ACER, CEER start work on hydrogen network regulation

Jake Stones

16-Feb-2021

LONDON (ICIS)–Two European regulatory bodies have now released two whitepapers dedicated towards creating hydrogen network regulation.

The absence of any regulatory oversight has been one of the issues hindering the low-carbon commodity’s integration into Europe’s energy mix.

In the first of a whitepaper series focusing on the European Green Deal and the European Commission’s hydrogen strategy, the European Union Agency for the Cooperation of Energy Regulators (ACER) and the Council of Energy Regulators (CEER) covered issues facing a future hydrogen network, while the second, released on 12 February, focuses on regulation around power-to-gas.

HYDROGEN NETWORK REGULATION

Key to the process of regulating a hydrogen network will be adopting a gradual approach, acting as needed and to prevent natural monopolies. This is because creating hydrogen network regulation faces substantial challenges compared to power and gas regulation, where networks were already in place when regulation was considered – something hydrogen lacks.

Supporting the gradual approach to regulation, ACER and CEER looked to policy plans from the European Commission and other European governments to gauge when and in what form regulation will be needed.

As different countries will emerge onto the hydrogen market at different times, ACER and CEER present the need for dynamic regulation based on the telecommunications industry regulation. Local regulatory authorities should monitor when possible regulation of hydrogen networks should kick in, according to the paper.

CLEAR FROM THE OUTSET

There is an overarching need for investment in the hydrogen industry to take it from concept to reality.

To support confidence and clarity for investors, ACER and CEER suggest drawing from gas network regulation with regards to unbundling, third-party access, transparency, non-discrimination, monitoring and oversight by the relevant national regulatory authority. Such a framework could also provide some certainty on when market circumstances would predicate measures being taken.

However, ACER and CEER state that a complete copying of the gas networks is not advised as supply and demand dynamics will differ.

PRIVATE HYDROGEN NETWORKS

ACER and CEER are keen to ensure that private facilities and supply networks are considered in a manner that supports private growth of the hydrogen market without hindering other potential participants.

“As long as such local private hydrogen infrastructure is operated and used similarly to the current situation (e.g. point-to-point connections between production and demand) and there are no signs of discrimination or abuse of market power, there is likely no need to bring these local private hydrogen networks into a regulated regime,” the whitepaper states.

Such a regulatory position will support the buildout of production facilities for hydrogen in industrial and chemical processes, where hydrogen will be produced and used onsite. Current European policy earmarks industry as a first target to decarbonise with low-carbon hydrogen.

REPURPOSING NATURAL GAS ASSETS

Repurposing natural gas assets provides a means of recouping sunk cost for gas asset owners, while saving time and investment costs for hydrogen projects.

ACER and CEER suggest adopting a robust cost-benefit analysis (CBA) methodology which supports the decision on whether to decommission an asset or not. When discussing the methodology in further detail, the whitepaper states that “the development of such a methodology could be developed in the context of an amended TEN-E regulation, consistent with the electricity CBA methodology and subject to ACER approval.”

ACER and CEER also suggest that repurposed gas assets should be removed from the regulatory asset base of the gas network operators to avoid cross-subsidies between gas and hydrogen network users, as it is unlikely that all participants on one network will be using or benefitting from the other.

If new infrastructure is required before the establishment of supply and demand, ACER and CEER suggest using cost-recovery instruments that avoid cross-subsidisation.

POWER-TO-GAS

In the second paper by ACER and CEER, the regulators focused on future issues around power-to-gas, namely using electrolysis to generate hydrogen.

Among the points raised, ACER and CEER argued for clarity on definitions, such as outlining carbon emissions of the hydrogen, which if generated from power from the grid could have a higher carbon footprint than green and blue. ACER and CEER suggest measures to improve traceability of the hydrogen, such as a Guarantees of Origin system.

Another aspect of the power-to-gas paper was the potential for gas and power regulation to combine in certain areas, for example if a power-to-gas unit was connected to both the power and gas networks, then cross-sectoral regulation would need to be applied. This approach was presented with a mind towards more coordinated power and gas regulation in the future overall.

Lastly, the paper suggests that transmission system operators should consider including power-to-gas installations in their network plans and relay this information to potential investors.

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