Europe sets out delegated acts to define ‘green hydrogen’
26.04.2023
For the reduction of greenhouse gas emissions, using, among others, RFNBOs (Renewable Fuels of Non-Biological Origin), the targets are set by The Renewable Energy Directive (RED). RFNBOs are synthetic fuels that are produced from renewable electricity with hydrogen as a relevant example.
The criteria by which electricity can be considered green for the production of hydrogen were not clearly defined until now. After multiple proposal rounds, on February 13, 2023, the EU Commission finally published the Delegation Acts (DA) defining green hydrogen. The acts are still subject to approvals from the EU Parliament and the Council. These acts, however, provide the long awaited certainty to producers and investors that the hydrogen they produce can be sold or traded as ‘renewable’ in Europe.Three options for consideration of ‘hydrogen’ as green:1. Direct connection to renewable power generation plant:
Power supplied from a renewable power generation plant directly to the electrolyzer is considered fully green. However, the renewable power generation plant should comply with the ‘additionality clause’. The additionality clause guarantees that any hydrogen that is produced from electricity is produced from newly built renewable power generation capacity such as solar or wind, which would not have existed if not for the production of hydrogen. This clause is to avoid the crisis in which fossil-fuel-fired power would be needed to replace the green electricity used for H2 production, and will in turn increase the greenhouse gas emissions overall. There is also a “transitional phase” for first movers in the industry, as green hydrogen projects that come into operation before the end of year 2027 will be exempt from the additionality rule until January 1, 2038.2. Power Purchase Agreement with renewable power generator
This is an arrangement where the hydrogen producer is supplied with power for the electrolyzer by the Renewable Power generator through the public grid. For the produced hydrogen to be considered green, the temporal and geographical correlation clauses should be met. For temporal correlation, the electrolyzer should consume the electricity in the same hour it was injected. However, until December 31, 2029, monthly correlation will be allowed and thereafter only hourly correlation will be acceptable. In other words, producers must prove on an hourly basis (or on a monthly basis until December 2029) that the power being used by their electrolyzers came from new renewable sources, thus making the use of grid electricity difficult. Geographical correlation requires that the renewable energy plant is located in the same bidding zone as the electrolyzer. Bidding zones are large geographical areas (sometimes including national boundaries) in which exchange of energy without capacity allocation is done (i.e., energy, which is imported from outside the zone). These are designed to avoid grid congestion within the zone.
Additionally, similar to the direct connection, the additionality clause is required in this case as well, unless grid emission intensity for power production is lower than 64.8 g CO2e per kWh.3. Purchase of grid electricity in a bidding zone with more than 90% share of renewable energy in power mix
This applies if the green hydrogen production takes place in a bidding zone that has generated more than 90% of its electricity from renewable sources in any of the five previous calendar years or has an average emissions intensity of power generation of less than 64.8 g CO2e/kWh.An info-graphical overview of all the above three options is presented below:The status on the low carbon hydrogen produced from nuclear energy (red hydrogen) or fossil gas with carbon capture and storage (blue hydrogen) is still unclear. However, as per the DAs, there is already a loophole by which renewable hydrogen can be produced from nuclear-reliant grids if the average emissions from electricity production are less than 64.8 g CO2 e/kWh, although renewable energy certificates would still be required. As per the European Commission note accompanying the Delegated Acts, a methodology for assessing greenhouse gas emissions savings from low carbon fuels will be set out in delegated legislation by December 31, 2024.Schlegel und Partner, with its extensive experience in the energy industry, is well positioned to help industry players, such as green ammonia or hydrogen producers or customers, to understand the challenges and trends.
Additionally, our experts can help you to identify collaboration opportunities along the value chain as well as identify channels for marketing. If you are interested in more information, please contact:Thorsten Leupold, phone: +49 6201 9915 16, email id: Thorsten.Leupold@SchlegelundPartner.de
Aayushi Sinha, phone: +49 6201 9915 18, email id: Aayushi.sinha@SchlegelundPartner.deSchlegel und Partner GmbH 2023
Power supplied from a renewable power generation plant directly to the electrolyzer is considered fully green. However, the renewable power generation plant should comply with the ‘additionality clause’. The additionality clause guarantees that any hydrogen that is produced from electricity is produced from newly built renewable power generation capacity such as solar or wind, which would not have existed if not for the production of hydrogen. This clause is to avoid the crisis in which fossil-fuel-fired power would be needed to replace the green electricity used for H2 production, and will in turn increase the greenhouse gas emissions overall. There is also a “transitional phase” for first movers in the industry, as green hydrogen projects that come into operation before the end of year 2027 will be exempt from the additionality rule until January 1, 2038.2. Power Purchase Agreement with renewable power generator
This is an arrangement where the hydrogen producer is supplied with power for the electrolyzer by the Renewable Power generator through the public grid. For the produced hydrogen to be considered green, the temporal and geographical correlation clauses should be met. For temporal correlation, the electrolyzer should consume the electricity in the same hour it was injected. However, until December 31, 2029, monthly correlation will be allowed and thereafter only hourly correlation will be acceptable. In other words, producers must prove on an hourly basis (or on a monthly basis until December 2029) that the power being used by their electrolyzers came from new renewable sources, thus making the use of grid electricity difficult. Geographical correlation requires that the renewable energy plant is located in the same bidding zone as the electrolyzer. Bidding zones are large geographical areas (sometimes including national boundaries) in which exchange of energy without capacity allocation is done (i.e., energy, which is imported from outside the zone). These are designed to avoid grid congestion within the zone.
Additionally, similar to the direct connection, the additionality clause is required in this case as well, unless grid emission intensity for power production is lower than 64.8 g CO2e per kWh.3. Purchase of grid electricity in a bidding zone with more than 90% share of renewable energy in power mix
This applies if the green hydrogen production takes place in a bidding zone that has generated more than 90% of its electricity from renewable sources in any of the five previous calendar years or has an average emissions intensity of power generation of less than 64.8 g CO2e/kWh.An info-graphical overview of all the above three options is presented below:The status on the low carbon hydrogen produced from nuclear energy (red hydrogen) or fossil gas with carbon capture and storage (blue hydrogen) is still unclear. However, as per the DAs, there is already a loophole by which renewable hydrogen can be produced from nuclear-reliant grids if the average emissions from electricity production are less than 64.8 g CO2 e/kWh, although renewable energy certificates would still be required. As per the European Commission note accompanying the Delegated Acts, a methodology for assessing greenhouse gas emissions savings from low carbon fuels will be set out in delegated legislation by December 31, 2024.Schlegel und Partner, with its extensive experience in the energy industry, is well positioned to help industry players, such as green ammonia or hydrogen producers or customers, to understand the challenges and trends.
Additionally, our experts can help you to identify collaboration opportunities along the value chain as well as identify channels for marketing. If you are interested in more information, please contact:Thorsten Leupold, phone: +49 6201 9915 16, email id: Thorsten.Leupold@SchlegelundPartner.de
Aayushi Sinha, phone: +49 6201 9915 18, email id: Aayushi.sinha@SchlegelundPartner.deSchlegel und Partner GmbH 2023