April 11, 2018
BRUSSELS INSIDER #1 by Sonja van Renssen
The Clean Gas Package is coming: will EU go for hydrogen?
April 11, 2018
The European Commission is making preparations for a “gas reform package” to match its Clean Energy Package for the electricity market. The goal is to secure a long-term future for gas beyond 2030. Industry advocates believe hydrogen could play a major role in decarbonising the industrial and electricity sectors. They say “the grid is too small to cope with the amount of renewable power that is needed”. The attention for hydrogen cars has been a strategic mistake.“The emphasis on transport has contaminated our case”.
“If we miss the point now to come forward with new narrative for the future role of gas, we might lose gas in the future,” warned Klaus-Dieter Borchardt, Director for the Internal Energy Market at the European Commission in an interview with the Florence School of Regulation (FSR) back in January.
Borchardt explained that the current Commission intends to prepare a legislative reform of the European gas market, to match its proposal for a reform of the European electricity market in the Clean Energy Package of 30 November 2016.
To be clear, the gas proposal would be prepared by the current Commission in 2018-19 – the first preliminary studies have already been completed – but only issued by the next Commission. Borchardt foresees its publication for the first semester of 2020. The big caveat is that it would be entirely up to the new Commission, due to take office in autumn 2019, whether it wanted to pursue these proposals and if so, in what form.
There are ominous precedents: the current Commission withdrew its predecessor’s flagship circular economy package for example, along with 73 other pending legislative proposals, in February 2015. It later reissued the circular economy plans, with a broader scope and more promises of future action but a weaker legislative core.
At this point in time, Borchardt foresees three chapters for the EU gas reform package. One part of it would mirror the current electricity market reform, especially on the institutional front. This includes a rethink on the roles of network operators and regulators (ENTSO-G and ACER, respectively), whether the EU needs a gas DSO entity at European level (such as the power market redesign will create for electricity DSOs), possible amendments to (or new) network codes and retail issues such as consumer rights.
But the two other “more important” chapters will deal with power-to-gas and the broader shift from natural gas to “renewable gases”, Borchardt says: “That is also something that in my view is necessary to give the sector a sustainable future that goes even beyond 2030.”
“We’re not going against batteries,” says Jorgo Chatzimarkakis, Secretary General of Hydrogen Europe, the Brussels-based organisation that promotes hydrogen technologies. In an interview with Energy Post, he explains that the grid is simply “too small” to cope with the amount of renewable power needed for a “deep decarbonisation”.
Borchardt appears to take a similar view: “I do not see that if you take renewables alone, that the capacity of our grid is sufficient in order to take in all the renewables necessary.” For Borchardt, power-to-gas is the key to both “green” gas and sector coupling.
Power-to-gas in Europe today is limited to pilot projects with ambitions to scale up to MWs. “[But] if you take 2030 as the horizon for electricity reform, we need gigawatts,” Borchardt concludes. Power-to-gas needs to work at industrial scale. That’s what the Commission wants to help realise.
European policymakers’ ambitions are in sync with market developments. The big gamechanger for hydrogen in the past year has been the growing interest of energy-intensive industries to use “green” hydrogen (produced by electrolysis i.e. power-to-gas) or “blue” hydrogen (produced from natural gas but with carbon capture and storage) to decarbonise.
There are several big projects underway in Europe. An initiative in Leeds to convert the local gas grids to hydrogen has expanded into an industry-led project that foresees the supply of pure (blue) hydrogen to chemical and refining customers, as well as injecting some of it into the local gas grid to help decarbonise heating.
One of the key questions today is how much hydrogen can safely be mixed into existing pipes and used by existing appliances, says Eva Hennig, Head of Department for EU policy at Thüga AG, the biggest alliance of municipal utilities in Germany, in an interview. There are tests underway across Europe.
Meanwhile, a first industrial-scale hydrogen electrolysis plant is planned for a Shell refinery near Cologne for 2020. A consortium including ITM Power plans to build the 10MW plant for €20 million. Separately, chemicals giant Akzo Nobel and Dutch gas grid operator Gasunie plan a 20MW green hydrogen plant in the northern Netherlands, as a first step towards a regional “Green Hydrogen Economy“.
The steel industry is also interested, with pilot projects getting underway to replace coke-fired blast furnaces with green (or blue) hydrogen. These kinds of projects could be future beneficiaries of an EU Emission Trading Scheme (ETS) innovation fund.
The significance of all this new-found industrial interest is that it could put electrolysers on the same path as PV panels some 10 years ago, says Chatzimarkakis. Refineries could be the “trigger” that bring about significant cost decreases.
One of the central proponents of the Dutch vision, incidentally, Professor Ad van Wijk, has reportedly visited Brussels in recent weeks to convince the European Commission’s Vice President for the Energy Union, Maroš Šefčovič, that hydrogen deserves as much political attention as batteries. Šefčovič has put a lot of political capital into batteries, most recently fronting the launch of a new EU Battery Alliance.
