Way forward for the nascent hydrogen sector?

As the EU finalises its hydrogen policy, a key aspect under discussion is the ownership of hydrogen infrastructure. Initiated in December 2021, the EU’s Hydrogen and Decarbonised Gas Market Package aims to facilitate the transition to green hydrogen and renewable gases. Negotiations are nearing a conclusion with the current focus on the regulation of Europe’s future hydrogen infrastructure.

Unbundling: what does it mean and why does it matter?

Unbundling refers to separating infrastructure ownership from energy production, ensuring a company doesn’t control both production and delivery. Thus, vertical Unbundling prevents hydrogen producers from direct involvement in gas transport.

In addition, horizontal Unbundling ensures gas grid operators don’t control the hydrogen grid, preventing conflicts of interest and inefficient infrastructure use.

Unbundling ensures no unfair advantages for certain energy sector actors. However, in the context of the nascent hydrogen sector, it raises new questions. One such question is how the costs of hydrogen infrastructure – mostly borne by existing gas TSOs – should be recovered. The answer is far from straightforward. One would allow cost recovery of gas TSO thus enabling cross-subsidisation. Or the few “first movers” of the hydrogen network users would face the burden of disproportionate tariffs.

Negotiating Stances: Parliament vs EU Member States

Critics argue that failing to separate production and transmission could hinder competition and lead to inefficient infrastructure management. Some existing systems with numerous small operators illustrate potential inefficiencies and regulatory challenges. The European Parliament in turn favours allowing gas companies to convert existing infrastructure to hydrogen, promoting a flexible approach. In contrast, many European countries uphold the Commission’s stricter unbundling rules, with differences leading to the current negotiation impasse.

Possible Outcomes: what’s on the table?

• Option 1: Scrap horizontal unbundling, allowing direct hydrogen infrastructure control by gas and electricity operators.
• Option 2: Limit unbundling to cross-regional infrastructure, with a possible five-year delay.
• Option 3: Maintain unbundling but exempt smaller companies through a “de minimis” rule.

The final text of the Package is expected beginning of 2024.

Want to learn more? You can find an overview of the key challenges to implementing the EU Hydrogen and Decarbonized Gas Package in our brief.