Green hydrogen fully exempt from Renewable Energies Act levy

Since 1 January 2021, the German Renewable Energies Act 2021 (Erneuerbare-Energien-Gesetz) has introduced a full exemption from the levy under the Renewable Energies Act for the production of green hydrogen (section 69b Renewable Energies Act 2021). However, the Renewable Energies Act 2021 does not define the term “green hydrogen” – it must be specified by regulation (as we reported).

On 24 June 2021, the German Bundestag agreed to amend the Renewable Energies Regulation (Erneuerbare-Energien-Verordnung) to define the term “green hydrogen” at regulatory level.

When is hydrogen “green” and thus exempt from the levy?

Electricity for the production of green hydrogen exempted from the levy must comply with the following cumulative requirements under the Renewable Energies Regulation:

• Electricity qualifies if it is used to produce green hydrogen electrochemically within the first 5,000 full-load hours of a calendar year in a green hydrogen production facility. This limit on full-load hours is intended firstly to ensure that green hydrogen is produced appropriately for the system with the electrolyser primarily when electricity prices are low due to high feed-in of renewable energy. Secondly, the set value of 5,000 full-load hours takes into account the specific needs of the market development of green hydrogen in the early years (as we reported in the context of the market ramp-up of green hydrogen)
  
  
• With regard to the electricity used for the production of green hydrogen, it should be noted that:
  
  
  • This electricity has been shown to originate from installations producing electricity from renewable energy sources within the meaning of section 3(21) Renewable Energies Act 2021;
    
    
  • At least 80% of this electricity has been shown to originate from installations located in the Germany price zone and registered in the market master data register, and where it can be demonstrated that a maximum of 20% comes from installations located in a price zone that is electronically linked to the Germany price zone; and
    
    
  • No subsidies are received for this electricity under the Renewable Energies Act 2021 or any of its predecessor acts, under the Renewable Energies Regulation or under the German Combined Heat and Power Act (Kraft-Wärme-Kopplungsgesetz) or any other support under the Renewable Energy Directive (Directive (EU) 2018/2001).

This means that the electricity used from renewable energy sources is subject to a ban on the dual marketing of electricity. For the purposes of proving that electricity is from renewable energy sources, the Renewable Energies Regulation also provides further details which allow for such recognition.

Reporting obligations

Operators of hydrogen production facilities, as well as electricity supply companies supplying electricity to end users for the production of green hydrogen, are required to comply with detailed reporting obligations.

The following points are added to the notification obligations already in place under the Renewable Energies Act 2021 to the grid operator entitled to collect the levy:

• Maximum electricity consumption of the hydrogen production facility during one hour of operation;
  
  
• The amount of electricity consumed by the hydrogen production facility in the calendar year in question;
  
  
• No limitation of the levy for electricity for the calendar year according to section 64a Renewable Energies Act 2021; and
  
  
• Compliance with the requirements for green hydrogen under the Renewable Energies Regulation (see above).

In addition, under the new rules, those points must be evidenced by the presentation of an audit report by an auditor, an auditing firm, a cooperative audit association, a certified accountant or a bookkeeping company.

What happens if there is a breach of the notification obligation?

The reduced levy for electricity used for the production of green hydrogen according to section 69b Renewable Energies Act 2021 is increased to 100% if the operator of the hydrogen production facility as the end consumer or the electricity supplier has failed to fulfil its notification obligation for the calendar year in question. However, that increase applies only if the notification obligation has not been complied with and therefore only to the non-notified quantities of electricity. Moreover, it is irrelevant whether the notification was complied with by the operator of the hydrogen production facility or by the electricity supplier. This allows notification and/or payment on behalf of third parties.

When will the green hydrogen rules start to apply?

To enable market players and the transmission grid operators responsible for regulating the rules to adapt to the new provisions on the statutory exemption from payment of the levy according to section 69b Renewable Energies Act 2021, these rules must only be applied to electricity consumed in a hydrogen production facility from 1 January 2022 onwards. Moreover, with the rules entering into force on 1 January 2022, the legislator avoids any complications with regard to the calculation of the levy on a calendar year basis.

Reservation of approval under State aid law

The rules on the production of green hydrogen are subject to State aid approval. Only once the European Commission has approved this new aid can these provisions of the Renewable Energies Regulation apply – and only in accordance with that approval. Although the European Commission has already approved the Renewable Energies Act 2021 under State aid law, in the absence of the provisions which were not yet available at the time, the Regulation now adopted could not yet extend that authorisation to the full exemption from the levy for green hydrogen. The European Commission will now examine these schemes in a separate procedure and is expected to grant approval under State aid rules. However, this has not yet been done.

Outlook for EU’s green hydrogen requirements

Note, however, that already in July and no later than by the end of this year an amendment to the Renewable Energy Directive (Directive (EU) 2018/2001) as well as further legislative proposals by the European Commission to develop the hydrogen economy are expected. In light of this, the Renewable Energies Regulation already states that the European Union (EU) will further specify the requirements for green hydrogen for one or more use pathways, in particular in the framework of the European Commission Delegated Act under the Renewable Energy Directive (Directive (EU) 2018/2001) for credits to the renewable energy target in the transport sector or in the forthcoming revision of the European Commission’s Environmental and Energy Aid Guidelines. For this reason, the German federal government already plans to immediately revise the requirements for green hydrogen within the scope of the statutory exemption from payment of the levy under section 69b Renewable Energies Act 2021 in accordance with provisions of the EU and adapt it to EU requirements. However, the Bundestag called on the federal government to ensure, in negotiations at EU level establishing criteria for green hydrogen, that these rules are compatible with the requirements of the Renewable Energy Regulation for the market cycle phase and that a phase-in for renewable supply plants and the operation of electrolysers should be created. In particular, it should be possible for electrolysers with at least 5,000 full-load hours to be subsidised and exempted from levies, and for the proportional use of electricity from renewable installations from neighbouring foreign countries to be allowed up to 20%. This is in line with the rules on the production of green hydrogen adopted by the amendment of the Renewable Energies Regulation. Overall, however, the option of adjustment within the Renewable Energy Regulation limits the protection of legitimate expectations provided by the arrangement.

 

Does your company intend to benefit from the full exemption from the levy? Is your company planning to produce green hydrogen? Do you have any questions about this?

We would be happy to discuss with you, on a non-binding basis, the opportunity of producing green hydrogen for your company and help you to do so.