D8.3 Pilots for introducing hydrogen blending quota

In this report three administrative mandatory blending schemes are discussed from the perspective how such schemes could be initiated, if the political decision to that end would be made, without distorting the market or creating other undue impacts. The presumption is that any mandatory blending scheme cannot be introduced just overnight, but rather that such introduction would need to be preceded by pilots or experiments in order to test how the scheme will work out if actually implemented in practice.

The various blending scheme pilots have been compiled on the basis of various criteria. A first criterion for specifying a pilot case was to check if existing technical installations and infrastructure would allow for a relatively swift and easy introduction of a first blending testing scheme. If a pilot would require significant additional investment, this would slow down the introduction of the pilot too much. Also local acceptance was considered as an important precondition. A second criterion for the pilot was if a scheme could be introduced that would be reliable and controllable enough for being accepted even as an experiment. This criterion not only relates to the actual physical blending but also to the reliability of the related blending certificate trading. A third criterion in specifying the pilots was that in actual practice the quota could be met by sufficient volumes of supply of clean hydrogen. If already in a pilot stage one would have problems with filling a quota, this would destroy the pilot and undermine the credibility of a further roll-out. The fourth criterion was that the pilot was compatible with the existing rules and regulations with respect to safety, grid integrity, etc. To the extent feasible it will need to be checked if special regulatory regimes for pilots and experiments could apply.

Based on the above criteria and on extensive expert review, three blending scheme pilots have been discussed in this report. First, an industrial blending scheme pilot is discussed in which some dedicated industrial sectors will introduce a combination of physical and virtual blending of clean hydrogen as energy carrier and feedstock. This pilot is proposed to be virtual and applied to some preselected industrial clusters. Second, a generic mandatory blending scheme pilot is discussed in which the energy suppliers to the grid will either physically or with the help of certificates have to demonstrate that they blend an x percent clean hydrogen to the gas entering the grid. This pilot will be restricted to some specific preselected regions. Thirdly, a pilot has been worked out in which the existing national fuel blending obligation under RED will be amended such that clean hydrogen is part of the existing quota. Again, this scheme can be filled in by the committed parties (i.e. fuel suppliers) either physically, or with the help of certificates. An advantage of this scheme is that it benefits from the already existing quota, and therefore can be introduced probably relatively quickly. This pilot was specified for a limited number of fuel stations.

The three blending pilot proposals are schematically outlined in Table 1. The table illustrates: which market parties are covered by the quota scheme, which parties face quota commitments, what the quota base is, and which energy carriers are (possibly) accepted within the quota.

It is important to note that different blending schemes as discussed in this report can exist in isolation but also in combination. All the three blending schemes discussed can go together, but obviously this would require a correct alignment in order to prevent either double counting or greenwashing, or that specific parties are overcharged.

The timing of the various pilots discussed above obviously strongly depends on the expected overall development of the hydrogen value chain. Pilots towards mandatory blending in themselves already need time. In discussions with various stakeholders it was often expressed that even to prepare for a serious pilot may easily cost a few years. Next, pilots themselves will often reveal issues in actual practice that need to be resolved and may give rise to new regulatory measures etc., processes that again can easily take a few years. In other words, the process of preparing and introducing pilots should not be taken lightly timewise. At the same time pilots may have a considerable political signalling function to the extent that authorised pilots will readily be perceived by stakeholders as a precursor of a deep and lasting policy commitment towards introducing mandatory blending schemes at a much fuller scale, and may therefore already set in motion other processes driving investment in the hydrogen value chain.

As far as the timing of the introduction of the various quota scheme pilots discussed is concerned, it looks like the pilot related to fuel blending scheme can be introduced the earliest, because it is just a component of an already existing mandatory blending scheme under RED. A next candidate could well be the introduction of a pilot in the industrial uptake of clean hydrogen. This is not only because the recent proposal (see also the main text on more details) by the European Commission to introduce such a mandatory target by 2030, but also because the proposed pilot in the Netherlands is suggested to be virtual, i.e. on paper only, because real-life testing is considered too complex. The third proposed pilot, namely a more generic introduction of a clean hydrogen quota for gas entering the public gas grid, is probably the most complex one because even in a pilot all relevant appliances need to be ready for the new gas mix, and all safety preconditions need to be fulfilled. This is why this pilot needs to be based on physical blending under real life conditions, but also why this pilot is expected to be the last of the three to be introduced. Obviously, timing of the various pilots, if accepted, is a matter of further political decision making. As was mentioned before, ultimately all discussed blending schemes can coexist.