During the last two years, the European Union (EU) has created several major subsidy packages for the renewable hydrogen industry.
To increase hydrogen production more than 35 times—from 160 MW electrolysis in 2022 to 6000 MW electrolysis in 2025—the European Commission has proposed the parameters for renewable hydrogen producers to get financial support.
What you need to know
- More than 10 billion euros of state funding is available.
- Multiple green hydrogen incentives have already been approved, including R&D support, CAPEX subsidies for new projects, the creation of a European Hydrogen Bank, the first 800-million-euro auction for renewable hydrogen production support, and more.
- The rules for state subsidies, including renewable hydrogen, are defined in the European Green Deal, the Fit for 55 package, and the Guidelines on State Aid for Climate, Environmental Protection and Energy (CEEAG).
For companies to qualify for and benefit from financial support, a definition of “renewable hydrogen" from the European Commission is essential.
Clarity around hydrogen-related policies will accelerate project investment decisions and contribute to the development of new and innovative business models and partnerships.
The long-awaited definition of renewable hydrogen
In February 2023, the Commission published its proposal to the EU parliament and council.
Titled “Delegated Regulation on Union Methodology for Renewable Liquid and Gaseous Transport Fuels of Non-Biological Origin (RFNBO),” the act puts forward that “renewable hydrogen” includes EU-produced and EU-imported hydrogen, as well as its derived carrier fuels like ammonia, methanol, and e-fuels.
There are several other conditions that renewable companies must meet to qualify for subsidies and in the following sections, I will “decode” those specific requirements in detail.
1. Renewable electricity for renewable hydrogen production needs to be geographically correlated to hydrogen production:
a. Renewable electricity production and hydrogen production need to be “co-located,” i.e., be installed behind a single point of common coupling, and operators need to be able to document—using smart metering data—that no grid-supplied power is used (“zero import”) (Art. 3c).
b. Alternatively, all or part of the renewable electricity can be pulled from the grid, in which case the renewable electricity sourced from the grid for renewable hydrogen production needs to be sourced from the same bidding zone (or, where not applicable, in the same country) (Art. 3.a, 7.1.a).
c. Alternatively, all or part of the renewable electricity can be sourced from outside of the same bidding zone or country, while the price for the renewable electricity in the electricity-generating zone must be higher or the same as in the renewable hydrogen generating facility zone (Art. 7.1.b) or in an offshore bidding zone connected to the electrolysis bidding zone (Art. 7.1.c).
2. Renewable electricity for renewable hydrogen production needs to meet additionality criteria, i.e., it must be temporally correlated:
a. Renewable electricity used for renewable hydrogen production must be produced in the same month as green hydrogen production (by 2029) and even in the same hour (from 2030), no matter whether it is procured in the form of a PPA, from a co-located renewable electricity source, or even if stored (Art. 5, 6).
b. Alternatively, renewable electricity must be sourced when electricity prices are below fossil fuel electricity prices (that is, it would lead to more renewable electricity production vs. fossil-fueled electricity). Let’s dive deeper: Electricity is considered fully renewable if, for the operating hour, the price in single day-ahead market coupling in the bidding zone is a maximum of 20 euros / MWh or a maximum of 0.36 x price of allowance to emit one metric ton of CO2 in that period (Art. 6.b).
c. A maximum of 36 months are allowed between the installation of additional renewable electricity generation and a renewable hydrogen production facility, reflecting the permitting duration for green hydrogen generation (Art. 3b). Alternatively, no additionality is required, i.e., the renewable hydrogen can also be procured using existing renewable electricity sources, if:
i. The balancing zone’s dominant share of electricity (minimum 90%) is already renewable, and the share of full-load hour H2 production is the maximum share of renewable electricity in that zone (or country). (Art. 4.1),
ii. The balancing zone for the emission intensity of electricity is below 18 g/CO2 eq/MJ (Art. 4.2), and the renewable electricity for H2 generation is procured through a renewable energy PPA (Art. 4.2.a), applying the criteria above for temporal and geographical correlation (Art. 4.2.b).
iii. H2 is only produced when it serves renewable electricity integration in the same balancing zone by preventing curtailment of the latter (Art. 4.3).
3. Renewable electricity for renewable hydrogen production is only considered such if the renewable electricity source hasn’t received support in the form of “operating aid or investment aid” (except support for land rights or grid connections). (Art. 5.b).
4. Compliance with the above requirements has to be documented by renewable hydrogen producers who request such hydrogen to be classified as “renewable,” thus making it eligible for current and future EU support schemes and mechanisms specifically targeted at renewable hydrogen (Art. 8).
5. Pink/purple/nuclear hydrogen is not renewable hydrogen, as explicitly and publicly confirmed by the Commission’s Q&A on the act. However, it may be decided later that nuclear-electrified hydrogen production will receive support as “low-carbon hydrogen.” To determine the hydrogen intensity of RFNBOs, the Commission has published its Second Delegated Act that provides a methodology for calculating lifecycle greenhouse gas emissions for RFNBOs.
Next steps for renewable hydrogen investment
Once the EU Parliament and Council have confirmed the Commission’s proposed definition of renewable hydrogen, the definition needs to be understood, accounted for, and reflected in electricity procurement strategies for any new multibillion-euro projects requiring hydrogen support.
It is clear that the requirements of documenting the source of electricity in renewable hydrogen projects (including renewable energy certificates (RECs) where relevant) will be complex and will certainly require a reasonable degree of automation.
How we can help
At Hitachi Energy, we assist pioneering European renewable hydrogen projects starting from their planning phase. For instance, you could leverage our Market Advisory Services for a customized grid congestion study, which can reveal the likelihood that renewable electricity will, in fact, be transportable from a given renewable energy plant to a given green hydrogen facility. We’re also already a leader in fundamental forecasts for Levelized Cost of Hydrogen (LCOH) in our European Power Reference Cases and in automating complex renewable electricity procurement or delivery contracts, including documentation of contracts and transactions. We can ensure you comply with EU regulations for both renewable electricity and CO2 emission allowances, as well as RECs and Guarantees of Origin and (GoOs).
The European Parliament and Council is due to respond to the delegated act proposal within the first half of 2023. Stay tuned for more insights, and get in touch with our experts for support with your investment projects.