Hydrogen gains equal footing in energy legislation

Hydrogen (from water electrolysis) has so far only played a minor role in German energy regulatory law as a type of “gas” or “biogas”. Currently, hydrogen is gaining equal footing as an energy source alongside electricity and natural gas, which have so far dominated the German Energy Industry Act (Energiewirtschaftsgesetz – EnWG). This is provided for in a draft law by the federal government dated 10 February 2021. In addition, the legislator has already laid the basis for promoting the hydrogen economy in the German Renewable Energies Act 2021 (Erneuerbare-Energien-Gesetz – EEG 2021) and German CHP Act 2020 (Kraft-Wärme-Kopplungsgesetz – KWKG 2020). These legislative changes are seen as a launching aid in a “market ramp-up phase” for the grid-bound hydrogen economy in Germany.

Overview of new regulations

The purpose of the amendment is to introduce a separate regulation of hydrogen networks and hydrogen storage systems for network operators. This amendment is less strict than the existing regulation for electricity grids and natural gas networks, but follows, at least partially, the same principles laid down by EU law, such as unbundling requirements and network access rules. A special feature is that the regulatory regime only applies if the hydrogen system operator actively opts for it. If an operator does not opt for this, only the framework of general antitrust law applies.

However, the amendment also provides for privileges for hydrogen networks under planning law. For instance, permits for natural gas pipelines can be converted and pipelines can be re-equipped. Furthermore, existing restricted personal easements, lease agreements and concession contracts for natural gas pipelines are intended to be extended to hydrogen pipelines by law.

The EEG 2021, which came into force at the start of the year, also provides for the possibility of limiting the EEG levy for the electrochemical production of (green) hydrogen to 15% or less of the general EEG levy. In addition, the law provides for an exemption from the EEG levy on electricity for the production of green hydrogen, which – in the sense of a ramp-up phase – applies only to plants with commissioning until the end of 2029. Similarly, the KWKG 2020 provides for an exemption from the KWKG levy on electricity for the production of green hydrogen.

The already existing possibility of using the privileges for biogas of the Gas Network Access Regulation (subsidising grid connection costs and priority network access) for hydrogen from green electricity remain applicable, as the definition of “biogas” in the EnWG will not be changed and will therefore continue to include hydrogen based on green electricity.

The planned hydrogen regulations in the EnWG, which are expected to enter into force in the middle of 2021, are transitional arrangements in a ramp-up phase. They are to be gradually adapted to the requirements currently being prepared at EU level (probably in 2022/2023) and to the further development of the market.

Who is affected by the provisions?

• Network operators: For network operators, the optional regulatory regime means a way to safeguard new business models (starting off in a hydrogen infrastructure). In particular for natural gas network operators, a promising new business area is opening up that could make up for a medium- and long-term decline in the natural gas sector.
  
  
• Producers of hydrogen: For producers of green hydrogen who invest in the short and medium term, the legislator offers far-reaching reductions in the EEG and KWKG levies during the planned ramp-up phase.
  
  
• Municipalities and landowners: For municipalities and private property owners, this means that existing licensing and concession contracts as well as restricted personal easements will continue to apply to hydrogen pipelines in the future, without any need to renegotiate contracts. At least for municipalities, however, this does not come without compensation, since the supply of hydrogen is to be subject to the Concession Fees Regulation.