Differences in electricity systems, state aid rules and certification in non-EU markets have created uncertainty over the way in which the EU’s recently published renewable hydrogen criteria will be applied to production projects located outside the bloc.

Multiple green hydrogen projects are under development in non-EU markets as producers look to scale up production to export to the EU, which expects to import half of its 20mn t/yr demand by 2030. The delegated acts provide more certainty for export project investors and developers but lack clarity on “equivalency” of renewable hydrogen definitions outside the EU, some industry participants say.

“The delegated act suggests fuel producers in non-EU countries can rely on equivalent concepts in their jurisdiction, provided that the objectives—additionality, temporal correlation—are maintained. But of course, ‘equivalence’ needs to be sufficiently clear to all parties,” says Daria Nochevnik, director for policy and partnerships at industry association the Hydrogen Council.

“For example, bidding zones are very unique to Europe. We have zonal pricing in the EU [and] nodal pricing in the US, and other countries have completely different power market models to these two systems.”

“The timelines of the delegated acts are actually quite reasonable” Eastman, Intercontinental Energy

“There are also questions around what qualifies as a subsidy,” Nochevnik says, noting that additionality criteria requires that the project’s renewables assets not be supported by investment or operating aid.

While the delegated act provides exemptions for some indirect subsidies, such as financial support for grid connections, or “support that does not constitute net support”—that is, support that is fully repaid—Nochevnik cautions that the variation of indirect subsidies between member states still creates discrepancies between green hydrogen production costs throughout the bloc.

And for hydrogen produced outside of the EU, in the short-to-medium term, as the market is still nascent, “it may be difficult to lift projects off the ground without any form of financial support or access to incentives,” she adds.

Hydrogen Economist has reached out to the European Commission to confirm what will be counted as investment aid.

However, the problem of how the European Commission may choose to define subsidies “has not come up for us”, says Alicia Eastman, president of developer Intercontinental Energy, which is developing four export-oriented projects outside the EU. Singaporean sovereign wealth fund GIC took an equity investment in the firm early last year.

Eastman notes that sovereign wealth funds are unlikely to fall under the Commission’s definition of aid, as “they are really a private equity vehicle—not giving out grants”.

“Investment or operating aid would really have to fall under legislation or regulation—like the Inflation Reduction Act or [the European Chips Act], something that is equivalent to RepowerEU—if you want to compare apples to apples,” she says.

Eastman notes that the firm is targeting a global market and anticipates regulations will ultimately align for fuel requirements. While a project using 25GW of upstream wind and solar—such as Intercontinental Energy’s Green Energy Oman project—could produce c.10mn t/yr of green ammonia, which could contribute towards meeting the EU’s 10mn t/yr hydrogen import target for 2030, “we would need 66 of these plants just to make enough ammonia to replace fossil fuels in shipping alone”, she says.

Certification outside EU

Certifying that hydrogen production takes place within the same calendar month—or one hour period from 2030—also presents a potential challenge.

“We still need a dialogue and clarification on how these [rules] would apply for less economically developed countries in particular, in cases where there is no reference to a similar concept. For example, there may not be the infrastructure and software in place to certify hourly matching with renewables production,” Nochevnik says.

However, while this infrastructure may not be in place in some countries with ambitions to export to Europe, “the timelines of the delegated acts are actually quite reasonable”, Eastman says.

She notes that governments seeking to export green hydrogen will have to agree on certification before additionality and temporal correlation requirements kick in from 2028 and 2030 respectively. “It should not be on each individual project, but rather a set of calculations that everyone can trust… If it takes time for the government to come up with what they will use to calculate and what they will allow; they should not penalise developers in the meantime who can provide green energy solutions.”

She notes that Intercontinental Energy has sidestepped the issue of proving matched production as all of the projects under development are off-grid. “It is harder to start from scratch, when you do not have a grid to take [backup power] from, but there are also a lot of positives as we do not have to go through agreements and approvals in the same way.”

De-risking green hydrogen

Despite potential headaches around equivalency, the fact that the delegated act has been published is still likely to prompt more concrete investment into renewable hydrogen projects.

“In our experience, reactions to the delegated acts have been positive. Putting something on paper is great for investors and it takes a lot of the risk away to know what the rules are,” Eastman says.

In Europe alone, while there are over 300 projects in development—82pc of which are focused on renewable hydrogen—“the vast majority have not reached FID” with less than 2pc of projects in the pipeline reaching this milestone due to “prolonged regulatory uncertainty”, according to Nochevnik.

“Investors need a level of visibility over the regulatory framework for renewable hydrogen—both in Europe and for exporters. The adoption of the delegated acts is an important step toward greater regulatory certainty and visibility,” she says.

---

Author: Polly Martin