On the 14^th September 2022 the European Parliament voted to amend the Renewable Energy Directive altering the rules for producing renewable fuels of non-biological origin (RFNBOs) including green hydrogen. Hydrogen is considered to be green if the power source used is renewable energy either through a direct link to a renewable energy asset or through a renewable power purchase agreement (PPA).

To speed up the delivery of low carbon hydrogen into the energy mix in the EU, the Additionality Principle has now been scrapped meaning that existing renewable energy assets can be used to produce green hydrogen. In addition, the requirement for localised energy generation has not been imposed and temporal correlation has been extended to a quarterly period whereas, in the UK, renewable energy supplies must be correlated every 30 minutes.

30-minute correlation in the UK means that up to 5 separate power purchase agreements (PPAs) would be needed to achieve full renewable energy correlation. This considerably increases the cost of green hydrogen produced at the point of use and assumes that surplus energy committed to under all 5 PPA’s can be sold back to the grid at cost. Given market balancing dynamics, the incremental cost of Hydrogen resulting from shorter correlation requirements grow exponentially with shorter the correlation windows. For instance, weekly correlation of energy supply compared to 30-minute windows would halve the risk attached to a green hydrogen project and quarterly correlation would remove the correlation risk completely whilst also reducing the outright levelized cost of hydrogen by a considerable amount.

The amendments introduced by the European Parliament demonstrate a clear understanding by the EU that a balance needs to be struck between green power additionality requirements and the resulting cost of green hydrogen. Investors in green hydrogen will only invest at scale if their green hydrogen has a chance to compete and economically displace other carbon heavy energies.

Motive Fuels calls on the UK government to demonstrate the same level of ambition and match the commitment of the European Union in promoting the energy transition to hydrogen fuel by lowering its effective cost, build scale and quickly displace carbon fuels in the UK economy.

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