Thursday, June 13, 2024

EU agrees new rules for investments into hydrogen infrastructure

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Negotiations on the first leg of the EU’s new hydrogen and gas market rules concluded on Monday (27 November), clearing the way for investments into new infrastructure with a special carve-out for Germany’s municipal utilities.

On Monday evening, legislators brought the first part of the EU’s hydrogen and gas package to a close.

Initially proposed in December 2021, the rules set the playing field for investments into hydrogen infrastructure, prioritising “hard to abate” industries like steel and chemicals.

“This agreement is a great achievement as it will boost the deployment of the emerging hydrogen sector, the transition of the gas sector towards renewable energy, and it also sets rules for consumer protection and strengthens the security of supply,” said Spain’s ecological transition minister Teresa Ribera, who represented the 27 EU member states in the talks on behalf of the Spanish EU presidency.

“The agreement makes Europe fit for hydrogen,” added Jens Geier, a social democrat from Germany who was the chief negotiator for the European Parliament.

The agreement must now be approved by Parliament and EU countries represented in the Council to become law, although this is usually a rubber-stamping exercise. Formal approval is expected in March, shortly before Parliament enters recess for the June European elections.

Softer infrastructure ownership rules

The gas package consists of two laws: one directive setting out investment rules and a regulation to determine the market structure. Negotiations on the latter have yet to be concluded following a disagreement on biogas targets and joint EU procurement for hydrogen.

For his part, Geier managed to successfully conclude negotiations on investment rules – despite a last-minute scuffle between Germany and France on whether hydrogen infrastructure ownership should be more strictly regulated than gas and electricity grids, as the European Commission initially proposed.

The German social democrat won that fight, backed by Germany leading a coalition of like-minded countries who pushed for less stringent rules. 

“Investment hurdles in the Commission proposal that would have slowed down the ramp-up of hydrogen have been removed,” said Geier, referring to proposed “ownership unbundling” rules preventing network operators from simultaneously owning gas and hydrogen infrastructure.

Instead, legislators decided to adopt “unbundling rules for hydrogen network operators that are in line with best practice in the gas and electricity market,” he said. 

This means countries like Germany can exempt gas grid operators from an obligation to invest in hydrogen grids through a separate company – provided they have less than 100,000 customers.

This would “secure the future of municipal utilities in Germany as a crucial part of municipal public services and give them a perspective in the hydrogen economy,” Geier pointed out.

Experts were less enthusiastic about the overall outcome. “The gas package deal is out of sync with Europe’s energy security and climate ambitions,” said Michaela Holl, a senior advisor at the German think-tank Agora Energiewende.

“It will impose unnecessarily high costs on taxpayers, make it hard for new renewable hydrogen and ammonia producers to enter the market and fail to clarify what counts as ‘low-carbon’ hydrogen and biomethane,” she added.

Decommissioning the gas grid

But beyond that, the compromise’s “biggest shortcoming is that it ignores the fundamental changes on Europe’s economy, energy market and infrastructure that will result from the rapidly shrinking fossil gas market,” Holl said. 

Previous ambitions to put in place a decommissioning plan for residential gas grids – that the switch to electric and district heating currently underway will quickly render superfluous – did not make it into the final law.

Still, Geier says the law will provide some of that. “For the first time, there is network planning for distribution networks, as the transition from natural gas to hydrogen will make parts of the network redundant,” he noted.

Getting off gas should be made easier, too, with special arrangements to protect customers from the future decommissioning of the gas network or its repurposing to hydrogen. Customers must be informed in advance, and the specific needs of vulnerable households will be considered.

“All consumers will receive more rights and support to switch to a fossil-free gas supply,” Geier said. 

Notably, the recognition of “node points” to efficiently integrate renewable energy and hydrogen production will help the hydrogen economy to pick up, said the German social democrat.

Additionally, EU negotiators added new consumer protection provisions to the law to prevent households from being disconnected if they cannot pay their heating bills.

“Member states must take measures to prevent a cut-off,” Geier said. 

[Edited by Frédéric Simon/Alice Taylor]

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