didn’t the
Commission offer more flexibility on unbundling rules for the future (dedicated)
hydrogen market?
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x The proposed
unbundling rules for dedicated hydrogen markets are often
perceived stricter than they actually are.
x As for natural gas and electricity markets, our proposal for hydrogen network
regulation is based on the principle of ownership unbundling. This protects
competition and prevents market abuse by vertically integrated hydrogen
companies.
x The proposed exceptions to this principle (i.e. use of alternative unbundling models
ISO and ITO; exemptions for existing networks) are aligned with the current and
expected hydrogen market structure.
Compared to gas and electricity networks
in 2009, there are currently very few vertically integrated hydrogen networks.
x Unbundling of hydrogen network operators under
the vertically integrated ITO
regime is therefore envisaged
only as a transitional measure during the market
start-up phase until 2030.
x However,
vertically integrated gas network operators under the ITO regime and
other vertically integrated undertakings can retain ownership of hydrogen
networks after 2030 and accordingly reap the economic benefits of this
ownership if they delegate the operation of those networks to an independent
hydrogen network operator.
Vertical unbundling - Why is there no distinction between hydrogen transmission
and distribution, and no privileged treatment of “hydrogen DSOs” in terms of
unbundling (as for gas and electricity)?
x Firstly, the proposal does not distinguish between transmission and distribution for
hydrogen.
All hydrogen networks will be subject to the same regulatory
requirements.
x This is due to the difference in current market structures:
hydrogen will be used
mainly in hard-to-abate industries and certain transport modes (e.g. buses,
trucks, ships). A widespread switch of households (and thus, a switch of gas
distribution networks) to hydrogen for heating and cooking = not the most effective
approach to decarbonisation and value generation.
x Secondly,
the market structure for hydrogen will differ from gas. For hydrogen,
small decentralised production from electrolysers will play a significant role.
Therefore, safeguarding competition and a level playing field – including
through strict unbundling – is also important within distribution-level
networks.
x
However, gas DSOs that are part of a vertically integrated undertaking can still
become active in hydrogen transport by repurposing parts of their networks (notably to supply connected industrial customers):
o Until 2030, they can benefit from a derogation from unbundling for
geographically confined networks (Article 48 Gas Directive proposal).
o After 2030, they can retain ownership of their hydrogen networks if they
delegate the operation to an Independent Hydrogen Network Operator
(equivalent to ISO unbundling model in gas and electricity).
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Horizontal unbundling - Why does the Commission proposal envisage stricter
horizontal unbundling between hydrogen networks and gas/electricity networks?
x Also here, the
rules are often perceived stricter than they are. x In the hydrogen and gas markets decarbonisation package,
operators of gas and
electricity grids will be allowed to pursue hydrogen network activities,
provided they create a separate legal entity(legal unbundling).
x Our choice for a legal horizontal unbundling regime should safeguard the separation
of accounts.
x Our
key aim is to uphold the principle of cost-reflectivity of tariffs for the use
of natural gas networks and hydrogen networks (i.e. no cross-subsidies between
networks).
x However, we are well aware that flexibility might be needed in the ramp-up phase of
the hydrogen network. That is why it will be possible to partially cross-finance the
development of hydrogen networks with money levied from users of natural gas
networks.
x This possibility is however restricted in time, subject to regulatory approval and the
additional charges on network users can only be levied at internal points of a
Member States’ gas network.
Hydrogen infrastructure mapping [an initiative developed by industry in the
context of the Madrid Forum]
Is there an on-going infrastructure mapping of hydrogen infrastructure projects?
x This is an activity of natural gas infrastructure industry (ENTSOG, EHB, GIE,
CEDEC, Eurogas, GEODE, GD4S) to map all hydrogen infrastructure projects
collected under different existing processes.
x It is important that this mapping assesses the costs/benefits of projects and
consultats all stakeholders.
