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Proposed EU rulebook on green hydrogen puts investments at risk: RWE


Criteria on additionality, temporal correlation

Hourly power accounting from 2027, monthly before

Startup within 36 months of associated renewables

  • Author
  • Camilla NaschertJames Burgess
  • Editor
  • Manish Parashar
  • Commodity
  • Electric Power Energy Transition Natural Gas
  • Topic
  • Energy Transition Environment and Sustainability Hydrogen: Beyond the Hype

Strict criteria proposed by the European Commission on renewable electricity generation used to power green hydrogen will slow much-needed investments in the sector, RWE said May 23.

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The EC has shared its rulebook proposing green hydrogen standards as part of the REPowerEU energy package for Europe's pivot from Russian gas, sparking protest from industry participants who say requirements are too strict.

Using renewable hydrogen will only lead to greenhouse gas emissions savings across the whole of the EU economy if electrolysis does not displace existing renewables from the grid and incentivize fossil-powered generation, the Commission said in a draft delegated act May 20.

"Given the enormous amount of additional renewable electricity generation needed to progress in the decarbonization of current fossil electricity production, this can only be ensured by including strict criteria for additionality in this methodology," the EC said in draft legislation that is now open for consultation until June 17.

Additionality means new renewable power generation is built for new hydrogen projects. The delegated act allows for a phase-in period of stricter rules until 2026, from which time only new unsubsidized wind and solar farms can be used to make green hydrogen.

Hydrogen production can also be classed as fully renewable if it takes place at times where electrolyzers support the integration of renewable power generation into the electricity system, or in bidding zones where renewables already represent the dominant share of the power mix and adding additional clean power generation capacity would not be necessary or possible, the Commission said.

New installations must come online within 36 months of the associated renewable power generation, the EC said in its draft rules.

From Jan. 1, 2027, hydrogen production should also take place in the same hour as the electricity generation, it said. Before that date, monthly correspondence between power generation and hydrogen production would be required.

Industry backlash

The industry pushed back against the plan May 23.

"The detailed rules around hydrogen criteria ... will put the brakes on needed investment in the coming years. The transformation of industry will be unnecessarily delayed," RWE CEO Markus Krebber said in a statement.

Temporal linkage of green power production and electrolysis will also mean electrolyzers sit idle during periods of low power generation, RWE said. Sectors such as electric mobility also do not have such requirements, and the EU's emissions market puts a cap on carbon emissions from the power sector anyway, the company added.

Industry group Hydrogen Europe and its utility members have long been lobbying for looser additionality rules as the renewable hydrogen industry ramps up, arguing that scaling the technology will not be possible if clean power requirements are too strict.

The trade association had proposed that the "temporal correlation should be kept to a monthly resolution to foster the optimization of electrolyzers," which would increase grid utilization and reduce administrative costs, in turn reducing hydrogen production costs.

However, UK-based electrolyzer manufacturer ITM Power welcomed the proposals.

"We recognize that the principles of additionality, temporal correlation and geographical correlation are important for ensuring renewable hydrogen is produced, and we appreciate the EC's commitment to phase them in gradually," the company said in a statement May 23.

EU hydrogen ambitions

In the REPowerEU package, the EC called for an increase in the renewable share for hydrogen used in industry to 75% by 2030, up from its previous ambition of achieving a 50% share announced in the Fit for 55 climate package in July 2021.

It also raised its target for the share of renewable fuels of non-biological origin -- essentially renewable hydrogen-based fuels -- in the transport sector to 5% by 2030, up from 2.6% in the Fit for 55 package.

To help the industry ramp up new wind and solar projects, the REPowerEU package also includes a plan for speedier permitting, pledging to cut the planning phase for projects to one year in suitable areas. This will also help the hydrogen industry build up its power input, the commission said in its consultation document on additionality.

Close to 7.8 million mt/year of hydrogen could be needed to meet the industry target, with more than 11 million mt/year hydrogen going to the transport sector, according to S&P Global Commodity Insights data.

The EU is targeting 10 million mt/year of hydrogen production capacity, requiring about 80 GW of electrolysis, in addition to 10 million mt/year of imports.

S&P Global has tracked in its Hydrogen Production Asset Database a project pipeline of 34 GW of electrolyzer capacity announcements due online by 2030 in the EU, which would produce about 5 million mt/year of renewable hydrogen.

Calculated grid-powered hydrogen production costs in Europe have risen sharply since late-2021, driven by soaring gas and power prices. Platts assessed the cost of producing renewable hydrogen via alkaline electrolysis in Europe at Eur10.35/kg ($11.05/kg) May 20 (Netherlands, including capex), based on month-ahead power prices, up from Eur4.12/kg a year ago, S&P Global data showed.

However, many renewable hydrogen project developers in Europe are targeting production costs of below $1.50/kg before 2030, underpinned by long-term renewable power purchase agreements or dedicated renewable generation.