At a Commission-led high-level roundtable on storage and sectoral integration in Brussels on 1 March, hydrogen dominated the agenda.
Transport and power
Not everyone is convinced. A notable doubter is the automotive sector, originally seen as a likely first adopter of hydrogen. European carmakers are lukewarm in their comments on hydrogen these days. At an event organised by think tank Friends of Europe in Brussels on 27 March, a representative for Citroen talked about “more research” and said they still see it as a “longer term challenge”. This echoes comments from VW and Scania a few weeks ago.
Chatzimarkakis actually says that some EU officials claimed that the emphasis on transport “contaminated the hydrogen case” because hydrogen could never catch up with the accelerating deployment of an electric charging infrastructure. Hydrogen will play a role in decarbonising transport, he believes, especially in “hard to electrify” sectors (e.g. trucks) and areas (e.g. national parks not allowing catenary for trains).
But the big interest from policymakers right now, the Secretary General repeats, is in decarbonising industry and power-to-gas to help balance the grid and counter curtailment.
Utilities are still pursuing power-to-gas. Most of the projects are still in Germany. Yet Hennig says Thüga dismantled its pilot power-to-gas plant after three years “because there was no economic case for it”. The problem is that it’s still considered an end-consumer, which means that it pays full taxes and levies on its power consumption. She hopes the new German government will change this.
Meanwhile, Asian carmakers are more enthusiastic about hydrogen than their European counterparts. At the Friends of Europe event, a Toyota representative said hydrogen has a “massive” role to play. He explained that a pure electric vehicle (EV) has 300 parts, while a hydrogen fuel cell car has 1700 – almost the same as a conventional car. “With pure EVs, we will not be able to sustain our supply chain and employment.” Moreover, battery costs may be coming down, but no batterymaker today is making a profit, he added.
Greg Archer, Director of Clean Vehicles and Energy at NGO Transport and Environment (T&E), speaking at the same event, believes that the future of transport will be “predominantly battery, but there will be a role for hydrogen within that shift to e-mobility”. His vision is underpinned by cheap renewables and dramatic declines in the cost of batteries.
His problem with hydrogen is not only that it won’t be ready fast enough, but that it would need “renewables that are 1.5 times more than the current electrical grid in Europe”.
Call for help
The inefficiency of power-to-gas is a frequent criticism. Its proponents counter that curtailment of renewables is also “inefficient” (read: expensive). Another criticism is that the push for “green” gas is a ploy by the gas industry to secure a future for natural gas. A recent study by Ecofys for a “Gas for Climate” initiative estimated that three-quarters of all gas demand would still be met by natural gas in 2050, despite its optimistic projections for “green” gas (biomethane and power-to-gas).
Nevertheless, Michèle Azalbert, CEO of Engie’s business unit dedicated to renewable hydrogen, argued at the Friends of Europe event that now is the time to accelerate hydrogen development “because energy is available at an affordable price”. That means: help us out, policymakers.
Azalbert cited Japan as an example of a country which already has a hydrogen fleet, also thanks to local and central government support (e.g. covering up to 80% of the cost of a hydrogen-fuelled bus and 50% of that of a taxi). She urged the EU to create a “guarantees of origin” scheme for renewable hydrogen, like that which already exists for green electricity.
The most relevant regulatory milestones coming up for hydrogen development in Europe are, first, a new EU renewable energy directive for 2030, which could recognise “green” gas. Chatzimarkakis also wants this directive to incentivise refineries to use green hydrogen – and not only biofuels – to meet their emission reduction targets. And he wants the EU to authorise use of the grid to transport power for green hydrogen production (so far this is only foreseen if power-to-gas results in additional renewables capacity and there is a direct link between that and the power-to-gas facility).
In the realm of transport, hydrogen stakeholders see positive signals in a new Clean Vehicle Directive that foresees quotas for the public procurement of zero-emission vehicles, plus CO2 standards for cars, vans, trucks and buses (the latter two to come on 2 May). The biggie will be the gas market reform however, which if Borchardt has his way, could bring “green” gas and power-to-gas more specifically, into the energy mainstream.
BRUSSELS INSIDER #2 by Sonja van Renssen
Mediterranean TSOs take a real step towards market integration
April 11, 2018
Mediterranean TSOs are finally taking concrete steps tocreate a regionally integrated electricity market. They are proposing 14 interconnector projects connecting some countries that have never been linked before. There is still a long way to go to make a Mediterranean energy union a reality, but lessons have been learned from failures of the past, writes Sonja van Renssen.
In the past three years, Mediterranean TSOs have moved from “endless reflections and debates” to “concrete deliverables” on interconnections, grid balancing and integrating renewables. So reads the preface by Moncef Harrabi, President of the Association of Mediterranean Transmission System Operators (Med-TSO), to the final report of the so-called Mediterranean Project. This report was presented at a conference in Brusselson 10 April to mark the end of the three-year Project.
Med-TSO was established back in April 2012 in Rome, as a technical platform to facilitate the integration of the Mediterranean power systems – and foster security and socio-economic development in the region. It brings together the TSOs of 18 Mediterranean countries and feeds the more political Union for the Mediterranean (UfM) and its regional Electricity Market Platform.
