D4.1 Introducing hydrogen in decentral end-user areas to deal with e-grid congestion in the Netherlands

In order to move towards a renewable energy system in the Netherlands, an increasing capacity of renewables has to be connected to the electricity grid (e-grid). Reinforcement of this grid costs time also because of the immanent electrotechnical workforce scarcity in the country. Therefore, Dutch electricity DSOs already face and foresee rapidly growing (localised) challenges in providing grid connections (in time) for connecting local renewable energy capacities. In this study it was investigated whether and to what extent local or regional P2G systems may alleviate congestion in the e-grid in some critical areas by introducing green hydrogen produced via P2G – blended or otherwise – in decentral industrial clusters and/or the mobility sector in particular areas.

The focus in the study on decentralized (so-called cluster 6) industry and local mobility as potential green hydrogen consumers (rather than the five main industrial clusters in the country) was chosen because, unlike the main industrial clusters, the more local industry and mobility hydrogen uptake is typically not easily connected to the foreseen national hydrogen backbone. Therefore, the regional transmission gas line (RTL) will have to act as the main potential hydrogen grid connection for these industries. To identify the country’s most suited areas for establishing such potential local hydrogen connections (and hydrogen blending), four location criteria have been combined: the severity of supply side driven e-grid congestion; the presence of local industry with a grid connection decoupled from the built environment/public distribution system (because such a connection would complicate blending); the proximity to (future) renewable energy production sites; and the assumed little industries’ decarbonization alternatives. Based on these criteria, some dozen potential ‘hydrogen blending regions’ were identified throughout the Netherlands, each with multiple possible local blending sites.

Modelling of the supply side economics of P2G congestion solutions for these regions revealed that, although the P2G option may be promising on the longer term, currently its business case is difficult from the perspective of energy suppliers given the combination of current assumed market prices of green hydrogen and local industry demand levels. Under the present conditions on the whole for energy suppliers in the selected regions trying to deal with e-grid congestion, utility-scale batteries turned out to offer a higher utilization rate and to be more cost-effective to deal with the issue. The latter is due to batteries’ scalability and currently lower CAPEX-levels (than electrolysers) and to handsome electricity trading margins given current high electricity prices. Obviously the most economic congestion combatting option for the suppliers of energy will not always coincide with what is most economic from the perspective of the demand side, i.e. industries or mobility sector units in the area off-taking energy. The same may apply if cost conditions alter e.g., as P2G technology matures.

Another key finding from modelling the optimal options for energy suppliers to deal with congestion via hydrogen blending in the given regions under current conditions was that deliveries to the mobility sector dominated. This was because hydrogen prices in mobility are assumed to be higher than those for industry. A backdrop of delivery to mobility, however, is that both prices and demand volumes are more uncertain than deliveries to industry.

Interviews with various stakeholders revealed the following main perceived opportunities and barriers of implementing P2G investment and local blending in decentral industries.

The main barriers:

• As long as it is uncertain if local e-grid congestion is a lasting and growing or instead temporary problem in a particular region (e.g., because operators may or may not extend grid-capacities), the profitability of an electrolyser investment by a local energy provider to deal with congestion will be uncertain as well. Given that electrolyser and related equipment CAPEX levels on the whole are quite high, such uncertainty can pose a serious barrier.
• If congestion is mitigated via P2G involving a relatively small hydrogen blend of, say, 10% hydrogen admixed to natural gas (corresponding with ≈3% emission reduction), the decarbonisation impact remains quite small; at the same time the energy content of the blend gets smaller than of natural gas only (when compared at constant volumetric flowrate). Introducing hydrogen blends therefore is only considered to be worthwhile by decentral industries if it offers a serious and ultimately complete step forward towards decarbonising the use of gas.
• P2G investment to deal with congestion remains tricky as long as uncertainty remains about the degree to which energy system operators are legally allowed to facilitate ‘pure’ hydrogen connections to the gas grid to serve specific local demand and to apply blends of hydrogen in their local grid.

The main opportunities:

• Local P2G investment and subsequent hydrogen blending can be a first step towards local integration of the electricity and gas systems. This way it can help: offering a solution for local e-grid congestion problems; enhance the profitability of RES investment; and improve local security of supply conditions.
• Local P2G investment designed to deal with e-grid congestion can also: act as a stepping stone to synergistically serve an increasing number of end users besides local industry (e.g. mobility and the built environment); and may act as a dominant enabler of a decisive decarbonisation trend in the entire relevant area.

Market conditions for P2G are generally expected to improve as the technologies are scaling up such that ultimately hydrogen may develop into a dominant energy carrier; given this perspective, first- mover issues may have to be taken for granted for the technology to ultimately pay off. Not following this path carries the risk of missing out in the future.

NB: The modelling activities that took place in this study were based on the 2022 state of the art with respect to the cost of batteries and electrolyzers and with respect to the availability of SDE++ subsidies and conditions.