Hydrogen infrastructure under the TEN-E
Is there scope for constructing hydrogen-ready pipelines, using them for natural
gas in the beginning and switching later (and get PCI-status under TEN-E)?
x Dedicated hydrogen pipelines - both repurposed from natural gas to hydrogen as
well as newly constructed ones, or a combination of both - are eligible to apply for
the 1st PCI list under the revised TEN-E Regulation.
x The revised -E Regulation (Art. 31) includes an exemption where dedicated
hydrogen assets might be used for a predefined blend of hydrogen and natural gas
for a transitional period until 2029.
x However, this transitional period applies only to dedicated hydrogen assets
converted from natural gas assets, i.e. existing natural gas assets, hence a new
hydrogen pipeline used for natural gas would not fulfil these conditions.
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x Therefore,
any
pipeline which is not yet constructed could apply for PCI status only if
it can prove it will be used as a dedicated H2 asset from the very start of operation.
Can a hydrogen liquefaction (export) terminal get a PCI status under the TEN-E?
[Portugal might raise the Sines terminal for exporting to Rotterdam]
x TEN-E (Annex II) only mentions reception, storage, regasification, decompression.
Delegated act additionality/defining renewable hydrogen
Will the Commission go ahead with the presentation of the delegated act on
additionality/renewable hydrogen after the EP vote on this delegated act?
x
We respect the position of the EP, and we will take it into account as we
continue to prepare these delegated acts.
x We are assessing the implication of the vote and what it means more broadly forf
hydrogen. Commissioner Simson intends to discuss this with MEPs.
x In any event,
we all should understand that project developers are concerned
that discussions on the criteria during the legislative process could last
several months. Implementation of the criteria could even take several years.
The resulting uncertainty about the future regulatory framework would cause
delays in the ramp-up of renewable hydrogen production.
Hydrogen bank [Lead to be taken most likely by EVP Timmermans]
x The EU Hydrogen Bank, announced by the President during SOTEU, will include
more measures to move the hydrogen economy from niche to scale, on top of
our proposed regulatory framework, the work on hydrogen infrastructure under
TEN-E and the Clean Hydrogen Alliance.
x DG CLIMA has been working on developing Contracts for Difference (CfD) for H2
production and Carbon Contracts for Difference (CCfD) for H2 applications in
industry, e.g. steel and chemicals, under the Innovation Fund.
CfD auctions for
hydrogen production, funded and executed by the Innovation Fund, will form
the core of scaling up the domestic production side of the Hydrogen Bank.
x This instrument would de-risk and create bankability of hydrogen projects, whilst
ensuring EU-level competition and avoiding over-subsidising projects.
x The bank should
include an international dimension to cater for renewable
hydrogen imports. We are
reflecting on the set-up of this international part.
Blending hydrogen in the existing natural gas grid x Blending hydrogen in the natural gas network is
not a long-term solution. It
reduces the value of hydrogen and changes the quality of the gas consumed in
Europe. This can affect consumers and fragment the internal market.
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x Therefore, the hydrogen and gas markets decarbonisation package does
not set
blending requirements at domestic level.
x However, we are aware that some
blending is likely to take place in MS,
when
not enough dedicated hydrogen infrastructure is available.
x Member States can decide whether, and to what extent, they want to allow blending
hydrogen
in their domestic networks.
x The proposal also introduces
a 5% hydrogen blending cap for cross-border
flows and which operators must accept to
safeguard a well-functioning internal
market.
x [if needed:]: We do
not introduce
a blending obligation.
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TEN-E key content
x The TEN-E regulation sets out clear criteria assessing candidate projects of common
and mutual interest in the 3 regional groups for hydrogen (Western Europe, Central
Eastern and South Eastern Europe, Baltic Market).
x The final (6th) Union list will be established by consensus between the MS and COM.
Com expects to adopt it as a delegated act in November 2023.
x Categories of hydrogen infrastructure under TEN-E: pipelines (new and repurposed);
storage facilities; reception, storage and regasification/decompression facilities (pure
or H2 embedded in other substances); other essential equipment such as
compressor stations; any equipment to allow use in the transport sector within the
TEN-T core network; electrolysers with at least 50 MW capacity (and fulfilling other
sustainability/network-related criteria).
TEN-E key process
x Call for candidate projects: mid October-mid December
x Public consultation on projects: January-March 2023
x Establishment of needs assessment: by March 2023
x Project assessment in regional groups: until June 2023
x Adoption of final list: November 2023.
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