The EU should create a new, separate entity to ensure more independence from incumbent interests in the crucial task of designing a future-proof hydrogen infrastructure, write Michaela Holl and Megan Anderson.
Michaela Holl is a senior associate at Agora Energiewende and Megan Anderson is a senior associate at the Regulatory Assistance Project (RAP).
The EU gas and hydrogen package was supposed to be a done deal, but the negotiations came to a halt last week because EU lawmakers and governments could not agree on who should be tasked with planning Europe’s future hydrogen grid. The Parliament would give the task to the existing European Network of Transmission System operators for gas (ENTSO-G), while the European Commission had proposed creating a new, separate entity, called the European Network of Network Operators for Hydrogen (ENNOH).
This sounds like a technical detail. However, the decision will have far-reaching implications for Europe’s energy transition, households and industry. To ensure that Europe’s energy infrastructure is fit for a net-zero future and supports the scaling of renewable hydrogen, it is paramount to ensure more independence in the task of designing it. Ahead of the next round of talks this Friday, we explain why setting up a new, separate entity is crucial.
Already today, ENTSO-G has partially conflicting roles: it is on the one side a private entity of national gas grid operators and secondly expected to ensure overall energy system planning at EU level. Incumbent fossil gas system operators have a business interest to ‘repurpose’ as many of their existing assets as possible for the future transport of hydrogen whether needed or not.
Why is that an issue?
First, we will need much less gas infrastructure than today. Fossil gas demand is in sharp decline in Europe, according to the European Commission, it will fall by 67% between 2021-2030. This concerns in particular home heating and low-temperature applications in industry. Only about 10% of the fossil gas will be replaced by (more costly) hydrogen, in so-called no-regret applications where direct use of increasingly renewables-based electricity is not an option.
Second, Europe’s hydrogen map will look different from the current gas map. Green hydrogen needs cheap renewables and thus hydrogen will often be produced in different locations than natural gas. Hydrogen will serve a smaller range of end uses and customers, and for the immediate future, it is a scarce resource. In particular, hydrogen will only play a very limited role for home heating in sharp contrast to today’s fossil gas use – as more than 32 independent studies and a recent net-zero modelling exercise by Agora Energiewende have concluded.
Ignoring the change in volumes and location of the infrastructure with the shift away from fossil gas use to the use of renewable electricity and hydrogen would create a costly lock-in situation. At the same time, the necessary expansion needed to integrate new and competing producers of mostly green hydrogen will likely remain underdeveloped.
Today, 99% of hydrogen is produced with fossil fuels and only 1% with renewable energy. Tasking ENTSO-G with the design of Europe’s future hydrogen system would institutionalise an economic conflict of interest, as fossil gas operators would need to prioritise a down-sizing of their asset base while working on Europe’s hydrogen infrastructure that also serves new entrants. Potentially, this could result in inflated investments into hydrogen infrastructure, with households and industry paying much higher than necessary costs.
This risk was flagged also by Europe’s energy regulator ACER in its opinion on the 2022 ENTSO-G ten-year network development plan which already included hydrogen projects. ACER expressed doubts on whether the plan was sufficiently “based on actual market commitments and reasonable expectations”.
In addition, the regulator noted that whilst many network segments are put forward to be repurposed for hydrogen, planning on reducing fossil gas on those segments was missing. A pipeline can only carry one of the two gases, not both, and repurposing requires adjustments to cater for the different gas qualities as well as a solid plan to make sure all gas consumers connected can transition.
Renewable hydrogen will play an important role in decarbonising Europe’s economy and policymakers need to make sure that the energy infrastructure supports its use in the most efficient and economical way possible.
Saying “yes” to ENNOH is an important step on the way to achieving that.