The new EU Gas Package – setting the scene for hydrogen grids and other hydrogen infrastructure

On 15 December 2021, the European Commission presented a proposal for a Hydrogen and Decarbonised Gas Package (Gas Package). The Gas Package will be the first comprehensive EU-wide regulatory framework for hydrogen and other renewable gases, aiming to provide the policy measures for the creation of optimum and dedicated hydrogen infrastructure including cross-border hydrogen networks and efficient hydrogen markets. The measures are to be included in the existing regulatory framework for natural gas by revision and recast of the Gas Regulation (EU 715/2009) and Gas Directive (EU 2009/73) (see draft Regulation and draft Directive).

Amidst the ongoing European energy crisis, the European Commission has re-emphasised the importance of this Gas Package in a new Communication published 8 March 2022, (see RePower EU, COM(2022) 108 final). The communication notes that hydrogen and other renewable gases will lower the EU’s energy dependency whilst also ensuring the EU achieves its net-zero goals by 2050. The communication was followed by an amendment proposal (COM(2022) 135 final) to existing EU gas legislation to safeguard the security of gas supply and increase gas storage in Europe.

Against this background, we have summarised the key points that are related to the operation of hydrogen infrastructure contained within the Gas Package:

Key design pillars for hydrogen grids and markets

Unbundling

The draft Directive contains mandatory unbundling provisions for hydrogen network, storage and terminal operators similar to those for natural gas and electricity with the ITO model for hydrogen network operators to be phased-out by the end of 2030. In essence, hydrogen network operators and hydrogen storage operators will have to keep their respective operations independent from the production and supply of hydrogen in order to avoid the risk of conflicts of interest. Operators of hydrogen terminals (including ammonia terminals) are required to keep separate accounts for their hydrogen terminal activities.

The draft Directive also entails horizontal unbundling rules, as it requires hydrogen network operators to be organised in a legal entity that does not comprise the operation of electricity or natural gas networks (so-called legal unbundling).

Rules for operation of hydrogen infrastructure

The draft Directive provides for a number of obligations for operators of hydrogen networks, storage facilities and terminals, in part corresponding to those for operators of natural gas facilities. However, there are also some hydrogen-specific obligations: for example, operators of hydrogen facilities are required to minimise hydrogen emissions in their operations, carry out hydrogen leak detection and repair surveys and ensure a sufficient hydrogen quality management.

The draft Directive also introduces a certification system for low-carbon fuels including hydrogen, supplementing the certification system for renewable gases in the Renewable Energy Directive II (2018/2001).  It sets out definitions of what constitutes a renewable or low carbon gas, defining low-carbon hydrogen as hydrogen the energy content of which is derived from non-renewable sources which meets a greenhouse gas emission reduction threshold of 70%. Economic operators will have to show that this threshold has been complied with, irrespective of whether low-carbon hydrogen has been produced within the EU or has been imported. Details for such assessment will be left to delegated acts based on the draft Directive.

Accelerated authorisation procedures / Re-purposing of existing gas grids 

Another important new provision concerns the amendment of authorisation procedures, especially with regard to the conversion of existing natural gas pipelines to hydrogen pipelines, which leads to considerable (time and financial) savings compared to new construction. Member states must ensure that the permits granted for the construction and operation of natural gas pipelines and ancillary facilities also apply to pipelines and network facilities for the operation of hydrogen.

The authorisation procedures for new constructions may not exceed two years, with a one-time extension by one year being possible in cases duly justified by exceptional circumstances. Since planning approval procedures for major infrastructure projects sometimes result in considerable objections from citizens, the time limit is to be extended in the event of delays caused by environmental assessments under 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 goal is universal access to hydrogen grids based on tariffs as known from electricity and natural gas grids.

However, the proposed Directive contains an option for Member States to implement negotiated third party grid access until 2030, albeit in accordance with objective, transparent and non-discriminatory criteria, in order to ensure flexibility for operators and reduce administrative costs. Under such system, grid access conditions are negotiated between parties.

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

Blending

Blending hydrogen alongside other gases into the existing gas grids is considered a possible interim first step towards decarbonising natural gas. However, differences in the volume of hydrogen blended in the natural gas system can affect the design of gas infrastructure, end-user application and cross-border interoperability.

The draft Regulation generally leaves it to the Member States to allow for blending in their national natural gas systems but sets a blending threshold of up to 5% hydrogen content in gas flows at interconnection points to harmonize cross-border natural gas flow. Consequently, from 1 October 2025, transmission system operators will have to accept natural gas with a blended hydrogen level below this threshold.

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

According to the Commission, the entry tariffs are a major obstacle to blending hydrogen into the existing pipeline system for natural gas. Therefore, the draft Regulation contains the provision that the level of entry tariffs at the entry points for hydrogen production facilities, among others, should be reduced by 75% or renewable and low carbon gases (a discount of 100 % will apply for the first year after the recast Regulation takes effect). The Commission shall re-examine the tariff reductions pursuant to 5 years after entry into force of the Regulation and national regulatory authorities may set discount rates lower if in line with the general tariff principles, in particular cost-reflectiveness.

Outlook

In essence, the Gas Package integrates hydrogen into the familiar regulatory framework for natural gas with energy source-specific adaptions where necessary. With a sound regulatory framework being the basic prerequisite for hydrogen-related activities, the adoption of this Gas Package will be a welcome and necessary step. At the same time it may only serve as a starting point to achieve the goals set in the EU Hydrogen Strategy (production of renewable hydrogen in the EU shall reach 1 million tonnes by 2024 and up to 10 million by 2030) and must be accompanied by significant investment in hydrogen.

The Gas Package has had its first reading in the European Parliament on 17 February 2022 and has been referred to the Committee on Industry, Research and Energy with a committee decision currently pending. We may therefore expect to hear more on this timely topic soon.