EU: Commission publishes delegated act on green hydrogen

After a long wait, the European Commission has, on 13 February 2023, published a delegated act (DA) with more details on when renewable fuels of non-biological origin (RFNBOs), which include hydrogen and its derivates, can be considered “green” under the Renewable Energy Directive (EU) 2018/2001 (RED II). 

Background

The RED II obliges fuel suppliers to ensure that the share of renewable energy consumed in the transport sector reaches a certain level. This quota can be fulfilled by distributing RFNBOs. As RFNBOs are typically produced using electricity intensive electrolysis, the electricity used for their production should stem from renewable sources (RE plants) to qualify as "green". The RED II lays down basic principles for when electricity can be considered to be fully renewable, including

• the so-called additionality requirement which demands that RFNBOs should in principle source the electricity they use from new RE plants to avoid diverting renewable electricity from other uses which would then have to divert to emission-intensive gas or coal-fired power plants; 
• differentiating between RFNBO producers that are connected via a direct line to an RE plant and RFNBO producers that source renewable electricity from the grid. 

The Commission was tasked to provide further details on the qualification of electricity to be fully renewable. In the DA it has come up with four different scenarios for on- and off-grid RFNBO plants which have to fulfil varying additional requirements, esp. allowing for exemptions in certain situations characterised by a high amount of (renewable) electricity available in the grid. The DA will be applicable for the production of RFNBOs both in- and outside the European Union.  

Scenario 1: Bidding zone with > 90% renewables

In a scenario in which the electrolyser is located in a bidding zone with an average proportion of renewable electricity of >90% in the previous calendar year, all electricity taken from the grid for electrolysis can be considered to be fully renewable. The only condition is that the production of the RFNBOs does not exceed a maximum number of hours set in relation to the proportion of renewable energy in the bidding zone. Possible candidates to fulfil this criteria could be Iceland, Norway, Albania, Uruguay or Costa Rica. 

Scenario 2: Imbalance settlement period

Electricity taken from the grid for electrolysis can be considered to be fully renewable in a redispatch situation where RE generators were redispatched downwards and the use of electricity for the production of RFNBOs reduced the need for redispatching.

Scenario 3: Electricity from renewable PPA or from own installation

In the (standard) case that an electrolyser procures its electricity via the grid, the RFNBO producer can either conclude one or more renewable power purchase agreements (PPA) or produce renewable electricity in its own installation to ensure the supply of renewable electricity. 

In any case, the amount of electricity produced in the RE plants has to be at least equivalent to the amount of electricity which is claimed for the RFNBO production. For RFNBO producers who have concluded renewable PPAs the DA explicitly demands that the electricity claimed has to be effectively produced in these installation(s).

The rules for additionality, temporal correlation and geographical correlation as described below need to be followed in both cases.

Additionality (phase-in until 2028)

Art. 5 DA - after a phase-in period - requires that an RE plant should not be much older than the electrolyser (36-month rule) and should not receive public support unless located in a low-carbon bidding zone.

36-month rule 

The RE plant(s) may not come into operation more than 36 months before the electrolyser. An extension of the capacity of the electrolyser within 36 months is permitted and will be considered as coming into operation at the same time as the original plant. 

According to the transitional rule of Art. 11 DA, the 36-month rule will before 1 January 2038 not have to be fulfilled by electrolysers coming into operation before 1 January 2028. Capacity enhancements of exempted electrolysers that take place after 1 January 2028 will, however, have to fulfil the 36-month rule.

No public support for RE plant

Besides the 36-month rule the RE plant must not have received operating or investment aid unless the aid:

• was received before repowering;
• granted for land or grid connection; 
• does not constitute net support or; 
• the RE plants supply electrolysers producing RFNBOs for research, testing and demonstration purposes.

Again, electrolysers coming into operation before 1 January 2028 do not need to fulfil this requirement before 1 January 2038, Art. 11 DA.

Exemption: Low carbon bidding zone and PPA

A general exemption from the additionality criterion (i.e. 36-months rule and no public support) is available for RE plants for which a renewable PPA  has been concluded and that are located in a bidding zone where the emission intensity of electricity is lower than 18gCO2e/MJ (in the EU currently only Sweden reaches this threshold, although France is close). The requirements for temporal and geographical correlation (see below) would still need to be fulfilled, though.

Temporal correlation 

Art. 6 DA requires that electricity and RFNBO are generated either:

• within the same month (as of 2030: hour; member states can decide to require hourly matching from 2027); 
• with electricity from an “new” onsite storage asset (behind the same network connection point of either RE plant or electrolyser; “new”, however, is not defined) that was charged within the same month (as of 2030 (2027): hour) as in which the RE plant was producing, or;
• at times of low electricity prices in the bidding zone where the electrolyser is located (day ahead clearing price of ≤ 20 EUR/MWh or < 0.36 times the price of an EU ETS certificate for 1t of CO2e). 

Geographical correlation 

The RE plant(s) contracted under the renewable PPA(s) will under Art. 7 DA typically need to be located: 

• in the same bidding zone as the electrolyser; 
• in an offshore bidding zone interconnected with the electrolyser’s bidding zone; or 
• in an interconnected  bidding zone. In this last case the electricity used for the production of RFNBO may only be considered fully renewable if it is produced during times (and in line with the temporal correlation requirement under Art. 6) where the price of electricity is equal or higher than in the electrolyser’s bidding zone.

In addition, Art. 7 DA allows member states to introduce additional criteria to ensure compatibility with their planning of electricity and hydrogen grids.

Scenario 4: Direct connection between RE plant and RFNBO generator

An RE plant which is located in the same installation as an electrolyser or is connected to it via a direct line also needs to adhere to the 36-month rule (as described above). 

Other than for grid connected electrolysers there is no phase-in period for off-grid electrolysers postponing the application of this criterion. On the upside, there isn’t a ban on operating or investment aid for the RE plant as is the case for electrolysers drawing electricity from the grid.

Should the RE plant also have a grid connection, the operator will need to prove via smart meters that no electricity from the grid was used for the production of the RFNBOs.

Next steps and outlook

The DA will now be transmitted to the European Parliament and the Council for scrutiny allowing them to either accept or reject it within two months. Parliament and Council may ask to extend the scrutiny period by two months but are not entitled to amend the proposals. [Addendum of 27 February 2023: The European Parliament has requested such a two-month extension on 23 February 2023].

The publication of the DA should allow the legislative process for the revision of the RED II under the Fit for 55 package (COM(2021) 557 final) – which had been stalled recently – to take up speed again. This revamp is supposed to extend the rules for transport RFNBOs to fuels used in other sectors and to introduce a new minimum quota for green hydrogen to be used in the industry sectors. Whether the additionality criterion for RFNBOs will still be part of the revised RED remains to be seen after the EU Parliament voted to abolish this requirement in Sep. 2022 (referring to a further proposal to amend the RED II currently in the legislative process). 

Also, trilogues on the gas and hydrogen package which will introduce rules on low-carbon hydrogen are about to start and will need to be streamlined with the definition of green hydrogen under the RED.