Decarbonized gases and hydrogen in the EU: recent reforms

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Present electricity and gas market reforms in the EU member states are aimed at boosting the development of hydrogen and other decarbonised gases and sources. These reforms highlight European determination to pursue the clean energy transition and at the same time enhancing security of supply and consumer protection; the reforms are based on the lessons learnt from the energy crisis.

Background
The Commission put forward the decarbonised gases and hydrogen package in December 2021 as part of the European Green Deal. The proposals followed the strategic visions set out in two EU-wide strategies approved in 2020: a) on Energy System Integration and b) on the EU Hydrogen. The revision of the electricity market design was proposed in March 2023 to respond to the call of the EU leaders to accelerate reforms towards European energy sovereignty, security and climate neutrality. It was presented as part of the Green Deal Industrial Plan and provisionally agreed by the EU co-legislators at the end of 2023.
The revised gas market regulatory means will substantially improve market and infrastructure access for renewable and low-carbon gases and hydrogen, while contributing to decreasing emissions across the energy sector. In particular, it will ensure their connection and access to the existing gas grid and allow discounts to cross-border and injection tariffs for these cleaner gases. In practice, this means that the EU member states can make it cheaper to flow renewable and low-carbon gases through the system, as national regulatory authorities can decide to apply discounts to various network’s tariffs.
Existing and suggested regulatory framework makes sure that renewable and low-carbon gases have the required market access and can easily be traded.

Customer’ protection and increased competition
The electricity market reform gives consumers a wider choice of contracts and clearer information before signing contracts. They will have the option to lock in secure, long-term prices as well as to have dynamic pricing contracts to take advantage of price variability to use electricity when it is cheaper. The EU member states will have to establish suppliers of last resort so that no consumer ends up without electricity.
Vulnerable consumers and the energy poor states will be protected from disconnection and the states concerned will be able to extend regulated retail prices to households and SMEs in case of a crisis.
On top of consumer protection, energy sharing is also strengthened: as an example, tenants will be able to share surplus rooftop solar power with a neighbour.
The reform will also help the European SMEs and businesses stay competitive by giving them access to more predictable energy costs; these arrangements can create necessary conditions for both suppliers and consumers to benefit from the expanded use of longer-term market instruments such as Power Purchase Agreements, two-way Contracts for Difference and forward contracts; these and other measures will provide investment certainty to power producers, industrial sectors and consumers. Overall, both households and companies will be able to benefit from the lower costs of renewables, whose integration and availability will also be boosted by the new provisions on grid congestion, trading deadlines, demand response and storage, as well as EU-level auctions.
Finally, to ensure that the EU consumers will benefit from competitive markets with transparent price-setting, the Agency for the Cooperation of Energy Regulators, ACER and national regulators will have enhanced ability to monitor energy market integrity and transparency.
More in the Commission press release at: https://ec.europa.eu/commission/presscorner/detail/en/IP_24_2261

Revised gas legislation
The revised gas legislation strengthens consumer rights and protection, mirroring the benefits that already exist in the electricity market. Consumers will receive clearer information on contracts and bills, and switching suppliers will be faster and easier. They will also have better access to tools helping them compare prices and get fair, accurate and transparent billing so they can choose the best deal for them. With clearer information and enhanced protection, consumers, and particularly the most vulnerable and those affected by energy poverty, will be able to switch more easily to more sustainable heating solutions.
The revised legislation also gives consumers better access to data and new smart technologies to monitor consumption more easily. In addition, in case of a natural gas price crisis, Member States will be able to introduce effective measures to protect consumers and ensure they have access to affordable energy and essential social services, including through interventions on price settings to shield consumers from excessively high prices.
The reform establishes a permanent mechanism for demand aggregation and joint purchasing of gas, for voluntary use. In addition, the Commission is empowered to develop a 5-year pilot mechanism to support the market development of hydrogen to ensure market transparency, decarbonisation and security of supply. This mechanism will help hydrogen off-takers and suppliers to connect, and will improve hydrogen market transparency. More specifically, under the European Hydrogen Bank, the mechanism could: collect and process market data; assess demand from off-takers; collect offers from suppliers; and provide access to this knowledge to the market participants. The Commission is currently designing and preparing the pilot mechanism with a view to launching it in 2025.

