The new EU gas package – laying the groundwork for hydrogen networks and other hydrogen infrastructure

On December 15, 2021, the European Commission presented a proposal for a hydrogen and decarbonized gas package (Gas Wrap). The gas package will be the first comprehensive regulatory framework at EU level for hydrogen and other renewable gases, to provide the necessary policy measures to create an optimal infrastructure dedicated to hydrogen including cross-border networks of hydrogen and hydrogen markets efficient. The measures to be included in the existing regulatory framework for natural gas by the review and overhaul of the Gas Regulation (EU 715/2009) and the Gas Directive (EU 2009/73) (see draft regulations and draft) .

In the midst of the energy crisis underway in Europe, the European Commission has again highlighted the importance of the gas package in a new paper published March 8, 2022, (see RePower EU, COM (2022) 108 final). The Communication notes that hydrogen and other renewable gases will reduce EU energy dependence while ensuring that the EU meets its target of zero net emissions by 2050. The Communication was followed by a proposal amendment (COM (2022) 135 final) to the existing EU legislation on gas. ensure the security of gas supply and increase gas storage in Europe.

In this context, we have summarized the key points related to the exploitation of the hydrogen infrastructures contained in the Gas Package:

Key Design Pillars for Hydrogen Networks and Markets

Unbundling

The draft Directive contains mandatory provisions for the dissociation of hydrogen network operators, storage and terminals similar to those for natural gas and electricity with a transitional period until the end of 2030 to networks existing hydrogen. In essence, operators of hydrogen systems and hydrogen storage operators will maintain their respective operations independent of the production and supply of hydrogen to avoid the risk of conflicts of interest. Operators of hydrogen terminals (including ammonia terminal) are required to keep separate accounts for their activities hydrogen terminals.

The draft directive also provides for horizontal unbundling rules, as it requires hydrogen network operators to be organized into a legal entity that does not include the operation of electricity or natural gas networks (known as legal unbundling) .

Hydrogen infrastructure operating rules

The draft directive provides for a number of obligations for the hydrogen network operators, storage facilities and terminals, partially corresponding to those of operators of natural gas facilities. However, there are also specific obligations of hydrogen: for example, operators of hydrogen facilities are required to reduce hydrogen emissions in their operations, conduct surveys for detecting and repairing leaks of hydrogen and ensure sufficient hydrogen quality management.

The draft directive also introduced a certification scheme for low-carbon fuels, including hydrogen, filling the renewable gas certification system in the directive on renewable energies II (2018/2001). It defines what constitutes a renewable gas or low-carbon, hydrogen defining low-carbon hydrogen as the energy content comes from non-renewable sources and meets a threshold reduction of gas emissions effect greenhouse 70%. Economic operators must show that this threshold has been met, regardless of whether hydrogen low-carbon was produced in the EU or imported. The details of this evaluation will be left to delegated acts on the basis of the draft directive.

Accelerated authorization procedures / Reassignment of existing gas networks

Another important development concerns the amendment of the authorization procedures, especially regarding the conversion of existing natural gas lines in hydrogen pipeline, resulting in savings (time and financial) significant compared to new construction . Member States must ensure that authorizations for the construction and operation of pipelines and ancillary facilities also apply to pipelines and network facilities for the operation of hydrogen.

The authorization procedures for new construction can not exceed two years, with a one year extension is possible in duly justified by exceptional circumstances case. Since the procedures for approving plans for large infrastructure projects often raise considerable objections from citizens, the deadline should be extended for delays caused by environmental assessments under the EU law .

Third party access to hydrogen infrastructure

The proposed directive stresses the importance of open and non-discriminatory access to hydrogen infrastructure. The long-term objective is universal access to hydrogen networks based on the known tariffs of the electricity and natural gas networks.

However, the proposed Directive contains an option allowing Member States to implement negotiated third party access to the network until 2030, but in accordance with objective, transparent and non-discriminatory criteria, in order to guarantee the flexibility of operators and reduce administrative costs. In this system, the conditions of access to the network are negotiated between the parties.

Access to hydrogen terminals will also be based on negotiated third party access while access to hydrogen storage will be based on regulated third party access.

Mixed

Blending hydrogen alongside other gases in existing gas networks is seen as a possible first intermediate step towards decarbonizing natural gas. However, differences in the volume of hydrogen mixed in the natural gas system can influence the design of the gas infrastructure, the application of the end user and cross-border interoperability.

The proposed regulations generally allows Member States to authorize the mixture into national gas systems, but fixed a mixture of up to 5% threshold of hydrogen content in the gas flows at the interconnection points to harmonize cross-border natural gas flows. As a result, from 1 October 2025, the transmission system managers will have to accept natural gas including hydrogen blended rate is below this threshold.

No entry/reduced tariffs for renewable and low-carbon hydrogen

According to the Commission, the input prices are a major obstacle to the integration of hydrogen into the existing natural gas pipeline system for natural gas. Therefore, the draft Regulation contains the provision that the level of the input ports of entry rates for hydrogen production facilities, among others, should be reduced by 75% for gas and renewable low-emission carbon (a 100% reduction will apply in the first year after the entry into force of the recast Regulation). The Commission shall review the tariff reductions five years after the entry into force of the Regulation and the national regulatory authorities can set lower rates of reduction if they conform to the tariff general principles, including the reflectivity of the costs.

Outlook

Essentially, the package includes hydrogen gas in the familiar natural gas regulatory framework with specific adaptations to the energy source if necessary. A strong regulatory framework is a prerequisite basis for hydrogen-related activities, the adoption of this gas package will be a welcome and necessary step. At the same time, it can serve as a starting point for achieving the goals set in the European strategy for hydrogen (renewable hydrogen production in the EU should reach 1 million tons by 2024 and up to 10 million by 2030) and must be accompanied by significant investments in hydrogen.

The gas package had its first reading in the European Parliament February 17, 2022 and was referred to the Committee on Industry, Research and Energy with a committee decision currently pending. We can therefore expect to learn more about this topic soon.

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