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German Regulator assessment of hydrogen infrastructure regulation up for consultation

  • Germany
  • Energy and infrastructure - Clean energy

31-07-2020

The German Federal Network Agency (Bundesnetzagentur – BNetzA) has published for consultation a 100-page paper with an analysis and considerations regarding the regulation of hydrogen infrastructure. This is one step towards implementing the German National Hydrogen Strategy of June 2020 (see our review). Measure 20 of the strategy provides that the necessary regulatory basis for the construction and expansion of a hydrogen infrastructure will be prepared swiftly and that, for this purpose, a market consultation procedure will take place.

Status quo of German hydrogen grid regulation

Hydrogen grids are currently in principle not covered by the regulatory regime of the German Energy Industry Act (Energiewirtschaftsgesetz – EnWG). The EnWG only contains provisions on Hydrogen as a feed-in additional gas in natural gas grids (so-called admixture). Some industrial companies operate local hydrogen grids (e.g. AirLiquide and Linde). Beyond this, gas grid operators are planning to repurpose existing natural gas pipelines and build new pipelines for exclusive use for hydrogen to establish a nationwide hydrogen network with a length of 1,236 km by 2030. The first project, called “GET H2 Nukleus”, initiated by Nowega and OGE together with BP, Evonik and RWE Generation aims at a 130 km publicly accessible hydrogen grid to be commissioned by the end of 2022. Under the current regulatory framework of the EnWG, operators of such pure hydrogen grids are in particular not obliged to grant third parties access to their grids.

Three potential grid structure scenarios

According to the BNetzA, the assessment of the need for regulation of pure hydrogen grids (including third-party access and regulated grid fees) depends on the future grid structure. This structure will in turn be influenced by various factors, namely future hydrogen demand, future hydrogen production and the limits to hydrogen admixture in existing natural gas grids. The BNetzA paper considers three potential scenarios for the development of the future hydrogen infrastructure:

  • In scenario I, hydrogen consumption focuses on the industrial sector. The production of hydrogen takes place locally. Therefore, there are only local island networks in the regional consumption areas.
  • In scenario II, hydrogen consumption still focuses on the industrial sector. However, the production of hydrogen does not only take place locally but also outside the consumption areas to satisfy the demand. Therefore, the local island networks are complemented by individual, long transport pipelines.
  • In scenario III, both, the industrial sector and the transport sector have a high demand for hydrogen. Accordingly, production is decentralized. Therefore, local island networks become tight-meshed distribution networks that are connected by individual, long transport pipelines.

Different regulatory approaches

The BNetzA considers discussing the introduction of a third-party access regime as worthwhile in all three scenarios.

With respect to grid fee regulation, the BNetzA distinguishes between the three scenarios: while it is worthwhile discussing it in scenario I, it is at least sensible in scenario II and necessary in scenario III.

The regulatory framework is intended to cover all types of hydrogen (green, blue, grey, etc.). However, the regulator considers privileges for green hydrogen with respect to grid access and grid fees as an option to promote carbon-neutrality.

The BNetzA acknowledges that, while gas grid operators have an interest in the security gained through regulation, it is questionable whether the fully-integrated operators of existing hydrogen grids (e.g. in an industrial park) will share this interest. Therefore, transitional provisions for local island networks might be an option.

The applicable rules might be those of the existing gas grid regulation (with necessary adjustments) or a separate regulatory framework (either contained in a new chapter of the EnWG or in a separate hydrogen infrastructure act).

Market consultation until mid-September

Stakeholders are invited to submit their comments on the BNetzA paper as well as answers to a series of specific questions raised by the regulator on the existing admixture rules, the expansion of the hydrogen use in the different sectors, the introduction of a regulatory regime for hydrogen grids as well as on the financing of hydrogen grids. Feedback can be provided through an online form until 14 September 2020.

Parallel discussion at European level

In parallel, the Council of the European Energy Regulators (CEER), will discuss key topics in the context of sector-coupling and the future role of gaseous energy carriers, including the question of a future regulatory framework for the regulation of hydrogen grids. The results of these discussions might flow into legislative initiatives of the European Commission for an adjustment of the EU regulatory framework which, thus far, does not cover hydrogen grids either.

Outlook

It remains to be seen whether the first impetus for the regulation of hydrogen grids will come out of Berlin, thereby covering only Germany, or whether Brussels will pip them to the post with an EU-wide approach. Such approach might also boost the “European Hydrogen Backbone” initiative of gas transmission system operators from ten European countries which envisages a cross-European hydrogen network of 6,800 km by 2030 and 23,000 km by 2040.