aerial view of cloudscape
Photo by Pixabay on Pexels.com
Categories
Expert Opinion

EC Delegated Acts on Renewable Hydrogen and GHG Methodology

SkyNRG’s expert opinion on the EC Delegated Acts that govern the production and use of renewable hydrogen and CO2 for synthetic fuels

CONTEXT

  • The EU aviation sector will have a Sustainable Aviation Fuel (SAF) blending mandate (as part of Refuel EU Aviation) starting in 2025, with a dedicated sub-mandate for synthetic aviation fuels from 2030 onwards. Synthetic aviation fuels (also known as e-fuels or Power-to-Liquids) are fuels produced from CO2 and renewable hydrogen.
  • For renewable hydrogen: the Renewable Energy Directive (RED II) article 27(3) calls for a delegated act that would define what constitutes renewable hydrogen. This delegated act is now published.
  • For CO2: a separate delegate act under the RED II defines which types of CO2 can be used as feedstock and how to calculate the actual GHG savings of fuels produced from this feedstock.
  • With these delegated acts, the European Commission sets the scene for the market development of fuels made from CO2 and renewable hydrogen. For synthetic aviation fuel to count towards the EU SAF blending targets producers will need to comply with these criteria. The delegated acts will be adopted later this year when the EU Council votes for the proposals with a majority.
  • This one-page expert opinion highlights the main takeaways from these delegated acts and provides an overview of the implications for producers and buyers of synthetic aviation fuel, which can feed into public consultation that closes by 17th of June.

THE FACTS

Hydrogen – Delegated Act RED II Art. 27(3) on additionality

Under RED II, the following production set-ups are possible to produce renewable hydrogen:

In Case 1, the following criteria apply:

EC Delegated Acts 6

In Case 2:

In Case 3:

CO2 – Delegated Act RED II Art. 28(5) on GHG methodology for RFNBOs and RCFs

This delegated act establishes a methodology to calculate GHG emissions for:

Both RFNBOs and RCFs need to reach a GHG reduction threshold of 70% compared to their ‘fossil comparator’, in the case of aviation conventional jet fuel.

Regarding the CO2 inputs for Power-to-Liquids, the following criteria are specified:

Concerning the calculation of electricity-related emissions for RFNBO production:

IMPLICATIONS FOR PRODUCERS

Hydrogen – Delegated Act RED II Art. 27(3) on additionality

  • These criteria will stimulate the development of green hydrogen projects in ‘bidding zones’[1] that have a share of >90% renewables in the grid, as they will be allowed to run the electrolyzer for the number of hours in a year multiplied by the share of renewables in the previous year. This means close to full load operation, which benefits the green hydrogen price.
  • Project developers will want to have their electrolyzers online before 2027, as this will exempt them from additionality criteria for the project lifetime.
  • Grid-connected projects sourcing power through a PPA will have the disadvantage of having to match their power demand with supply of renewable power under a PPA on an hourly basis. This means suboptimal operation of the electrolyzer, making it more expensive compared to units that can operate full load.
  • Additional opportunities to ‘shop’ for renewable power elsewhere exist, for example in neighboring bidding zones in case the power price there is equal or higher on the day-ahead market compared to the bidding zone of the electrolyzer. The same counts for situations in the same bidding zone where the power price is equal or lower than €20/MWh or when using power that would otherwise have been curtailed, using evidence from the TSO.

CO2 – Delegated Act RED II Art. 28(5) on GHG methodology for RFNBOs and RCFs

  • The GHG calculation methodology sets a hard deadline for projects that produce fuels using CO2 from installations that fall under the EU Emissions Trading Scheme (ETS). Beyond 2036, using this CO2 will no longer count as zero emissions, unless the CO2 comes from the production/use of biofuels, biogas or biomass. Projects are allowed to continue using CO2 from direct air capture or naturally occurring CO2 sources.
  • Projects using grid electricity, but not complying with delegated act 27(3) on renewable hydrogen are allowed to show that their electricity-related emissions are zero if they can prove that for the hours they want to claim zero emissions the marginal power price was set by renewable or nuclear power plants.

IMPLICATIONS ON THE AVIATION SECTOR AND SAF TARGETS

  • These delegated acts provide the SAF sector with certainty around the rules within which project developers can operate. This allows projects to accelerate capacity developments and initiate new projects where they make most sense.
  • However, the rules outlined in the renewable hydrogen delegated act, especially on additionality and temporal correlation, will make a business case challenging for many grid-connected projects. As long as grids are not >90% renewable, which is the case for most EU countries in the upcoming decade, synthetic aviation fuel projects will have to make use of a direct connection or the grid + PPA set-up which will lead to higher fuel costs. This will make the achievement of the synthetic aviation fuel sub-mandate more costly.
  • Projects are further restricted in their choice of CO2 sources to produce fuel. Project development could well slow down if only CO2 can be used from direct air capture and the production/use of biofuels, biogas and biomass fuels, the availability of which is expected to be limited in the coming decade. This will likely lead to lower amounts of synthetic aviation being produced in the coming decade, with significant pressure expected on biogenic sources of CO2.

Note that this is SkyNRG’s interpretation of these policy developments and that more guidance is required from the Commission on various elements of this draft to eliminate uncertainties.

In case you want to reach out and discuss any of these developments, please contact Tom Berg via tom@skynrg.com.

[1] A bidding zone is the largest area in which market participants can exchange electricity without capacity allocation. In Europe, bidding zones usually are defined across country borders, except for the Nordic countries.