On 28 November 2023, the European Union reached a new milestone in the transition of the gas sector towards renewable energy, as well as boosting the deployment of the emerging hydrogen sector. The European Council and the European Parliament reached a provisional political agreement on the European directive aimed at establishing common rules for the internal markets for renewable and natural gases and for hydrogen.
As a reminder, the Commission had presented a proposal for the said directive on 15 December 2021, as part of the proposals under the ‘Fit for 55’ package which aims to reduce greenhouse gas emissions by at least 55% by 2030 and achieve the goal of becoming climate-neutral by 2050.
The provisional agreement contains some amendments to the Commission’s proposition. Notably, the two institutions:
- agreed on a split between Transmission System Operators (TSOs) and Distribution System Operators (DSOs) for hydrogen.
- agreed, in order to protect consumers, that member states must ensure that customers are granted the right to switch supplier or market participant in a non-discriminatory manner in terms of cost, effort, and time and that members states will be the ones to decide how to protect vulnerable customers from disconnections and how best to support them.
- agreed on increased coordination between network development plans for hydrogen, electricity, and natural gas. Network development plans will be built on sector integration, the ‘energy efficiency first’ principle and prioritising the use of hydrogen in hard-to-decarbonise sectors.
As of now, this provisional agreement remains to be endorsed and formally adopted by both institutions.
The European Commission publishes its proposal for the sixth list of Projects of Common Interest
On the same date, the European Commission also submitted its proposal for the sixth list of Projects of Common Interest (PCIs) to the European Parliament and to the Council, who need to either oppose or approve it. The list also includes Projects of Mutual Interest (PMIs), making the integrated list the first one fully in line with the European Green Deal.
The PCIs are key cross border infrastructure projects that connect the energy systems of EU countries which benefit from, amongst other advantages, accelerated planning and permit granting, improved regulatory conditions and lower administrative costs. To be included, a project must have a significant impact on energy markets and market integration in at least two EU countries, and work towards the goals of energy security, diversification of sources and integration of renewables. PMIs connect the EU with other countries. Out of the 166 cross-border energy projects (PCIs and PMIs), over half (85) are electricity, offshore and smart electricity grid projects, according to the Commission. Hydrogen and electrolyser projects were included for the first time, and account for 65 selected projects in total. In addition, 14 carbon dioxide (CO2) projects are part of the list.
EU launches the first auctions for the production of renewable hydrogen
The European Commission also launched the first round of auctions for the production of renewable hydrogen and is offering €800 million to hydrogen producers to kickstart demand for hydrogen in the EU.
As a reminder, the auctions are a new financing mechanism of the European Hydrogen Bank aimed at stepping up the production of renewable hydrogen (as defined in the Renewable Energy Directive and its delegated acts) in the European Union. By 2030, the aim is to produce 10 million tonnes of renewable hydrogen annually.
Under the pilot auction, producers of renewable hydrogen will be able to submit bids for EU support for a certain volume of production. The bids must be based on a proposed premium per kilogramme of renewable hydrogen produced with a cap at €4.5 per kilogramme. Successful producers will thus receive support in the form of a fixed premium per kilogramme of hydrogen produced which will be awarded for periods of up to ten years for a production that must start within five years following the signing of the grant agreements.
Effectively, this premium is intended to reduce the cost gap between renewable and non-renewable hydrogen production, in a market where the latter remains a lot cheaper to produce. This would incentivize consumers to purchase renewable hydrogen which would increase the predictability of producers’ revenues and guarantee the financial viability of projects, thereby facilitating their access to other financing.
Producers have until 8 February 2024 to submit their applications. Applicants will be informed of the results of the evaluation as early as April 2024, and will sign grant agreements within nine months of the close of the call.
The Commission plans to launch a second round of auctions in Spring 2024, reaching a total value of €3 billion of support for renewable hydrogen production.
For further information, please contact:
Sibylle Weiler, Partner, Bird & Bird
sibylle.weiler@twobirds.com
