A leaked draft of the European Commission’s criteria for hydrogen to be considered a renewable fuel of non-biological origin requires developers to match hydrogen production with an equivalent amount of purchased renewable electricity supply from the same bidding zone up to the end of March 2028.

If the electricity supply is located offshore, the production can be in an adjacent bidding zone.

After March 2028, supply and production must be reconciled within the same one-hour period. Member states are further empowered to set additional criteria regarding location within bidding zones.

1 April 2028 – Hourly matching criteria comes into force

Hydrogen will also have to meet additionality criteria, wherein electricity supply can only come from a renewable energy asset installed three years before first hydrogen production. If renewables make up over 90pc of the share of the grid, hydrogen produced from the grid will not require additionality to be considered renewable. This additionality criteria aims to prevent a situation wherein additional fossil fuels are burned to meet grid demand by electrolysers.

The new draft follows a September vote in the European Parliament for an amendment to the Renewable Energy Directive loosening the criteria for quarterly matching up to 2030. However, while this amendment was welcomed by industry at the time, some bodies have since warned that resulting delays to the rules are holding back FIDs on projects over risk they may not qualify.

Hourly matching

The draft acknowledges “technological barriers” to measuring hourly matching after April 2028, as well as a lack of hydrogen storage and transportation infrastructure, and has as such allowed for “more flexible” criteria to be applied up to 31 March 2028.

Quarterly matching up to March 2028 could have significant impact on allowing greater flexibility for smaller, demonstrator projects under 10MW in size that rely on supply from a single source, according to Rommero Carrillo, business development director at power-purchase agreement (PPA) software and advisory firm Pexapark.

“It does still create a challenge for these smaller projects once it goes back to hourly matching. They might struggle to find enough green power at competitive rates to run their assets as they desire,” he says.

While larger projects are less impacted by the switchover, as they are expected to come online in the latter half of this decade and anticipated to source power from a portfolio of renewable energy assets, the prospect of hourly matching could present another hurdle to FID.

“The fact is a lot of developers will struggle to find enough power to have their projects up by 2028, especially as we start to see greater competition with corporates looking to close PPAs with new renewables for electrification…[so] there is probably not going to be enough renewable power for everyone who wants to decarbonise,” Carrillo adds.

Lagging installation

Europe is expected to install 7GW of dedicated renewables capacity for hydrogen production by 2027, according to the IEA’s recent Renewables 2022 report. But uncertainty over additionality criteria is highlighted as a key challenge for developers, as these regulations will ultimately affect decisions on the size and location of dedicated renewables capacity.

The bloc is already expected to struggle to deploy the scale of new renewables capacity to meet its RepowerEU ambitions for the power sector to shift away from Russian gas.

“While the share of renewables in electricity expands to almost 55pc by 2027 in our main case, this is well below the 69pc share the European Commission estimates is needed to support the RepowerEU plan,” the report says, adding the EU’s own modelling indicates 592GW of solar and 510GW of wind capacity would have to be installed to meet this share of renewable electricity. However, owing to strict permitting regulations and a lack of policy support for utility-scale projects, annual installations of wind and solar are lagging.

The report also notes that policy uncertainties over industry and transport mandates are a hurdle to accurately predicting future demand. The EU is considering proposals for targeting 50pc renewables in existing hydrogen use in industry and 5.7pc of transport fuel to be renewable fuels of non-biological origin, but a final decision has yet to be made.

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Author: Polly Martin