In 2015, Med-TSO received a European Commission grant of €2.4 million to cover three-quarters of the cost of a new project, the “Mediterranean Project”. Three years later, the results are apparently substantial enough that the Commission is set to extend its financing by another €1.1 million for two more years at the end of April.
A Master Plan
It is no secret that despite a wealth of potential sun and wind power – and energy efficiency – the Middle East and North Africa are still strugglingto put in place a systemic energy transition. From the EU’s perspective, energy is a development priority. To back this up, a new external investment plan intends to provide an EU guarantee to clean energy investors in third countries. In the longer term, the EU sees opportunities to diversify energy sources and routes. The lesson from Desertec ten years ago is that any opportunities must develop bottom-up.
The European Parliament has taken up the cause too, with 17 MEPs signing up to a manifesto to promote cooperation in the “Euromed” region in May 2017.
The Mediterranean Project’s first achievement has been to demonstrate that TSOs in “one of the most complicated regions in the world” can work together. Remember Medgrid? That project, dating back to the Desertec era, aimed to establish a high-voltage network around the Mediterranean – until it was derailed by geopolitical developments such as the war in Syria.
True, the Mediterranean Project is founded on technical issues, but it has delivered a Master Plan that is “the first example of a coordinated development plan of electricity infrastructures in the region”. The fact that it has been developed by the companies in charge of managing these infrastructures – the TSOs – makes it realistic.
The TSOs have agreed a roadmap to implement a common framework of technical rules and procedures to manage and operate the grid (effectively a regional grid code). They have explored the potential for international electricity exchanges, created a database for the Mediterranean power system, and devoted time and money to knowledge sharing. They have assessed the costs and benefits of new interconnections in terms of security of supply and renewables integration.
Very concretely, the Mediterranean Master Plan prioritises14 interconnector projects, nine of them based on high-voltage direct current (HVDC) technology, grounded in several different energy scenarios out to 2030. Five of the interconnectors link countries that have never been linked before. One of them ends the electricity isolation of Cyprus. In figures, it’s almost 18GW of new interconnection capacity requiring about €16 billion of additional investments (but with limited reinforcement needs). Med-TSO applied a cost-benefit methodology derived from that developed at European level by ENTSO-E, the association of European TSOs, to the projects.
All 14 projects show benefits “in terms of both economics and adequacy”. The projects are grouped into three corridors (Western – projects 1-3; Central – projects 4-8; and Eastern – projects 9-14), which is itself an “important outcome” of the Master Plan, the final report notes.
Med-TSO has also developed the basis for a Mediterranean Grid Code. A “systematic investigation on the state of regulation in the TSOs” identified 66 specific topics and 24 areas to prioritise for harmonisation (out of an initial 135 and 34 that could be harmonised). They fall into four categories: legal and regulatory, grid connections for users, operations, and markets. A roadmap splits the priorities down further into short, medium and long-term. Most of the harmonisation potential is in operations.
An assessment of the potential for regional cross-border exchanges revealed substantial differences between the northern and southern shores of the Mediterranean. In the South, interconnections are still primarily used to improve security of supply, although there is “room for market”. In the North, European countries are “advancing towards a real internal energy market”.
Other differences include that in the South, most TSOs do not apply capacity allocation considerations and most of the electrical data is not published. In contrast, technical operations are fairly well aligned (e.g. application of the N-1 criterion for security of supply). From the perspective of integrating renewables, sharing system services is possible, although bilateral agreements prevail over market rules.
A new database for the Mediterranean power system (DBMED) is now available. This is a web-based tool that stores, country by country, historical data on adequacy and related parameters such as generation and demand, plus full information on grid system components. The database has been designed to provide network data, market data, and historical and statistical data for adequacy studies.
Finally, knowledge sharing has been a central focus of the Project, with three workshops already held and more planned for the next phase. These will in part address HVDC technology, which is expected to be the most used for crossing the Mediterranean.
With the new two-year grant from the Commission, Med-TSO aims to continue what it started, with regular updates and improvements to the Mediterranean Master Plan, and more harmonisation of technical rules and regulations. It may implement a “zonal approach” that promotes faster harmonisation where possible. The association also plans to beef up its ability to provide adequacy reports and market studies. It wants to start cooperation in operations, by setting up a common web-based platform for TSOs to gather information about cross-border interconnections. It also plans to draft regular reports on market operation in normal and critical conditions. Finally, it plans to launch an “intensive” exchange of know-how between Med-TSO members and with stakeholders in the region.
The challenges for cross-border cooperation at a system level are not insubstantial, yet they are critical as a foundation for market integration. So much for electricity. What about gas? Electricity and gas are increasingly talked about as partners in the energy transition. There is a UfM Gas Platform. And there is an awful lot of excitement around gas discoveries in Israel, Cyprus, Egypt etc. With a gas bonanza on the cards, a Med-TSO for gas, anyone?