Cleaner and secure European gas market
The new framework for the gas market will facilitate the uptake of renewable and low-carbon gases while ensuring security and affordability of energy for all European citizens. The reform of the gas market ensures that decarbonised gases and hydrogen can flow across Europe. In particular, the reforms will lead to the creation of a market for hydrogen, which will be key to curb emissions in hard-to-abate sectors such as heavy industries and transport. The Commission will also pilot a five-year project to bring together demand and supply of hydrogen to enhance market development and transparency under the European Hydrogen Bank.
Consumers will be better protected against supply and price risks. They will be empowered to take an active role in the market and to select cleaner supplies and contracts. Practically speaking, they will be able to switch suppliers more easily, use effective price comparison tools, get accurate, fair and transparent billing information, and have better access to data and new smart technologies.

Boosting hydrogen
The new hydrogen framework introduced by the present gas market reform ensures that hydrogen will be cost-effectively brought from areas where it can be easily produced to the industrial customers that need it. It streamlines network planning procedures while fostering cross-border coordination.
At national level, all hydrogen transmission network operators are to submit a ten-year “Network Development Plan” to be updated every two years, after consulting stakeholders: each EU state will have a single network development plan for hydrogen and/or a joint plan for natural gas and hydrogen, where the specific needs of the hydrogen sector are identified and addressed separately.
Stronger coordination of infrastructure planning among the electricity, hydrogen and gas sectors is also encouraged. As regard the development of the distribution network, the legislation ensures that operators submit a network development plan every four years.
In addition to the national network development plans, a separate EU-wide ten-year network development plan for hydrogen will provide the necessary transparency on infrastructure needs. Its development will be handled by a new, independent EU’s association gathering hydrogen transmission network operators, so-called ENNOH (European Network for Network Operators of Hydrogen). This will help promoting dedicated hydrogen infrastructure and aligning it better with national plans. To ensure energy system integration and contribute to cost-efficient infrastructure development, ENNOH, the ENTSO for Electricity and the ENTSO for Gas will cooperate to deliver EU-level integrated network planning, with joint scenarios across the electricity, hydrogen and gas sectors.
Present reform also introduces a market design for hydrogen in Europe with a gradual phase-in of rules in two phases, before and after 2033. In the ramp-up phase only a simplified framework will apply, while already providing clear visibility about the future rules for a developed hydrogen market. These provisions cover notably access to hydrogen infrastructures, separation of hydrogen production and transport activities (so-called “unbundling”) and tariff setting.

Low-carbon hydrogen: certification system
The reform introduces a certification system for low-carbon gases, including hydrogen, which complements the certification of renewable gases and hydrogen under the revised Renewable Energy Directive. It will ensure a level playing field and consistency in assessing the full greenhouse gas emissions footprint of different gases and allow EU states and consumers to effectively compare and consider them in their energy mix. The certification rules will apply both to imports and to domestic production in order to ensure a level-playing field and avoid carbon leakage. The system reflects the one used for the certification of biofuels.
The Commission assesses and recognizes so-called “voluntary schemes” for the certification of low-carbon fuels. Producers of low-carbon fuels can hence rely on a well-established system of certification by third parties, the voluntary schemes, which are international companies with over a decade of experience in certifying biofuels, biomass and other products worldwide.
The EU member states are required to accept evidence from the voluntary schemes recognized by the Commission.
Under the revised legislation, low-carbon hydrogen is defined as a fuel generating 70 percent greenhouse gas emissions savings compared to fossil. The exact methodology to assess emissions for low-carbon hydrogen will be developed though a Delegated Act to be presented by the end of 2024.

Commission’s opinion
Kadri Simson, Commissioner for Energy noted that as soon as the energy crisis brought about major changes to the EU’s energy policy, the EU has adopted a strategy “moving towards electricity and gas markets of the future”, with phasing out Russian gas supply and concentrating on renewables, “clean gases” and hydrogen, to name a few. She particularly encouraged the EU member states to make full use of the new REPowerEU provisions to facilitate the EU-wide energy markets as soon as possible.
Reference to: https://ec.europa.eu/commission/presscorner/detail/en/IP_24_2261

 

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