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    Ministry of Economic Affairs and Climate Policy starts consultation on regulation of the hydrogen market in the Netherlands

  • EN
  • On 14 February 2022 the Ministry of Economic Affairs and Climate Policy (the Ministry) started an online consultation on the regulation of the hydrogen market in the Netherlands. The Ministry calls for all parties, especially current and future parties (to be) involved in the hydrogen market, to present their views on the questions raised in the consultation document as published by the Ministry. In this news item we will start by discussing the background of the consultation, followed by a more detailed outline of some of the questions consulted by the Ministry.

    The Dutch hydrogen market is developing rapidly. However, the hydrogen market is lacking legislative instruments to regulate the market at the moment (that is, if regulation is required). The Dutch government intends to regulate the hydrogen market, where necessary, in the coming years. Regulation will be emphasizing public interests relevant to energy policy, such as sustainability, security of supply, affordability and compatibility with spatial planning. 

    In the preparation of the consultation document, the government has also taken the recent developments on European energy and climate policy into account. These developments include the legislative proposals on the recast of the EU Gas Directive and the EU Gas Regulation, which are part of the EU Hydrogen and Gas Decarbonisation Package. This forms a legislative package for clean hydrogen and clean gas. Even though negotiations on these proposals are pending, the Dutch government expects that these proposals will be leading in the formation of the final EU legislation on hydrogen and (renewable) gas. 

    The Ministry requests input from the market participants on the various parts of the hydrogen chain, such as production, storage, transportation, supply and/or usage. A more detailed outline of some of the questions presented in the consultation document is given below. 

    The first subject on which the Ministry would like to receive input is the production of hydrogen, and electrolysis in particular. The government expects that electrolysis will be the dominant technology for renewable (green) hydrogen production. 

    As presented by the former government in a letter to Parliament of 10 December 2021, the current government (the government) indicated that electrolysis is an economic activity which is, in principle, reserved for private participants. Since the implementation of EU gas unbundling regulation in Dutch energy legislation, transmission system operators (TSOs) and/or distribution system operators (DSOs) are prohibited to produce and/or supply energy and/or to be involved in activities regarding production or supply of energy, among which hydrogen should be regarded. This unbundling was implemented in The Netherlands with the Independent system operation Act ("Wet onafhankelijk netbeheer") of 2006 (Bulletin of Acts and Decrees 2006, 614). 

    The government however, cannot rule out that in future it may be advisable for (vertically integrated) network companies and/or TSOs and/or DSOs to contribute more actively regarding the development of electrolysers and, should this be the case, under which conditions these activities may be developed. 

    Development and operation of hydrogen transport systems
    In previous letters to Parliament of 30 June and 10 December 2021 from the former Minister of Economic Affairs and Climate Policy, the former government embraced and presented the ambition to develop the hydrogen transport system as one integrated system This means that hydrogen will be transported through high pressure lines. The published consultation document reflects the continuation of that ambition by the current Minister for Climate and Energy Policy (the Minister).    

    The consultation document also makes clear that Gasunie Transport Services B.V. (Gasunie) is the most suited party to develop the required infrastructure and the national hydrogen transport system itself according to the government. Gasunie is currently the designated TSO for the gas transport system in The Netherlands. Development of the hydrogen transport system should, amongst others, include the use of existing natural gas pipelines. The Dutch government has requested Gasunie to make preparations and to engage with potential users and other relevant participants. 

    The government plans to formally designate Gasunie as the TSO for the hydrogen transport system around 2025. Until 2025, the government would like to receive feedback from Gasunie under which conditions the national hydrogen transport system should be developed and how to deal with parties that request access to the system. With regard to the conditions for the development of the hydrogen transport system, the letter to Parliament of last December stated that these conditions should ensure public interest by attending to a reasonable, objective and non-discriminatory access regime as well as reasonable tariff conditions to prevent profits made from a monopoly position. Consequently, these conditions should offer a clear framework for both current and future conversations between Gasunie and potential users of the transport system and for the transport agreements following from this. 

    The Ministry also requests from market participants in what form third party access (TPA) is most suited on the short and mid-term with regard to the national hydrogen transport system to be developed by Gasunie. Suggested forms of TPA are 'regulated TPA', 'negotiated TPA', or a hybrid form of both regulated and negotiated TPA. 

