Green hydrogen is seen as main contributor to the energy transition. Large-scale use, especially in industry, should make it possible to achieve the climate targets (see here for the relevant contents of the German coalition agreement (German)). Not only the draft new Energy Levies Act (Energie-Umlagen-Gesetz, EnUG), but also the recently published draft of the European Commission for a delegated act on green hydrogen bring new challenges.
The Renewable Energy Act 2021 (EEG) and the Renewable Energies Ordinance have just made it possible to exempt the renewable electricity required for the production of green hydrogen from the EEG levy or to reduce the EEG levy for the renewable energy. Already before the approval of the European Commission under state aid law was available and thus the application of the levy exemption could become possible, the German government announced in February 2022 that the EEG levy would be reduced to zero as early as 1 July 2022 and completely abolished as of 1 January 2023. The reduction of the EEG levy to zero has already successfully passed through the legislative process and enters into force on 1 July 2022, the complete abolition as part of the EEG 2023, and thus also the abolition of the regulation on the exemption of green hydrogen (§ 69b EEG 2021), is still in the legislative process (see more here (German)). So while developers, investors and operators of green hydrogen production plants were still adjusting to the exemption from the EEG levy and the associated economic incentives last year, the EEG levy will now be completely eliminated in just a few weeks anyway.
However, the funding opportunities of green hydrogen do not end there. This is because the new Energy Levies Act contains regulations for exempting green hydrogen from the remaining energy levies (combined heat and power levy, offshore grid levy). The EnUG is still in the legislative process as part of the so-called “Easter package”. After the first reading in the German Bundestag (Federal Parliament) on 12 May 2022, consultation is currently still taking place in the committees.
In the following, we present the main contents of the draft bill and the relevant provisions. As the law has not yet been passed, the provisions may still be amended.
1. General information on German renewable energy levies
With the abolition of the EEG levy, all regulations on the financing of renewable energies are to be removed from the EEG and regulated uniformly in the new EnUG. The transmission system operators annually determine the financing requirements for renewable energies and receive corresponding payments from the Federal Government from the Climate and Energy Fund. While the EEG levy will be abolished, other levies shall remain in place. These are paid by the end consumers via the electricity costs and thus also accrue in the context of the production of green hydrogen.
2. The essential regulations of the EnUG with regard to green hydrogen
Sections 25-26 EnUG shall contain the regulations on the levy exemption for the production of green hydrogen.
Section 25 EnUG shall regulate that the levies are reduced to zero for the electricity used to produce green hydrogen. The intended use of the green hydrogen is irrelevant, but the facility for producing the green hydrogen must be connected to the grid via its own metering point and must be commissioned before 1 January 2030. In addition, the levy exemption shall not apply if the electricity is consumed by a company or independent part of a company for which the levies are already limited under the special equalisation scheme (Besondere Ausgleichsregelung). Furthermore, the levy exemption shall not apply to the electricity consumption of final consumers who are a company in difficulty or against whom there are outstanding recovery claims due to the inadmissibility or incompatibility of a state aid.
The definition of green hydrogen shall be contained in the new Section 26 (1) EnUG: “Green hydrogen is hydrogen that is produced electrochemically by consuming electricity from renewable energy sources.”
Section 26 (2) EnUG empowers the Federal Government to issue an ordinance that may impose further requirements on the production of green hydrogen, in particular with regard to content, space or time. The ordinance shall ensure that green hydrogen is credibly produced with electricity from renewable energy sources, is compatible with the goal of sustainable development of the energy industry and that only unsubsidised electricity from renewable energy sources may be consumed.
3. Effects of the EU Commission’s delegated act on green hydrogen
At the latest since the European Commission published the draft of the delegated act on green hydrogen on 20 May 2022, it is foreseeable that such an ordinance will place further requirements on the production of green hydrogen. This is because the delegated act stipulates, for example, that only renewable energies with the exception of electricity from biomass may be used, that renewable energies from new production plants must be used to produce green hydrogen and that the renewable energy must be generated at the same time as the green hydrogen. The consultation phase on the draft ended on 17 June 2022, so that it now remains to be seen whether and what changes the draft delegated act will undergo. The delegated act will also be directly applicable in Germany once it enters into force, but it will only have a direct impact in the transport sector, in particular within the framework of the greenhouse gas reduction quota. Effects on other sectors can be expected, so that the delegated act will in all likelihood also become relevant for the levy exemption for green hydrogen. You can find a more detailed article on the contents of the delegated act here.
The requirements for qualifying as green hydrogen at European level are thus significantly tighter than envisaged in the EnUG. A harmonisation and thus stricter requirements for the production of green hydrogen are to be expected.
4. Challenges for operators of green hydrogen production plants
In principle, the levy exemption in the EnUG is regulated similarly to the previous regulation in the EEG 2021 and the Renewable Energies Ordinance. Due to the elimination of the EEG levy, the levy exemption no longer plays such an important role as before, but can still lead to economic incentives for the production of green hydrogen if the prerequisites are met.
Even if the EnUG should pass through the legislative process before the summer break as part of the Easter package, some uncertainty remains. This is because the rules on the levy exemption for green hydrogen must still be approved by the European Commission under state aid law (Section 68 EnUG). Secondly, as described above, it is to be expected that further, stricter requirements for the production of green hydrogen will be imposed by ordinance. This will in all likelihood have an impact on the levy exemption. The above-mentioned delegated act of the European Commission on green hydrogen is also likely to play a major role here, which may still be subject to further changes after the recent end of the consultation phase.
Against this background, developers, investors and operators of green hydrogen production plants are advised to take these uncertainties into account, as they could have an impact on the economic viability of the plants. In particular, developments at European level should be monitored, as it can be assumed that German law will be harmonised.
We are happy to advise you on individual questions relating to the production of (green) hydrogen.
For further information, please contact:
Anja Holtermann, Bird & Bird
anja.holtermann@twobirds.com