    Finally, the Ministry requests for input on the development and operation of commercial and private hydrogen transport systems. In particular, the Ministry would like to know how the market participants look at possible legislative involvement with regard to the development and operation of commercial hydrogen transport systems by private market participants, in addition to the national hydrogen transport system. E.g. would a closed distribution system (CDS) or a direct line (DL) – known from the current Gas Act and the Electricity Act – also be applicable to small scale or commercial hydrogen transport systems? The consultation document states that the Netherlands has taken the position that for new commercial private transport systems stringent exceptions should apply. Whereas for existing commercial private transport systems a more flexible transitional regime could be applicable.     

    However, in the previous mentioned proposed recast of EU gas legislation exceptions on regulation are made for both existing as well as geographically defined hydrogen pipelines. Suggestions are made to Member States to decide on non-applicability of unbundling requirements for a hydrogen transport system operator which is part of a vertically integrated undertaking. 

    Furthermore, the hydrogen system operator will have to compose a plan in which all necessary expansion and replacement investments are to be incorporated and substantiated. This requirement is similar to system operators of natural gas and electricity. While for the current system operators the ACM will have to assess the investment plan in reasonableness, a lighter regime could be applicable for hydrogen system operators. This entails that consent of the regulator is not a formal requirement before starting actual investments, as laid out in article 52 of the proposal to recast the EU Gas Directive. Instead, the role of the regulator will be more contemplative. According to the European Commission, the regulator should focus more on the 'energy-economic necessity' of an envisaged investment by a hydrogen system operator in light of 'realistic and forward-looking demand projections as well as needs from the perspective of the electricity system'. 

    Underground storage of hydrogen
    In a letter to Parliament of 12 October 2021, the former government presented a study on 'Underground energy storage in the Netherlands 2030-2050'. In addition to this, the former government expected that storage of renewable and sustainable generated energy in the form of hydrogen will play an important role in security of supply when it comes to an energy system with a high percentage of wind and solar energy. If there is no immediate use for the generated renewable electricity, the hydrogen produced from this will preferably have to be stored in underground salt caverns. Initially, locations for underground storage will be more limited for hydrogen than for natural gas. This could result in less competition for hydrogen storage compared to natural gas storage.

    The Ministry would like to receive input from the market participants on what the expectations will be regarding the development of a market for underground hydrogen storage. The Ministry would also like to receive input on the degree of expected competition in this market. In addition to this, there is also the question whether it is recommended that underground hydrogen storage facilities should be open to all market participants, including network companies similar to existing natural gas storage. Lastly, when it comes to the role of the government, the question is whether an active role is recommended. 

    Hydrogen terminals
    Finally, an important subject to address in this news item is the questions being raised related to hydrogen terminals in the consultation document. Hydrogen will not only be produced, transported and distributed in the Netherlands, but will become a global market similar to the market for Liquefied Natural Gas (LNG). The Dutch government expects that Dutch terminals will play a major role with regard to import of hydrogen. This is why the Ministry requests for input on the development of such terminals and its level of competition. 

    In addition to the role of import of hydrogen, questions are asked regarding the desirability of opening up management of hydrogen terminals for all market participants, similar to current LNG terminals. In addition, the Minister would like to know how the market will look at negotiated access to hydrogen import facilities. The reason for this is that it is likely that the European Commission will opt for such a system, considering that more competition is expected regarding hydrogen import as opposed to hydrogen storage facilities and transport of hydrogen. 

    What's next?
    The consultation period will end on 18 March 2022. In a letter to Parliament dated 2 February 2022, the Minister confirmed that he will comply with  the request of the Parliamentary Committee on Economic Affairs (the committee). The request of the committee entails that the Minister should send the results of the consultation on market regulation for hydrogen as soon as possible, but at least prior to the committee debate on hydrogen which is scheduled to be held on 24 March 2022.

    Based on the answer of the Minister to comply with the committee's request, we expect that the Minister will promptly provide information on the results of the consultation on the one hand and the envisaged draft outline of the market regulation on the other hand.

    If you have any questions regarding this news item, please do not hesitate to contact our Hydrogen Team.